Annual capacity under hot re-rolling steel rules must follow Rule 3 formula after machinery change, not prior production figures.

Under the Hot Re-Rolling Steel Mills Annual Capacity Determination Rules, annual capacity is to be fixed by the Rule 3 formula, while Rule 5 is only a deeming provision for cases where computed capacity falls below actual production in 1996-97. Where a change in machinery reduces the relevant capacity parameter, the reduced capacity must be worked out under Rule 3(3). Rule 5 cannot be used to substitute earlier actual production figures in a way that overrides the formula, as that would be inconsistent with the basis of the compounded levy scheme. The annual capacity for 1998-99 therefore had to be determined under Rule 3(3) alone.

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Issues: Whether, on a change in machinery resulting in reduction of annual production capacity, Rule 5 of the Hot Re-Rolling Steel Mills Annual Capacity Determination Rules, 1997 could be applied to fix the annual capacity on the basis of actual production of the earlier year, or whether the capacity had to be determined only under Rule 3(3) without invoking Rule 5.

Analysis: The rules provided for determination of annual capacity by the formula in Rule 3, while Rule 4 dealt with pro rata calculation for part-year capacity or changes in capacity, and Rule 5 created a deeming fiction where the computed capacity was lower than actual production in 1996-97. The change in the petitioner's machinery reduced the relevant parameter and, on the formula under Rule 3(3), the annual capacity stood reduced. The Court accepted the interpretation that the deeming fiction in Rule 5 was not meant to override the formula where a machinery change caused reduction in capacity, since applying the earlier actual production figure in such a case would be inconsistent with the basis of compounded levy.

Conclusion: Rule 5 could not be applied to the petitioner's case, and the annual capacity for 1998-99 had to be determined under Rule 3(3) without reference to the actual production of 1996-97.

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