2025 (7) TMI 1777 - AT - Central Excise

CESTAT sets aside excise duty demands based on annual capacity fixation under protest; interest and penalties quashed per SC ruling

M/s. Vikromatic Steels Pvt. Ltd. Versus Commissioner, CGST & CX, Ranchi Commissionerate.

The CESTAT Kolkata allowed the appeal, setting aside the confirmed demands based on annual capacity fixation for excise duty, as the appellant ... Fixation of Annual Production Capacity, ignoring the actual production figures - Re-rolling Mill - aplicability of Rule 3(4) of the Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 - recovery alongwith interest and penalty. HELD THAT:- It is seen that right from the beginning when the annual capacity was fixed provisionally in September 1997, the appellant has been filing letters to the effect that they are not agreeing with the same. They have submitted letter to the effect that the Duty is being paid ‘Under Protest’. As a matter of fact, based on the conditional stay granted by the Hon’ble Supreme Court, they also have approached the Patna High Court and have got such an order. Therefore, there are no material evidence from the entire case history that the appellant has initially opted for / agreed to the Annual Capacity based Excise Duty payment as is being claimed by the Revenue. On the contrary, the documentary evidence placed by the appellant, clarifies the stand taken by them right from the beginning. Therefore, the Revenue’s contention that the appellant had initially agreed to / opted for Annual Capacity based Excise Duty payment and subsequently sought change in the procedure, not agreed upon. Therefore, the demands confirmed solely on the basis that the Revenue has not made the payments as per the Annual Capacity fixed by the Revenue is legally not sustainable. The confirmed demands set aside on this ground. Demand of interest and penalty - HELD THAT:- This issue was dealt by the Hon’ble Supreme Court in Union of India Vs. Supreme Steel and General Mills [2001 (10) TMI 90 - SUPREME COURT], wherein it is held that 'interest and penalty provisions under the Rules 96ZO, ZP, and ZQ of the Central Excise Rules, 1994 are invalid' - Applying this case law as also observing that the demands themselves are held as not sustainable, the interest and penalty are also set aside. The impugned order is set aside - Appeal allowed. ISSUES: Whether an assessee can switch between excise duty payment based on annual capacity determination and actual production within the same financial year under Section 3A of the Central Excise Act, 1944 and Rules 96ZO and 96ZP of the Central Excise Rules.Whether the fixation of annual capacity of production by the Commissioner without considering actual production amounts to valid determination of duty liability under Section 3A.Whether the demand of excise duty, interest, and penalty based on annual capacity determination is sustainable when the assessee has consistently opted to pay duty on actual production basis.Whether Rules 96ZO, 96ZP, and 96ZQ of the Central Excise Rules are valid and whether interest and penalty can be imposed under these Rules. RULINGS / HOLDINGS: The Court held that Section 3A(4) of the Act and Rules 96ZO and 96ZP provide two alternative procedures for duty payment, and the assessee must opt for one; 'once having done so he cannot claim the benefit of the other' within the same financial year.The fixation of annual capacity of production by the Commissioner without the assessee's consent or acceptance, when the assessee has consistently paid duty on actual production basis and protested the capacity determination, is not a valid basis for demand of duty.The demands confirmed solely on the basis of non-payment according to the annual capacity fixed by the Revenue are 'legally not sustainable' where the assessee exercised the option for actual production based payment throughout.The imposition of interest and penalty under Rules 96ZO, 96ZP, and 96ZQ is 'illegal, invalid and unsustainable' as these Rules are 'ultra vires the Central Excise Act' and violate Articles 14 and 19(1)(g) of the Constitution; no interest or penalty can be charged under these provisions. RATIONALE: The Court applied the statutory framework of Section 3A of the Central Excise Act, 1944, and Rules 96ZO and 96ZP of the Central Excise Rules, relying on binding precedent from the Hon'ble Supreme Court in Commissioner of Central Excise & Customs v. Venus Castings (P) Ltd. and Union of India v. Supreme Steel and General Mills.The Court emphasized the principle that the two procedures under Section 3A and the Rules are mutually exclusive and that the assessee's consistent option for actual production based assessment precludes demand based on annual capacity.The Court noted the absence of any material evidence supporting the Revenue's contention that the assessee initially opted for annual capacity based duty payment and later switched to actual production basis, rejecting the Commissioner's contrary finding as unsupported by record.The Court followed the Supreme Court's ruling in Shree Bhagwati Steel Rolling Mills, which declared that Rules 96ZO, 96ZP, and 96ZQ are ultra vires the Act and unconstitutional for imposing interest and penalty, thereby invalidating such demands.No dissenting or concurring opinions were noted in the judgment.