Rule 5 applies to redetermination of annual capacity after machinery changes are intimated, with consequential duty and penalty proceedings.

On intimation of a change in installed machinery or other relevant parameters, Rule 5 of the Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 applies to redetermination of annual production capacity, and it cannot be excluded merely because the change is reported under Rule 4(2). The rule scheme treats the revised capacity calculation as part of the prescribed capacity-determination process, and the resulting duty liability follows from that redetermination. Once duty liability arises, the competent authority may proceed with the statutory process for duty, interest and penalty, subject to compliance with the prescribed procedure.

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Issues: (i) Whether, on intimation of a change in the installed machinery or other relevant parameters, Rule 5 of the Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 applies to the redetermination of annual capacity of production. (ii) Whether, after redetermination of annual capacity and consequent duty liability, the adjudicating authority can proceed to impose penalty under the relevant excise rules.

Issue (i): Whether, on intimation of a change in the installed machinery or other relevant parameters, Rule 5 of the Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 applies to the redetermination of 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 determined under the prescribed rules. Rule 3(3) provides the formula for determining capacity, while Rule 4(2) contemplates intimation of changes in installed machinery affecting the relevant parameters. In such a situation, the rule scheme does not exclude Rule 5; instead, once capacity is determined or redetermined under Rule 3(3), Rule 5 operates where the determined capacity is below the actual production for the relevant base year. The later Supreme Court decision settled that Rule 5 cannot be ignored merely because the change is intimated under Rule 4(2).

Conclusion: Rule 5 applies, and the issue is answered in favour of the Revenue and against the assessee.

Issue (ii): Whether, after redetermination of annual capacity and consequent duty liability, the adjudicating authority can proceed to impose penalty under the relevant excise rules.

Analysis: Once the annual capacity is redetermined in accordance with the rules and duty liability is found to arise, the competent authority is entitled to proceed further in accordance with the statutory procedure for duty, interest, and penalty. The Court treated the penalty question as consequential to the Revenue's success on the capacity-determination issue and held that the authority may continue with the prescribed adjudicatory process, subject to observance of the procedure contemplated by law.

Conclusion: The penalty question is answered in favour of the Revenue and against the assessee.

Final Conclusion: The common legal position was clarified in favour of applying Rule 5 where the factory's machinery change is intimated under Rule 4(2), and the resulting duty and consequential proceedings were left open to be completed by the competent authority in accordance with law.

Ratio Decidendi: Where the annual capacity of production is determined or redetermined under the prescribed formula after an intimation of change in installed machinery, Rule 5 of the 1997 Rules is attracted and must be given full effect in the capacity-determination process.

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