Pro-rata abatement under compounded levy scheme accepted where furnaces were non-operational; interest and penalties could not survive.

Under the compounded levy scheme, duty liability was to be worked out on a pro-rata basis where furnace capacity changed or the furnaces remained non-operational, following the earlier interpretation of Rule 96ZO(3) in the assessee's own case. That approach was applied to the later period because the factual and legal position was unchanged, so the assessee's claim for pro-rata abatement was accepted. Interest and penalty demands could not survive because the provisions governing those levies had already been declared ultra vires by the Supreme Court, and the ancillary levies were therefore set aside.

---

---

Issues: (i) Whether the assessee was entitled to abatement on a pro-rata basis during the period when the furnaces were not functioning under the compounded levy regime; (ii) whether the demand of interest and penalties could survive.

Issue (i): Whether the assessee was entitled to abatement on a pro-rata basis during the period when the furnaces were not functioning under the compounded levy regime.

Analysis: The dispute arose under the compounded levy scheme based on annual capacity of production. The earlier decision in the assessee's own case had interpreted Rule 96ZO(3) of the Central Excise Rules, 1944 to indicate that where furnace capacity changes, the duty is to be worked out on a pro-rata basis. The same reasoning was applied to the later period as the factual and legal setting remained the same.

Conclusion: The claim for pro-rata abatement was allowed in favour of the assessee.

Issue (ii): Whether the demand of interest and penalties could survive.

Analysis: The demand of interest and penalties was tested against the legal position that the relevant provisions governing such levy had been declared ultra vires by the Supreme Court. In view of that binding position, the ancillary levies could not be sustained.

Conclusion: The demand of interest and the penalties were set aside.

Final Conclusion: The department's appeal failed, the assessee's claim for pro-rata abatement was accepted, and the matter was remanded for the limited purpose of giving effect to that conclusion.

Ratio Decidendi: Under the compounded levy scheme, where furnace capacity changes or furnaces remain non-operational, duty liability is to be worked out on a pro-rata basis, and ancillary interest or penalty cannot be sustained where the enabling provisions are invalid.

---