Compounded levy limited to notified goods; separate furnace use, fresh August 1997 quantification, and penalty relief followed.

A compounded levy scheme limited to notified goods could not be extended to a furnace used exclusively for non-notified goods, where the record showed separate use, intimations, returns and departmental awareness; duty under Rule 96ZO(3) was therefore confined to the furnace manufacturing notified goods. For August 1997, the duty demand had to be reconsidered and freshly quantified in light of the Board's circular governing clearances during that month. Personal penalty was unsustainable because the dispute arose during transition to the compounded levy regime and the assessee acted on its understanding of the legal position.

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Issues: (i) whether the compounded levy under Rule 96ZO(3) applied to both furnaces or only to the furnace manufacturing notified goods; (ii) whether the demand for August 1997 required fresh quantification in the light of the Board's circular; (iii) whether personal penalty was sustainable.

Issue (i): whether the compounded levy under Rule 96ZO(3) applied to both furnaces or only to the furnace manufacturing notified goods.

Analysis: The scheme was held to apply only to notified goods. The factual record showed that one furnace was used exclusively for notified goods and the other for non-notified goods, with separate intimations to the Department, separate returns, clearances under regular invoices, and departmental awareness of the bifurcated use. On that basis, the liability under the compounded levy could not be fastened on the furnace used for non-notified goods.

Conclusion: The Rule applied only to the furnace manufacturing notified goods and not to the furnace manufacturing non-notified goods.

Issue (ii): whether the demand for August 1997 required fresh quantification in the light of the Board's circular.

Analysis: The demand for August 1997 was made without considering the Board's circular of 30-8-1997 governing clearances during that month. The proper duty position for that period required reconsideration and quantification in accordance with the circular.

Conclusion: The demand for August 1997 required fresh adjudication and quantification.

Issue (iii): whether personal penalty was sustainable.

Analysis: The dispute arose during the transition to the compounded levy regime, and the assessee had discharged duty according to its understanding of the applicable legal position. In these circumstances, the imposition of personal penalty was not justified.

Conclusion: Personal penalty was not sustainable.

Final Conclusion: The impugned order was interfered with to the extent that duty under the compounded levy could not be demanded for the non-notified goods furnace, the August 1997 demand was sent back for fresh quantification, and the penalty was set aside, resulting in a partial remand and partial relief to the assessee.

Ratio Decidendi: A compounded levy scheme limited to notified goods cannot be extended to a furnace exclusively used for non-notified goods, and duty demands for a transitional period must be computed in accordance with the governing circular and the actual factual use of the plant.

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