Incidental production under Rule 96ZO(3) depends on the relevant period's output, not earlier years, for capacity-based excise assessment.

For determining whether non-alloy steel ingots were only incidentally produced under Rule 96ZO(3), the relevant production pattern must be examined by reference to the period in dispute, not by drawing on preceding years. Where the figures for that period show only small, occasional production and no production in some months, the goods may be treated as incidental rather than ordinarily produced. On that basis, the assessee falls within the explanation to Rule 96ZO(3) and the capacity-based assessment machinery under Section 3A of the Central Excise Act, 1944 is not attracted. The text also notes that this approach is confined to the relevant period for assessing annual production capacity.

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Issues: (i) Whether, for determining whether non-alloy steel ingots were only incidentally produced, the production pattern had to be confined to the relevant period or could be drawn from preceding years; (ii) whether non-alloy steel ingots produced during the relevant period were only incidental so as to exclude the assessee from the operation of Rule 96ZO(3) and assessment under Section 3A of the Central Excise Act, 1944.

Issue (i): Whether, for determining whether non-alloy steel ingots were only incidentally produced, the production pattern had to be confined to the relevant period or could be drawn from preceding years?

Analysis: The decisive question was the nature of production during the period for which annual production capacity was to be determined. The Tribunal held that the expression "incidental" had to be understood in relation to the normal and ordinary production of the unit during the relevant period. Since the dispute related to September 1997 to March 1998, the production figures for that period were the proper basis. The earlier years were not necessary for deciding whether the ingots were ordinarily or incidentally produced.

Conclusion: The production enquiry had to be confined to the relevant period and not extended to the preceding years.

Issue (ii): Whether non-alloy steel ingots produced during the relevant period were only incidental so as to exclude the assessee from the operation of Rule 96ZO(3) and assessment under Section 3A of the Central Excise Act, 1944?

Analysis: On the figures for September 1997 to March 1998, non-alloy steel ingots formed only a small part of total production, and there was no production at all in February and March 1998. The Tribunal treated this level of production as occasional and secondary in character, and therefore not goods ordinarily produced. On that footing, the assessee fell within the explanation to Rule 96ZO(3), and the machinery of Section 3A was not attracted for determination of annual production capacity on the basis adopted by the Commissioner.

Conclusion: The non-alloy steel ingots were incidentally produced and Rule 96ZO(3) did not apply to the assessee for the relevant period.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief in accordance with law.

Ratio Decidendi: For determining whether goods are incidentally produced under Rule 96ZO(3), the relevant period of production must be examined, and a small or occasional production of non-alloy steel ingots during that period excludes the assessee from the application of the rule and the corresponding capacity-based assessment under Section 3A.

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