Annual capacity determination must account for closure periods pro rata; prior year actual production cannot replace the relevant statutory basis.

In annual capacity determination under the compounded levy scheme, closure periods must be excluded on a pro rata basis under Rule 4(1), so demand for the full period could not stand and the assessee succeeded on that issue. Rule 5 did not permit mechanically adopting actual production for 1996-97 as the annual capacity for a later period, because the applicable parameters had to govern the relevant period; this issue was also decided for the assessee. The furnace classification as batch type or pusher type remained disputed on technical facts, and the matter was remanded for fresh determination after giving the assessee a fair opportunity to adduce technical evidence.

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Issues: (i) Whether the furnace was a 'batch' type furnace or a 'pusher' type furnace for the purpose of compounded levy and annual capacity determination. (ii) Whether the period of closure of the factory was required to be excluded by applying Rule 4(1) of the Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997. (iii) Whether Rule 5 authorised adoption of the actual production of 1996-97 as the annual capacity of production for the subsequent period.

Issue (i): Whether the furnace was a 'batch' type furnace or a 'pusher' type furnace for the purpose of compounded levy and annual capacity determination.

Analysis: The categorisation of the furnace was disputed on technical facts. The earlier reliance on technical opinion in another matter could not be straightaway applied to this manufacturer without an opportunity to adduce evidence specific to its own furnace. The record did not show that appropriate technical evidence had been taken to resolve the controversy conclusively.

Conclusion: The matter was remanded for a fresh decision on the furnace classification after granting a reasonable opportunity to adduce additional technical evidence. This issue was not finally decided against the assessee.

Issue (ii): Whether the period of closure of the factory was required to be excluded by applying Rule 4(1) of the Hot-rolling Steel Mills Annual Capacity Determination Rules, 1997.

Analysis: Rule 4(1) requires capacity for any part of the year to be calculated pro rata on the basis of the annual capacity determined under Rule 3. On the admitted and uncontroverted closure period, demand for the entire period from the commencement date ignored the statutory requirement of pro rata calculation and the closure period.

Conclusion: The exclusion of the closure period was held to be warranted, and the issue was decided in favour of the assessee.

Issue (iii): Whether Rule 5 authorised adoption of the actual production of 1996-97 as the annual capacity of production for the subsequent period.

Analysis: The revised parameter became effective from the date of intimation, and the annual capacity could not be fixed by mechanically adopting the actual production of the earlier year for a later period. The determination had to follow the operative parameters for the relevant period.

Conclusion: Rule 5 did not justify adopting the 1996-97 actual production as the annual capacity for the later period, and the issue was decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and the matter was sent back only for fresh determination of the furnace type, while the assessee succeeded on the remaining issues relating to closure period exclusion and impermissible adoption of earlier actual production.

Ratio Decidendi: In annual capacity determination under the compounded levy scheme, closure periods must be accounted for on a pro rata basis, and a disputed technical classification of furnace type cannot be finally resolved without giving the assessee a fair opportunity to adduce relevant technical evidence.

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