Furnace capacity-based excise duty under rule 96ZO(3) cannot be recalculated using annual production formulas.

For a manufacturer paying duty under rule 96ZO(3), liability had to be computed by reference to total furnace capacity under that scheme, not by importing the annual production-capacity formula from the Induction Furnace Annual Capacity Determination Rules, 1997. The sub-rule (3) mechanism was a distinct lump-sum levy with only limited pro rata adjustment tied to furnace capacity, so once the installed capacity was found to be 3 metric tonnes, the fixed monthly duty prescribed by the rule applied. The Tribunal erred in directing recalculation on the annual-capacity basis. The Commissioner's capacity determination was restored, together with the resulting refund entitlement and interest claim.

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Issues: Whether, for a manufacturer who had opted to pay duty under rule 96ZO(3) of the Central Excise Rules, 1944, the duty liability could be recomputed by applying the formula for annual capacity under the Induction Furnace Annual Capacity Determination Rules, 1997, instead of being determined on the basis of total furnace capacity.

Analysis: The dispute turned on the distinction between the two modes of levy under rule 96ZO. Sub-rule (1) contemplated payment with reference to annual capacity of production as determined under the Induction Furnace Annual Capacity Determination Rules, 1997, whereas sub-rule (3) provided a separate scheme of lump sum payment linked to total furnace capacity, with pro rata adjustment only if the furnace capacity was more or less than 3 metric tonnes. The manufacturer had opted for the scheme under sub-rule (3), and therefore the relevant exercise was to determine the total furnace capacity of the furnaces installed in the factory. Once that capacity was found to be 3 metric tonnes, the duty payable was the fixed monthly amount prescribed by the rule, and there was no basis to import the formula applicable to annual production capacity under the determination rules. The Tribunal's direction to apply that formula proceeded on a misconception of the statutory scheme.

Conclusion: The Tribunal was wrong in requiring application of the annual-capacity formula to a case governed by rule 96ZO(3); the Commissioner's determination of furnace capacity stood restored, along with the consequential refund entitlement and claim for interest under section 11BB of the Central Excise Act, 1944.

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