Annual capacity reassessment cannot rely on 1996-97 production where machinery changes reduce capacity under the formula.

Rule 5 of the Hot Re-Rolling Steel Mills Annual Capacity Determination Rules, 1997 does not apply where a change in machinery or parameters leads to a reduced annual capacity under the prescribed formula. In such cases, the revised capacity must be determined under the applicable re-computation rule, and the deeming fiction based on actual production of 1996-97 cannot be used to substitute that revised assessment. The Tribunal followed the Larger Bench view that the 1996-97 production benchmark cannot override a formula-based reassessment when capacity is reduced after the change.

---

---

Issues: Whether Rule 5 of the Hot Re-Rolling Steel Mills Annual Capacity Determination Rules, 1997 applied where a change in parameters or machinery resulted in reduction of the annual capacity of production, and whether the actual production of 1996-97 could be adopted in such cases.

Analysis: The appeals arose from determination of duty payable on compounded basis under Section 3A of the Central Excise Act, 1944, in respect of hot re-rolling mills. The annual capacity was initially fixed and thereafter reworked on account of changes in parameters. The Tribunal followed the Larger Bench ratio that Rule 5, which deems annual capacity to be equal to the actual production of 1996-97, does not govern a case where change in machinery or parameters results in reduction of annual capacity computed under the prescribed formula. In such a situation, the proper course is to apply the rule applicable to revised capacity, and the deeming fiction in Rule 5 cannot be used to restore 1996-97 production as the benchmark.

Conclusion: Rule 5 was held inapplicable to cases of reduction in annual capacity after change in machinery or parameters, and actual production of 1996-97 could not be adopted for such determination.

Ratio Decidendi: A deeming provision fixing capacity by reference to actual production of 1996-97 cannot override the formula-based reassessment of annual capacity where the revised computation, after change in machinery or parameters, results in a reduction of capacity.

---