2012 (1) TMI 36 - HC - Central Excise

Production capacity based duty application of Rule 5 of the Hot Re-rolling Steels Mills Annual Capacity Determination Rules, 1997 - manufacturer had made changes in installed machinery or any part thereof after seeking approval of the Commissioner of Excise in terms of Rule 4(2) of 1997 Rules Period involved 01.09.97 to 31.03.2000 - Held that - Supreme Court held in case of CCE vs Doaba Steel Rolling Mills (2011 - TMI - 204191 - Supreme Court Of India) that Rule 5 springs into action and has to be given full effect to where annual capacity is determined/ redetermined by applying the formula prescribed in sub-rule (3) of Rule 3. In the absence of any other Rule, sub rule (3) of Rule 3 would be attracted for re-determination of production capacity of a factory, on furnishing of information to the Commissioner as contemplated in Rule 4(2) of the 1997 Rules. Thus, in present case Rule 5 of 1997 Rules would apply and the annual capacity so determined shall be deemed to be actual production during the financial year 1996-97, which is period involved in the present case. - Decided in favor of Revenue.

Summary

Issues:
Interpretation of Rule 5 of the Hot Re-rolling Steels Mills Annual Capacity Determination Rules, 1997 in relation to changes in machinery affecting annual capacity determination under the Central Excise Act, 1944.

Analysis:

Issue 1:
The primary issue in this case revolves around the application of Rule 5 of the 1997 Rules to a scenario where a manufacturer made changes in installed machinery after obtaining approval from the Commissioner of Excise, leading to a reduction in annual capacity determination.

Detailed Analysis:
The respondent, a steel rolling mill, had changed a crucial parameter of their mill after approval from the competent authority, resulting in a reduction in their annual capacity determination. The Commissioner concluded that Rule 5, which mandates the payment of a lump sum amount, did not apply in this situation. The CESTAT upheld this view, citing precedents and emphasizing that when machinery changes lead to reduced capacity, Rule 5 does not apply. The appellant argued that a Supreme Court judgment reversed the stance taken by the CESTAT, asserting that Rule 5 should be applicable despite machinery changes causing reduced capacity.

Issue 2:
The second issue involves the conflict between the judgments of the High Court and the Supreme Court regarding the interpretation and application of Rule 5 of the 1997 Rules in cases of machinery changes affecting production capacity.

Detailed Analysis:
The High Court, in alignment with the Supreme Court's decision in the case of Doaba Steel Rolling Mills, held that Rule 5 must be enforced even when machinery alterations lead to a decrease in production capacity. The Supreme Court's ruling emphasized that Rule 5 cannot be disregarded, especially when changes in machinery necessitate a reevaluation of production capacity. The Court highlighted the clear language of Rule 5 and its significance in situations where annual capacity is determined or re-determined based on specified formulas.

Issue 3:
The final issue concerns the legal implications of machinery modifications on the annual capacity determination under the Central Excise Act, 1944, and the relevance of Rule 5 in such circumstances.

Detailed Analysis:
The Court reiterated that the insertion of Section 3A in the Act aimed to levy excise duty based on the annual production capacity of factories. The Rules framed under Section 3A, particularly Rule 5, play a crucial role in determining the annual capacity of production. The Supreme Court's judgment clarified that Rule 5 must be given full effect, even when machinery changes influence production capacity, as it provides a mechanism for reevaluation in such scenarios. Consequently, the Court upheld the applicability of Rule 5 and ruled in favor of the Revenue, setting aside the CESTAT's order.

In conclusion, the judgment underscores the importance of Rule 5 in cases where machinery modifications impact annual production capacity, emphasizing the need for adherence to statutory rules and precedents in excise duty determinations.