Compounded levy interest and penalty invalidated; duty demand remained intact under the governing Supreme Court principle.

Interest and penalty imposed under the compounded levy scheme were held unsustainable where the duty demand itself was not disputed and was maintained. The challenge was confined to the levy of interest and penalty, and the CESTAT applied the Supreme Court ruling in Shree Bhagwati Steel Rolling Mills, which had invalidated such interest and penalty under the relevant compounded levy provisions. On that basis, the impugned interest demand and penalty were set aside, while the underlying duty liability remained undisturbed.

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Issues: Whether the demand of interest and penalty imposed under the compounded levy scheme was sustainable, while leaving the duty demand undisturbed.

Analysis: The appellants confined the challenge to the levy of interest and the penalty, without disputing the duty demand. The decision of the Supreme Court in Shree Bhagwati Steel Rolling Mills held the levy of interest and penalty under the relevant compounded levy provisions to be invalid. Applying that principle, the impugned levy of interest and the penalty could not be sustained.

Conclusion: The demand of interest and the penalty were set aside, while the duty demand was maintained.

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