Compound Levy Scheme capacity and duty issues turned on binding rules, furnace classification evidence, and proper annual capacity determination.

Under the Compound Levy Scheme, recovery of duty was treated as not requiring a show cause notice under Section 11A, in line with binding Larger Bench authority. The furnace classification issue was resolved on the evidence: the departmental report was not conclusive, while the Chartered Engineer's certificate, trade notice and the low-speed nature of the mills supported a Batch Type furnace, which was accepted in favour of the assessee. For annual capacity determination, Rule 5 of the Hot-re-rolling Steel Mills Annual Capacity Determination Rules, 1997 could not be applied in the manner adopted below; capacity had to follow the applicable rule-based method and circular, making the determination unsustainable.

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Issues: (i) Whether recovery of duty under the Compound Levy Scheme required issuance of a show cause notice under Section 11A; (ii) Whether the furnace installed in the rolling mills was Batch Type or Pusher Type; (iii) Whether Rule 5 of the Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 could be invoked for determining annual capacity.

Issue (i): Whether recovery of duty under the Compound Levy Scheme required issuance of a show cause notice under Section 11A.

Analysis: The issue was treated as covered by the Larger Bench ruling that no notice under Section 11A is required for recovery of duty under the Compound Levy Scheme. In the absence of any stay of that ruling, it was applied as binding authority.

Conclusion: The issue was decided against the assessee.

Issue (ii): Whether the furnace installed in the rolling mills was Batch Type or Pusher Type.

Analysis: The finding of Pusher Type was founded mainly on the Superintendent's report, but the report did not conclusively establish that the furnace in question had a moving material mechanism or that the charging arrangement was inside the furnace. The record also showed that the mills were low-speed mills, for which a Batch Type furnace was the appropriate configuration. The Chartered Engineer's certificate and the trade notice supported the assessee's stand, and the departmental report was not accepted as conclusive proof.

Conclusion: The furnace was held to be Batch Type, in favour of the assessee.

Issue (iii): Whether Rule 5 of the Hot-re-rolling Steel Mills Annual Capacity Determination Rules, 1997 could be invoked for determining annual capacity.

Analysis: The unit had one heating furnace with two rolling mills, and the scheme and the Board's circular required the capacity of the higher of the two mills to be adopted. The authority below wrongly applied Rule 5 by taking both mills' production into account, instead of applying the correct rule-based method consistent with the circular and Tribunal precedent.

Conclusion: Rule 5 could not be invoked in the manner adopted by the authority below, and the capacity determination was unsustainable.

Final Conclusion: The impugned order was set aside and the appeals succeeded with consequential relief.

Ratio Decidendi: Under the Compound Levy Scheme, capacity and duty consequences must be determined in accordance with the applicable annual-capacity rules and binding circulars, and a departmental report not conclusively supported by the record cannot override other reliable evidence on the furnace type.

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