2010 (5) TMI 322 - HC - Central Excise

Compounded levy scheme - Production capacity based duty Held that Factory started production from middle of the month, therefore, it was wholly unjust for the department to recover the duty for the whole month.

Summary

Issues:
1. Interpretation of Section 3-A of the Central Excise Act and Rule 96ZP(2) of the Central Excise Rules regarding excise duty payment.
2. Applicability of duty payment when the factory starts production in the middle of the month.

Analysis:

Issue 1: Interpretation of Section 3-A and Rule 96ZP(2)
The case involved a question of law referred by the Customs, Excise and Gold (Control) Appellate Tribunal regarding the interpretation of Section 3-A of the Central Excise Act read with Rule 96ZP(2) of the Central Excise Rules. The specific question was whether excise duty is payable for the entire month when the assessee starts production for the first time during the middle of the month. The petitioner had opted for the Compounded Levy Scheme, and the factory started production on 17-11-1997. The contention was that duty should only be payable for the period the factory was operational, not for the entire month.

Issue 2: Duty Payment upon Commencement of Production
The High Court considered the facts of the case and concluded that it would be unjust for the department to recover duty for the whole month when the factory had not commenced production for the entire month. The court held that since the factory started production on 17-11-1997, it was not liable to pay duty for the period when it was not operational. The court emphasized that duty payment is linked to production activity, and in this case, the duty should only be levied for the days the factory was actually in production, not for the entire month.

In conclusion, the High Court ruled in favor of the assessee, stating that the duty payment should be proportional to the period of production activity. The court accepted the reference and held that the duty was not payable for the entire month of November 1997, as the factory had only started production on 17-11-1997. This judgment clarifies the application of excise duty payment rules in cases where production commences in the middle of the month, ensuring fairness and adherence to legal provisions.