Rule 5 capacity determination rejects notional pro rata production and limits duty to the determined mill capacity.

Rule 5 of the Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 applies only where the capacity fixed under the formula is lower than the mill's actual 1996-97 production, in which case the actual production figure substitutes the determined capacity. Where a change in pinion distance in April 1997 altered production capacity, the 1996-97 figures were not comparable for later years, and the rule did not permit a pro rata or notional reconstruction of production to support a higher duty demand. The text states that the capacity remained 3613 MT, duty had already been paid on that basis, and the demand based on 1996-97 actual production was unsustainable.

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Issues: Whether Rule 5 of the Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 could be applied to deem the annual capacity of the mill equal to the actual production of 1996-97, and whether duty could be reassessed on a pro rata basis ignoring the change in machinery affecting production capacity.

Analysis: Rule 5 operates only where the annual capacity determined under the formula is less than the actual production of the mill during 1996-97, and the provision contemplates substitution of the actual production figure for the determined capacity. The change in pinion distance made in April 1997 altered the production capacity and rendered the 1996-97 figures non-comparable for subsequent years. The provision did not permit a pro rata reconstruction of actual production to justify a higher duty demand, since the rule speaks of actual production and not a notional or proportionate figure. The capacity worked out under the Rules remained 3613 MT, and duty had already been paid on that basis.

Conclusion: Rule 5 was held inapplicable, the demand based on 1996-97 actual production was set aside, and the duty liability remained confined to the capacity determined under the Rules.

Final Conclusion: The demand was unsustainable and the assessee was held entitled to relief.

Ratio Decidendi: Where machinery changes affect production capacity, earlier actual production cannot be treated as a comparable substitute for subsequent annual capacity under Rule 5, and a pro rata notional production basis is impermissible unless the rule expressly authorises it.

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