Unnotified change in machine parameter can justify revised production capacity assessment and penalty under the capacity-based excise scheme.

Under the capacity-based excise scheme, an unexplained and unnotified change in a machine parameter used to fix annual production capacity justified adoption of the Department's revised capacity. The record showed that the parameter observed during a surprise check differed from the earlier declared parameter, and the plea of only a temporary change was unsupported by documentary evidence or corroboration. Earlier and later declarations also indicated use of the higher parameter before the alleged breakdown. On those facts, the demand based on the Commissioner's capacity fixation, together with equal penalty, was sustained and the challenge failed.

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Issues: Whether the differential duty and equal penalty were sustainable on the basis that the assessee had altered the machinery parameter relevant for determination of annual production capacity without intimation to the Department.

Analysis: The assessee was governed by the capacity-based scheme under Section 3A and Rule 96ZP(3). The record showed that the parameter found during the surprise check differed from the parameter declared earlier and used for fixation of annual capacity. The plea that the change was only temporary was unsupported by documentary evidence or corroboration. The earlier and later declarations also indicated that the assessees had used the higher parameter before the alleged breakdown, and no satisfactory explanation was offered for the change without intimation. In these circumstances, the capacity as fixed by the Commissioner on the basis of the available material was held to be sustainable.

Conclusion: The challenge to the demand and penalty failed and was rejected.

Ratio Decidendi: Where annual production capacity is fixed on the basis of the assessee's own declarations, an unnotified and unexplained change in a material machine parameter, unsupported by corroborative evidence, justifies assessment on the basis of the capacity as determined by the Department.

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