Compounded levy duty and penalty under Rule 96ZP(3): Cenvat credit payment was invalid, but penalty was reduced on the facts.

Duty under the compounded levy scheme was required to be paid in cash or through PLA, not by debiting Cenvat credit, although the adjustment on the facts caused no revenue loss because the exercise was revenue neutral. Failure to pay monthly compounded levy duty by the prescribed date attracted penalty under Rule 96ZP(3), since the duty default was undisputed, but the facts did not justify levy equal to the entire duty outstanding. The penalty was therefore moderated to Rs. 2 lakhs.

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Issues: (i) Whether duty payable under the compounded levy scheme could be discharged through the Cenvat credit account and whether the manner of payment rendered the exercise revenue neutral. (ii) Whether penalty under Rule 96ZP(3) was exigible for failure to pay the monthly duty by the prescribed date, and if so, to what extent.

Issue (i): Whether duty payable under the compounded levy scheme could be discharged through the Cenvat credit account and whether the manner of payment rendered the exercise revenue neutral.

Analysis: Duty under Section 3A of the Central Excise Act, 1944 was required to be paid in cash or through PLA and not by debiting Cenvat credit. However, the Revenue did not rebut the position that sufficient balance was available in PLA for payment of the amount due. On the facts, the adjustment through credit and PLA did not cause any revenue loss and the transaction was revenue neutral.

Conclusion: The assessee was not entitled to discharge compounded levy duty through Cenvat credit, but the adjustment did not result in any revenue loss.

Issue (ii): Whether penalty under Rule 96ZP(3) was exigible for failure to pay the monthly duty by the prescribed date, and if so, to what extent.

Analysis: Rule 96ZP(3) provided that failure to pay the whole of the duty payable for a month by the 10th of that month attracted a penalty equal to the duty outstanding or Rs. 5,000, whichever was greater. The assessee had not paid the duty within time and the duty demand was not disputed. Penalty was therefore attracted, though the facts did not justify imposition of penalty equal to the entire duty amount.

Conclusion: Penalty was upheld, but it was reduced to Rs. 2 lakhs instead of the amount equivalent to duty.

Final Conclusion: The appeal succeeded only to the extent of reduction of penalty, while the finding of liability to penalty was maintained.

Ratio Decidendi: Under Rule 96ZP(3) of the Central Excise Rules, 1944, failure to pay monthly compounded levy duty by the prescribed date attracts penalty, but the quantum may be moderated on the facts; payment through Cenvat credit does not validate discharge of such duty, though a revenue-neutral adjustment may be relevant to the equities of the case.

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