2004 (4) TMI 221 - AT - Central Excise

Summary

Issues:
1. Determination of Annual Capacity of Production under Central Excise Act.
2. Interpretation of Rule 96ZO of the Central Excise Rules regarding duty on installed capacity.
3. Consideration of idle capacity in determining annual production capacity.

Analysis:

Issue 1: Determination of Annual Capacity of Production
The appeal involved the determination of the Annual Capacity of Production by M/s. Mandovi Metals Pvt. Ltd. for manufacturing M.S. Ingots chargeable to Central Excise duty under Section 3A of the Central Excise Act. The Commissioner had determined their annual capacity to be 9600 MT per annum under Rule 96ZO of the Central Excise Rules, 1944. The dispute arose due to the installation of a second furnace and the subsequent duty demand based on the installed capacity.

Issue 2: Interpretation of Rule 96ZO regarding Duty on Installed Capacity
The Appellant argued that they did not have adequate power supply to run both furnaces simultaneously, and the evidence regarding the functioning of the second furnace was weak and unconvincing. The Adjudicating Authority found that the evidence did not support the claim of clandestine production from the second furnace. The Appellant relied on legal principles and previous judgments to support their contention that duty should not be demanded based on idle capacity or installed capacity when not practically feasible.

Issue 3: Consideration of Idle Capacity in Determining Annual Production Capacity
The Tribunal analyzed the Central Government's circular clarifying that idle capacity should not be considered while determining the annual capacity of production. The Tribunal referred to the case of Aditya Steel Industries Ltd., where it was held that idle capacity of a Stand-By Mill should not be taken into consideration for determining the Annual Capacity of Production. The Tribunal found that the decision in the case of Jindal Steel & Power Ltd. was not applicable as it did not consider earlier judgments and relevant circulars.

In conclusion, the Tribunal allowed the appeal, emphasizing that the evidence regarding the functioning of two furnaces was weak and unconvincing. The Tribunal upheld the principle that idle capacity should not be factored into determining annual production capacity, as clarified by the Central Government's circular. The Tribunal found the duty demand based on installed capacity unjustified in this case, based on the specific findings and unchallenged evidence presented.