2008 (8) TMI 285 - HC - Central Excise

Court upholds excise duty determination based on annual capacity, rejects impact of machinery repair.

The High Court upheld the Tribunal's decision to determine excise duty based on an annual capacity of 15,796.150 metric tonnes for an assessee under the ... Re-determining the annual capacity of production - manufacture of re-rolling products - at the time of visit of the Preventive Staff, in fact a part of the machinery was under repair - If on a particular date a part of the machinery was not in working condition and was under repair, for which sufficient material was placed on record by the assessee, we do not find that there was any justification for re-determining the annual capacity production merely on the basis thereof when there was no other material available with the department to corroborate the same - determining the capacity on the basis of the material collected at the time of visit by the Preventive Staff, is correct Issues Involved:1. Determination of annual capacity of production under the Compounded Levy Scheme.2. Validity of the Commissioner's order determining the annual capacity of production.3. Tribunal's order remanding the case for re-determination of annual capacity.4. Re-determination of annual capacity based on the visit by Preventive Staff.5. Tribunal's acceptance of assessee's contention regarding machinery under repair.6. Determination of excise duty based on annual capacity.Detailed Analysis:1. Determination of Annual Capacity of Production under the Compounded Levy Scheme:The assessee, engaged in manufacturing iron and steel products, was subject to the Compounded Levy Scheme introduced by the Central Government in 1997. This scheme, under Section 3A of the Central Excise Act, 1944, allowed excise duty to be levied based on the capacity of production rather than actual production. The Capacity Determination Rules provided a formula for calculating the annual capacity, considering parameters like 'd', 'n', 'i', 'e', 'w', and the speed of rolling.2. Validity of the Commissioner's Order Determining the Annual Capacity of Production:The Commissioner initially determined the annual capacity of the assessee's unit at 7,786.153 metric tonnes based on the declared parameters but adjusted it to 15,796.150 metric tonnes, reflecting the actual production in the previous financial year (1996-97). The assessee challenged this determination, claiming insufficient opportunity for hearing and lack of evidence for the actual production figures.3. Tribunal's Order Remanding the Case for Re-determination of Annual Capacity:The Tribunal accepted the assessee's contention and remanded the case to the Commissioner for re-determination of the annual capacity, citing procedural lapses and the need for a speaking order.4. Re-determination of Annual Capacity Based on the Visit by Preventive Staff:During the pendency of the appeal, a visit by the Preventive Staff revealed discrepancies between the declared machinery and the actual setup, leading to a show-cause notice for re-determination. The Commissioner re-determined the capacity at 22,033.499 metric tonnes, considering the actual machinery found during the visit.5. Tribunal's Acceptance of Assessee's Contention Regarding Machinery Under Repair:The Tribunal, in its order dated 6-9-2002, accepted the assessee's explanation that the machinery was under repair during the Preventive Staff's visit and held that temporary non-utilization of machinery should not affect the annual capacity determination. The Tribunal restored the original determination by the Commissioner, rejecting the higher capacity determined based on the Preventive Staff's findings.6. Determination of Excise Duty Based on Annual Capacity:The Tribunal's order led to a dispute over the applicable annual capacity for duty calculation. The Tribunal clarified that the original determination (15,796.150 metric tonnes) should be considered, rejecting the higher re-determined capacity. The High Court upheld the Tribunal's view, emphasizing that temporary machinery repairs should not alter the capacity determination. However, the Court clarified that under sub-rule (5) of the Capacity Determination Rules, the annual capacity could be set at 15,796.150 metric tonnes based on the actual production in 1996-97.Conclusion:The High Court disposed of the writ petition, directing the respondents to recover excise duty based on an annual capacity of 15,796.150 metric tonnes. The Revenue's petition for referring a question of law was dismissed as the issue was already addressed in detail.