Compounded levy election stays binding for the full financial year unless withdrawn before the next year begins

Under the compounded levy regime in Rule 96ZO(3) of the Central Excise Rules, an assessee's election for a financial year remained binding for that year unless validly withdrawn before the next financial year began. The scheme was optional, but the assessee did not file any written withdrawal before the start of the succeeding year and instead paid compounded duty for April 1998, indicating continued acceptance of the option. On that basis, a later attempt to shift to duty on actual production could not override the operative election for the year.

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Issues: Whether an assessee who opted for compounded levy under Rule 96ZO(3) of the Central Excise Rules, 1944 for one financial year could, without a fresh withdrawal before the start of the next year, shift to duty on actual production basis during the subsequent financial year.

Analysis: Section 3A of the Central Excise Act, 1944 and Rule 96ZO(3) introduced an alternative composition-based method of levy for notified goods. The scheme was optional, but once an assessee had elected to avail it for a financial year, the election could not be withdrawn midway. The assessee made no written withdrawal before the commencement of the next financial year and, instead, paid compounded duty for April 1998, which showed continued acceptance of the scheme. A later request to move to actual production basis could not displace the already operative election for that financial year.

Conclusion: The assessee could not withdraw from the compounded levy scheme during the financial year, and the question was answered in the affirmative in favour of the revenue and against the assessee.

Ratio Decidendi: Under the compounded levy regime, an assessee's option once exercised for a financial year continues to bind it for that year unless validly withdrawn before the next financial year begins.

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