Annual capacity determination under excise rules remains governed by Rule 5 despite approved machinery changes reducing capacity.

Section 3A of the Central Excise Act, 1944 and the 1997 Hot Re-rolling Steels Mills Rules require annual capacity of production to be determined under the prescribed formula in Rule 3(3). Rule 4(2) permits intimation of changes in installed machinery, but a resulting reduction in capacity does not exclude the case from Rule 5. Where capacity is determined or redetermined under the Rules, Rule 5 continues to apply with full force and deems the determined capacity to be the actual production for the relevant year. The statutory scheme therefore governs reassessment on the basis of the revised capacity, even after approved machinery changes.

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Issues: Whether Rule 5 of the Hot Re-rolling Steels Mills Annual Capacity Determination Rules, 1997 applies where the installed machinery is changed after approval under Rule 4(2), resulting in a reduced annual capacity of production.

Analysis: Section 3A of the Central Excise Act, 1944 authorises levy of duty on the basis of annual capacity of production, and the 1997 Rules prescribe the mechanism for determining that capacity. The capacity is to be worked out under the formula in Rule 3(3), while Rule 4(2) permits a manufacturer to intimate changes in installed machinery. The controlling legal position is that, once annual capacity is determined or redetermined under the prescribed formula, Rule 5 cannot be ignored merely because the change in machinery results in a lower capacity. The statutory scheme does not create an exception excluding such cases from Rule 5.

Conclusion: Rule 5 applies even where machinery changes approved under Rule 4(2) lead to reduction in capacity, and the annual capacity so determined is deemed to be the actual production for the relevant year.

Final Conclusion: The Revenue's challenge succeeded, and the assessment was governed by Rule 5 notwithstanding the reduction in capacity after alteration of machinery.

Ratio Decidendi: Where annual capacity of production is determined or redetermined under the prescribed formula in the 1997 Rules, Rule 5 operates with full force and deems the determined capacity to be actual production, even if the redetermination follows an approved change in installed machinery.

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