2018 (11) TMI 742 - HC - Central Excise

Valuation - substantial question of law or not - Whether provisions of Section 3A requiring determination of annual capacity of production are relevant for the purpose of the assessee who is paying excise duty under Rule 96ZO(3) based upon furnace capacity shall be the substantial question of law for adjudication? Held that - Section 3A refers to power of the Central Government to charge excise duty on the basis of capacity of production in respect of notified goods. It empowers the State to issue a notification having regard to the nature of the process of manufacturing or production of excisable goods of any specified description having regard to such other factors as may be relevant and to safeguard the interest of the Revenue. Section 3A(2) provides for determination of the annual capacity of production, or such factors or factors relevant to the annual capacity of production by specifying so in Rules - the Act and Rules provides for two modes of payment of Excise. First as per Section 3A pro rata, and second a fixed payment as per Rule 96ZO. If the conditions specified in the Rule 96ZO(3) are fulfilled an Assessee can opt for the flat rate specified in the said Rule. In the present case, the Tribunal has not considered the relevant legal position with reference to the facts and the scheme of Rule 96ZO(3) and Section 3A(4). The Tribunal has held that legal position stands concluded and only a factual enquiry is needed - matter remanded to the Tribunal - appeal allowed by way of remand.

Issues Involved:
1. Applicability of Section 3A of the Central Excise Act, 1944.
2. Applicability of Rule 96ZO(3) of the Central Excise Rules, 1944.
3. Determination of annual capacity of production and its relevance.
4. Payment of excise duty under fixed rate versus pro-rata basis.
5. Tribunal's decision to remand the matter to the Commissioner.

Issue-wise Detailed Analysis:

1. Applicability of Section 3A of the Central Excise Act, 1944:
Section 3A empowers the Central Government to charge excise duty based on the capacity of production for notified goods. This section allows the government to specify goods and determine the annual capacity of production, which is deemed to be the annual production of such goods. The section also includes provisions for proportionate calculation if the factory operates for part of the year or if relevant factors change during the year.

2. Applicability of Rule 96ZO(3) of the Central Excise Rules, 1944:
Rule 96ZO(3) allows manufacturers with a furnace capacity of 3 metric tonnes to opt for a fixed sum of ?5,00,000 per month as full discharge of their duty liability. It includes provisions for pro-rata payment if the furnace capacity changes and imposes interest and penalties for non-payment. The rule excludes the application of Section 3A(4) for those opting for this scheme.

3. Determination of Annual Capacity of Production and Its Relevance:
The Assessee argued that power cuts during the relevant period affected the total capacity, justifying a pro-rata payment instead of the fixed sum. The Tribunal remanded the matter to the Commissioner, emphasizing the need to consider the power situation's impact on capacity. However, the Supreme Court in Venus Castings and Supreme Steels held that opting for Rule 96ZO(3) excludes the need for determining annual capacity under Section 3A(4).

4. Payment of Excise Duty Under Fixed Rate Versus Pro-Rata Basis:
The Assessee initially opted for the fixed rate under Rule 96ZO(3) but later claimed pro-rata payment due to power cuts. The Revenue argued that once the fixed rate is chosen, the Assessee must adhere to it for the relevant period without variation. The Tribunal's decision to remand for reconsideration of capacity based on power consumption was challenged by the Revenue, citing Supreme Court rulings that the two schemes are mutually exclusive.

5. Tribunal's Decision to Remand the Matter to the Commissioner:
The Tribunal remanded the matter to the Commissioner, stating that the power situation's impact on capacity was not considered. The High Court found that the Tribunal failed to address the legal position established by the Supreme Court in Venus Castings and Supreme Steels, which clarified that opting for Rule 96ZO(3) precludes the need for capacity determination under Section 3A(4). The High Court set aside the Tribunal's order and remanded the matter back to the Tribunal for an informed decision considering the legal position.

Conclusion:
The High Court allowed the appeal, set aside the Tribunal's order, and remanded the matter for reconsideration in light of the Supreme Court's decisions in Venus Castings and Supreme Steels. The Tribunal is to make an informed decision, considering the legal and factual questions, and the contentions of both parties remain open for consideration.

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