Idle furnace capacity cannot be counted in excise production capacity when actual use is not proved by reliable evidence.

Idle or stand-by induction furnace capacity cannot be included in annual production capacity for central excise purposes where the furnace is not shown to have functioned. The department's case that a second furnace was simultaneously used to manufacture M.S. ingots failed because the evidence, including a retracted manager's statement, was weak and unsupported by independent material. Applying the Central Government circular and the principle followed in Aditya Steel Industries, the non-working furnace's capacity was excluded from the capacity computation, and the demand based on that inclusion was set aside.

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Issues: (i) Whether the second furnace was actually used for manufacture of M.S. ingots; and (ii) whether the idle capacity of a non-working furnace could be included while determining the annual capacity of production for central excise duty purposes.

Issue (i): Whether the second furnace was actually used for manufacture of M.S. ingots.

Analysis: The evidence relied upon by the department on the alleged simultaneous functioning of two furnaces was found weak and unconvincing. The retracted statement of the manager was not supported by independent material, and the findings recorded in the impugned order, including the absence of convincing evidence of excess production, remained unchallenged.

Conclusion: The second furnace was not proved to have been used for manufacturing M.S. ingots.

Issue (ii): Whether the idle capacity of a non-working furnace could be included while determining the annual capacity of production for central excise duty purposes.

Analysis: The Central Government circular clarified that induction furnace capacity is relatable to crucible(s) excluding idle or stand-by capacity. Since the second furnace was found not to be in working condition, its idle capacity could not be added for fixing annual capacity. The decision in Aditya Steel Industries was followed, and the contrary reliance on Jindal Steel & Power was treated as not persuasive in the circumstances.

Conclusion: The idle capacity of the non-working furnace could not be included in the annual capacity of production.

Final Conclusion: The demand founded on inclusion of the second furnace in the production capacity assessment was set aside, and the appeal succeeded.

Ratio Decidendi: For determining annual capacity under the relevant central excise scheme, idle or stand-by furnace capacity cannot be counted where the furnace is not shown to have been functionally used and the department fails to establish actual use by reliable evidence.

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