Annual capacity under compounded levy must exclude non-operational furnaces and later redetermined on actual working capacity.

Annual capacity under the compounded levy scheme must be computed only by counting furnaces that were actually functional and operating during the relevant period. A furnace that remained closed, or was later dismantled, cannot be treated as part of operative capacity merely because it had been installed or was theoretically capable of production. The capacity determination was therefore set aside for including non-operational furnaces, and the matter was remanded for redetermination after excluding periods of non-operation and after hearing the assessee. Demand and penalty based on the impugned computation could not be sustained as framed.

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Issues: Whether, for determining the annual capacity of production under the compounded levy scheme, furnaces that were not operational during the relevant period, including a furnace later dismantled, could be taken into account.

Analysis: The determination of annual capacity under the relevant rules depended on the furnace being functional and working during the period in question. A furnace that remained closed for the relevant period could not be treated as part of the operative capacity merely because it had been installed or was theoretically capable of production. Where a furnace was dismantled, it could not continue to enter the computation of capacity. The authority below erred in taking both furnaces into account without excluding the periods of non-operation.

Conclusion: The annual capacity determined by including the non-operational furnaces was set aside, and the capacity is to be redetermined after excluding the relevant periods of non-operation. The issue is decided in favour of the assessee.

Final Conclusion: The demand and penalty based on the impugned capacity determination could not be sustained as framed, and fresh determination was directed after hearing the assessee.

Ratio Decidendi: For capacity-based levy under the induction furnace scheme, only furnaces that are actually functional and operating during the relevant period can be counted in the annual capacity computation.

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