2016 (5) TMI 304 - HC - Central Excise

Whether the Tribunal was justified in making proper determination of the annual production capacity of the Respondent/Assessee plant in conformity with relevant rules applicable for such re-determination and whether impugned re-determination made by the Tribunal can be said to be in conformity with the law laid down by the Supreme Court in the case of Commissioner of Central Excise v. Doaba Steel Rolling Mills 2011 (7) TMI 10 - SUPREME COURT OF INDIA - Held that - Section 3A(2) of the Act empowers the Central Government to charge excise duty on the annual production capacity to be determined in the manner prescribed under Rule 3. If a manufacturer proposes to make any changes in installed machinery which would affect the annual production capacity, Rule 4(2) required it to be intimated one month in advance, written approval obtained before making the change from the Commissioner Central Excise who would then determine the date from which the changed installed capacity shall be deemed effective. By deeming fiction, subject to compliance with Rule 4(2), the actual production, if less in the subsequent year, was to be determined for Excise duty on basis of actual production for the year 1996-1997. Any changes made in the annual production capacity on 30-7-1997, according to the respondent itself was communicated to the department after insertion of the amended Rule 5. The annual production capacity for chargeable excise duty in the present case relates to the period 1997-98. The Tribunal held that the actual production figures for the year 1996-97 was not relevant without noticing or taking into consideration Rule 5 brought into effect from 1-9-1997 by notification dated 30-8-1997. The finding was therefore completely perverse. Therefore, the order of the Tribunal is held to be not sustainable and is set aside. - Decided in favour of revenue

Summary

Issues:
1. Proper determination of annual production capacity of the Respondent/Assessee plant.
2. Compliance with relevant rules in determining the annual production capacity.

Analysis:

Issue 1: Proper determination of annual production capacity
The case involved a Central Excise Reference Case made against an order passed by the Tribunal. The main issue was whether the Tribunal was justified in determining the annual production capacity of the plant in conformity with the applicable rules. The Revenue argued that the Tribunal erred by not considering an amendment to the Rules, which stated that if the annual capacity determined was less than actual production, it should be deemed equal to the actual production. The Respondent contended that the changes made in production capacity were duly intimated to the department and the Tribunal's decision was correct. The Court analyzed the relevant provisions under Section 3A(2) of the Act and Rule 5, which was inserted to address such situations. The Court found the Tribunal's decision to be erroneous as it did not consider Rule 5, which was clear and unambiguous in its application.

Issue 2: Compliance with relevant rules in determining the annual production capacity
The Commissioner had issued a notice pointing out that the Respondent had communicated changes in production capacity without following the prescribed procedure. The Respondent argued that the changes were intimated to the department as required. The Court examined Rule 4(2), which mandated prior intimation and approval for changes affecting production capacity. It was observed that Rule 5, inserted to address discrepancies in capacity determination, should have been taken into account by the Tribunal. The Court held that the Tribunal's decision was unsustainable, set it aside, and ruled in favor of the Revenue. The judgment emphasized the importance of strict construction of taxing statutes and adherence to statutory provisions in excise duty assessments.

In conclusion, the Court found that the Tribunal had erred in not considering Rule 5 while determining the annual production capacity of the plant. The judgment highlighted the significance of adhering to statutory rules and ensuring proper compliance with procedures for changes affecting production capacity. The decision favored the Revenue, setting aside the Tribunal's order and emphasizing the importance of strict interpretation of taxing statutes.