Annual capacity re-determination under Rule 5 fails where parameter changes reduce production capacity.

Rule 5 of the Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 was held inapplicable where admitted changes in parameters reduced the annual capacity of production. Following the Larger Bench view, the Tribunal noted that Rule 5 governs situations where there is no change in annual capacity or where capacity increases due to changes in machinery, not cases of reduction. The Commissioner's re-determination of annual capacity under Rule 5 therefore could not be sustained, and the duty demand raised under Rule 96ZB of the Central Excise Rules, 1944 fell with it.

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Issues: Whether Rule 5 of the Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 applied where changes in parameters resulted in reduction of the annual capacity of production and the consequent duty demand under Rule 96ZB of the Central Excise Rules, 1944 was sustainable.

Analysis: The appeal turned on whether re-determination of annual capacity of production could be made under Rule 5 when the admitted change in parameters led to a reduction in capacity. The Tribunal followed the Larger Bench view that Rule 5 applies where there is no change in annual capacity of production or where capacity increases due to change in machinery, and not where the change results in reduction of the annual capacity. On that basis, the re-determination made by the Commissioner could not be sustained.

Conclusion: Rule 5 was inapplicable on the facts, and the impugned order was liable to be set aside in favour of the assessee.

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