Annual capacity-based excise duty can be redetermined on proof of lower actual production, even under Rule 96ZO(1).

Under the Central Excise duty scheme for annual capacity-based assessment, an assessee may seek redetermination of duty liability on proof that actual production is lower than the capacity fixed under Section 3A(2). If such evidence is produced, the Commissioner must redetermine duty with reference to actual production under Section 3A(4) and adjust excess duty under Section 3A(5). Payment of duty under Rule 96ZO(1) does not by itself exclude this statutory relief; the limitation recognised in the authorities relied on by Revenue was confined to Rule 96ZO(3).

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Issues: Whether, after fixation of annual capacity of production, the assessee who had opted for payment of duty under Rule 96ZO(1) could seek redetermination of duty liability on the basis of actual production under Section 3A(4) and Section 3A(5) of the Central Excise Act, 1944.

Analysis: The scheme under Section 3A contemplates determination of annual capacity of production under sub-section (2) as the starting point, and thereafter permits an assessee to establish that actual production is lower than the capacity so determined. If such claim is made and supported by evidence, the Commissioner is required to redetermine duty with reference to actual production under sub-section (4), and adjust any duty already paid under sub-section (5). The fact that the assessee had opted for payment under Rule 96ZO(1) did not exclude the operation of Section 3A(4) and Section 3A(5). The authorities relied on by the Revenue were distinguished because the restriction recognised there arose in the context of Rule 96ZO(3), not Rule 96ZO(1).

Conclusion: The assessee was entitled to have duty liability reconsidered on the basis of actual production under Section 3A(4) and Section 3A(5); the impugned order was set aside and the matter remanded to the Commissioner for fresh determination.

Ratio Decidendi: Where the statutory scheme requires fixation of annual capacity of production, an assessee may seek redetermination of duty on proof that actual production is lower, and such entitlement is not excluded merely because duty was being paid under Rule 96ZO(1).

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