Pro rata duty refund under compounded levy applies when a packing machine remains out of operation, even without total factory closure.

Under the compounded levy regime for pan masala packing machines, duty is required to be adjusted pro rata when a machine remains uninstalled or out of operation during the relevant month. Section 3A of the Central Excise Act, 1944 and Rule 9 of the 2008 Rules contemplate recalculation of duty and refund of excess payment where operating capacity changes, and relief is not confined to cases of total factory closure. Denial of abatement solely because the entire factory was not closed was therefore unsustainable, and the assessee was held entitled to refund of excess duty with consequential reliefs, including interest.

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Issues: Whether, under the compounded levy scheme for pan masala packing machines, the manufacturer was entitled to abatement or refund when one packing machine remained uninstalled and out of operation for more than 15 consecutive days during the month, even though the entire factory was not closed.

Analysis: Section 3A of the Central Excise Act, 1944 and the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 provide for levy of duty on a proportionate basis having regard to the number of operating machines and changes in production capacity. Rule 9 specifically contemplates recalculation of duty pro rata where a machine is not in operation due to discontinuation or commencement during the month, and provides for refund of excess duty where duty has been overpaid. The statutory scheme is therefore not confined to total closure of the factory; it also covers situations where a particular machine is not operating for the requisite period.

Conclusion: The assessee was entitled to rebate or refund of the excess duty paid for the period during which the packing machine remained uninstalled and out of operation, and the denial of relief on the ground that the entire factory was not closed was unsustainable.

Final Conclusion: The appeal succeeded, the adverse orders were set aside, and the assessee was held entitled to refund with consequential reliefs, including interest from the date found payable.

Ratio Decidendi: Under the compounded levy regime, duty adjustment and refund must be granted on a pro rata basis where the statute expressly provides for non-operation or alteration of operating packing machines during the month, and total closure of the factory is not a prerequisite for abatement.

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