Compounded levy duty follows fixed capacity absent redetermination, while interest and penalty under Rule 96ZP fail.

In a compounded levy regime for a re-rolling mill, duty remains payable on the annual capacity fixed by the competent authority unless the assessee seeks and obtains redetermination on the basis of actual production under Section 3A(4) of the Central Excise Act, 1944. Where no such redetermination is shown, the assessed capacity continues to govern duty liability and differential duty on that basis is sustained. Interest and penalty imposed under Rule 96ZP of the Central Excise Rules, 1944 do not survive where those provisions are treated as invalid under the governing Supreme Court ruling, so the ancillary levy is set aside.

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Issues: (i) Whether the differential central excise duty demand based on the annual capacity of production fixed for the re-rolling mill was sustainable, and whether the assessee could claim duty assessment on actual production without a redetermination under Section 3A(4) of the Central Excise Act, 1944. (ii) Whether the interest and penalty imposed under Rule 96ZP of the Central Excise Rules, 1944 were sustainable.

Issue (i): Whether the differential central excise duty demand based on the annual capacity of production fixed for the re-rolling mill was sustainable, and whether the assessee could claim duty assessment on actual production without a redetermination under Section 3A(4) of the Central Excise Act, 1944.

Analysis: The assessee did not exercise the option under Rule 96ZP(3) at the inception of the compounded levy scheme and therefore fell under Rule 96ZP(1) for the relevant earlier period. The annual capacity of production was fixed at 1106.82 MT under the Annual Capacity Determination Rules, 1997, and no evidence was produced before the Commissioner seeking redetermination of actual production under Section 3A(4) of the Central Excise Act, 1944. In the absence of such redetermination, the capacity fixed by the Commissioner remained operative, and duty was payable on that basis rather than on the assessee's claimed actual production.

Conclusion: The differential duty demand was sustained against the assessee.

Issue (ii): Whether the interest and penalty imposed under Rule 96ZP of the Central Excise Rules, 1944 were sustainable.

Analysis: The provisions relating to interest and penalty under Rule 96ZP stood covered by the Supreme Court's ruling that such interest and penalty provisions under the relevant compounded levy rules are invalid. Applying that position, the interest and penalty imposed in the impugned order could not survive.

Conclusion: The interest and penalty were not sustainable and were set aside in favour of the assessee.

Final Conclusion: The duty demand was upheld, but the ancillary levy of interest and penalty was annulled, resulting in partial relief to the assessee.

Ratio Decidendi: In a compounded levy regime, duty remains payable on the capacity determined by the competent authority unless the assessee seeks and obtains redetermination on the basis of actual production, while interest and penalty under the invalidated compounded levy provisions cannot be sustained.

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