Compounded levy excise duty cannot be charged for pre-production days when factory operations begin mid-month.

Excise duty under the compounded levy scheme was not recoverable for a period when the factory was not operational. Where production under Section 3-A of the Central Excise Act, 1944 read with Rule 96ZP(2) commenced only on 17-11-1997, duty liability was confined to the period of actual production and working, and could not be extended to the days before commencement within that month. Recovery for the full month was therefore unwarranted for the non-production period, and the issue was decided in favour of the assessee.

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Issues: Whether excise duty under Section 3-A of the Central Excise Act, 1944 read with Rule 96ZP(2) of the Central Excise Rules, 1944 was payable for the whole month where the assessee commenced production only in the middle of that month.

Analysis: The factory began production on 17-11-1997 and had no production before that date. The levy under the compounded levy scheme could not be extended to a period when the factory was not in production, as duty liability was linked to the period of actual working and production. Recovery for the full month was therefore unwarranted for the non-production period.

Conclusion: The question was answered in favour of the assessee and against the revenue; duty was not payable for the period before commencement of production.

Ratio Decidendi: Where production under the compounded levy scheme commences in the middle of a month, excise duty cannot be demanded for the period prior to commencement of production when the factory was not operational.

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