Compounded levy cannot create excise liability without manufacture; duty demand and penalty fail when the factory remains closed.

Excise duty cannot be sustained under a compounded levy arrangement where no manufacture or production took place during the relevant period. The Tribunal applied its earlier decision on identical facts and held that closure of the factory for reasons beyond the assessee's control meant the charging provision could not operate merely because the special procedure was not followed. It also found that the denial of the procedural benefit lacked a proper factual basis. Once the duty demand failed, the consequential penalty also could not survive. The impugned orders were therefore set aside and the assessee succeeded on the duty and penalty issues.

---

---

Issues: Whether the differential central excise duty demand and consequential penalty could be sustained where the factory remained closed and no production took place during the relevant period under the compounded levy scheme.

Analysis: The Tribunal followed its earlier decision on identical facts and applied the principle that manufacture is a condition precedent for levy of excise duty. Where the assessee had no production because the unit was closed due to circumstances beyond its control, the demand raised on the footing of failure to follow the special procedure could not stand. The Tribunal also noted that the authority had not given a proper finding for denying the benefit of the special procedure, and that the factual basis for the penalty was equally unsustainable once the duty demand itself failed.

Conclusion: The duty demand and penalty were not sustainable and the appeals were allowed.

Final Conclusion: The impugned orders were set aside, and the assessee succeeded on the merits of the duty demand and the connected penalty issue.

Ratio Decidendi: Excise duty cannot be demanded under a compounded levy arrangement in the absence of manufacture or production during the relevant period, and a notification-based special procedure cannot override the substantive charging provision.

---