Duty on actual production prevails over prior capacity fixation when the statute permits it and no evasion is shown.

Where the statutory scheme permits duty on actual production, an assessee is not permanently bound by an earlier annual capacity fixation for subsequent periods, and a mere failure to intimate the Department cannot sustain a demand based on the prior year's capacity. The notices were issued before the duty due date and were therefore premature. In the absence of evidence of clandestine removal or intent to evade duty, penalty was unwarranted. The impugned duty demand and penalty were set aside, with consequential relief granted.

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Issues: (i) Whether duty for the subsequent year could be demanded on the basis of the earlier year's annual capacity of production when duty had been paid on actual clearances; and whether the assessee could switch to payment on actual production. (ii) Whether the show cause notices were premature and whether penalty was warranted.

Issue (i): Whether duty for the subsequent year could be demanded on the basis of the earlier year's annual capacity of production when duty had been paid on actual clearances; and whether the assessee could switch to payment on actual production.

Analysis: Section 3A of the Central Excise Act and the Induction Furnace Annual Capacity Determination Rules, 1997 contemplate annual determination of capacity, but the scheme also permits payment of duty on actual production where it is lower than the determined capacity. The earlier fixation of annual capacity did not bind the assessee for all future periods, and the assessee could opt for actual production for the subsequent period. A procedural lapse in not intimating the Department could not justify demanding duty on the basis of the previous year's capacity when duty had in fact been paid on actual clearances.

Conclusion: The demand based on the earlier year's annual capacity of production was not sustainable, and the assessee was entitled to pay duty on actual production for the subsequent period.

Issue (ii): Whether the show cause notices were premature and whether penalty was warranted.

Analysis: The notices were issued before the duty due date and were therefore premature. Since there was no evidence of removal of goods without payment of duty or intention to evade duty, penalty was not justified.

Conclusion: The show cause notices were premature and the penalty could not be sustained.

Final Conclusion: The appeal succeeded, with the impugned duty demand and penalty set aside and consequential relief granted.

Ratio Decidendi: Where a statutory scheme permits duty on actual production, an assessee is not permanently bound by an earlier annual capacity fixation, and a mere procedural lapse cannot sustain a demand or penalty in the absence of evasion.

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