2006 (4) TMI 417 - AT - Central Excise

Summary

Issues:
Capacity determination based on pinion distance, Application of Rule 5 for annual capacity determination, Change in machinery affecting production capacity, Pro rata computation of actual production, Applicability of Rule 5 for duty calculation.

Capacity determination based on pinion distance:
The appellant, a steel bar manufacturer, challenged the central excise authorities' determination of annual production capacity based on pinion distance. The appellant argued that the pinion distance was 185 mm, not 210 mm as determined by the authorities. The Commissioner found the reduced distance to be 195 mm, resulting in an annual capacity of 3613 MT. However, the duty was calculated based on the actual production of the preceding year, 1996-97, which was higher at 6054 MT, invoking Rule 5 of the Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997.

Application of Rule 5 for annual capacity determination:
The appellant contended that Rule 5, which equates annual capacity to actual production of the mill in the preceding year if lower, was not applicable in this case due to the change in machinery. The appellant argued that taxation based on actual production should only apply if there was no change in machinery affecting production capacity. The Tribunal agreed, stating that the change in pinion distance in April 1997 rendered the production capacity of the previous year non-comparable for subsequent years, making the application of Rule 5 erroneous.

Change in machinery affecting production capacity:
The Tribunal held that comparisons should be among comparables, and the change in machinery, specifically the pinion distance, in April 1997 made the production capacity of the previous year incomparable for subsequent years. Therefore, using the actual production of 1996-97 as a guide for determining production capacity for 1997-98 was incorrect, warranting relief for the appellant.

Pro rata computation of actual production:
The learned SDR suggested a pro rata computation of actual production based on the change in pinion distance, but the Tribunal rejected this approach. The Tribunal emphasized that Rule 5 did not allow for pro rata determination of actual production and only considered 'annual production' as a substitute for capacity of production. Any pro rata computation would contradict the provision in Rule 5 for taking 'actual' production.

Applicability of Rule 5 for duty calculation:
Ultimately, the Tribunal held that Rule 5 was not applicable in this case, and duty should be paid based on the capacity of production determined by the formula in the Rules, which was 3613 MT. As the appellant had paid duty according to this quantity, there was no short-levy. The demand was set aside, and the appeal was allowed with consequential relief to the appellant.