2023 (5) TMI 238 - AT - Central Excise

Compounded levy scheme - demand on the basis of fixation of Annual Capacity of Production of the Re-rolling Mill as 1106.820 Mt for the year 1997- 98, 1998-99, 1999-2000 in terms of Rule 3(1) of the Hot Re-rolling Mills Annual Capacity Determination Rules, 1997 - demand of differential Excise Duty, interest and penalty - HELD THAT - When the ACP Scheme was introduced w.e.f. 01/09/1997, the Appellant has not exercised any option either under 96ZP(1) or under 96 ZP(3). They exercised the option for the first time only on 11/01/1999 to avail the scheme under 96ZP(3). As this option cannot be exercised in the middle of a financial year, the option exercised by them will be applicable only for the financial year 1999-2000. Thus, for the period from 01.09.1997 to 31.03.1999 the Appellant automatically falls under the provisions of Rule 96ZP(1) of the erstwhile Central Excise Rules, 1944. The Appellant has not paid the duty as per the ACP fixed by the Commissioner for the years 1997-1998 and 1998-1999. The Appellant s contention is that they have not opted for payment of duty under 96ZP(3) and hence they are liable to pay duty under Rule 96ZP(1) only. Once their request for payment of duty under 96 ZP(1) is accepted, they are eligible to pay duty on the basis of actual production in terms of the provisions of Section 3A(4) of the Central Excise Rules, 1944. Their actual production is much less than the capacity determined by the Commissioner and they have paid duty as per the actual production and hence the differential duty demanded is not sustainable. As per the provision of Rule 3(A), when an assessee claims that their actual production is lower than the ACP determined by the Commissioner, then the Commissioner has to determine the actual production and re-determine the amount of duty payable on the basis of such actual production. This re-determination has to be done by the Commissioner based on the evidence produced by the assessee to show that their actual production is much less than the ACP fixed. However, in the present case, the Appellant has not submitted any evidence before the Commissioner for re-determination of the ACP and fixing of the duty based on actual production. In the absence of any redetermination done by the Commissioner, the ACP fixed by the Commissioner @ 1106.82 MT per annum remains and the assessee needs to pay duty as per ACP fixed. In the instant case, the assessee has paid duty based on actual production and not on the basis of ACP fixed. Hence, the differential duty demanded and confirmed by the Impugned Order is sustainable. Accordingly, the demand of duty confirmed in the Impugned Order is upheld. Interest and penalty - HELD THAT - The Hon ble Supreme Court in the case of M/S. SHREE BHAGWATI STEEL ROLLING MILLS VERSUS COMMISSIONER OF CENTRAL EXCISE ANOTHER 2015 (11) TMI 1172 - SUPREME COURT held that the provisions of interest and penalty under Rule 96ZP of the Central Excise Rules, 1944 as ultra vires - the demand of interest and penalty in the Impugned Order is not sustainable. The demand of duty confirmed in the impugned order upheld and the interest and penalty demanded in the said Order set aside - appeal allowed in part.

Summary

Issues:
The issues involved in this case are the determination of the annual capacity of production (ACP) for a manufacturer of hot re-rolled products of non-alloy steel falling under Chapter Heading 7214.90 of the Central Excise Tariff Act, 1985, and the payment of duty under Rule 96ZP(1) and Rule 96ZP(3) of the Central Excise Rules, 1944.

Determination of ACP:
The Appellant's ACP was initially provisionally fixed at 587.83 MT, which was later revised to 1055.435 MT based on a Chartered Engineers Certificate. Subsequently, after a joint verification, the ACP was finally fixed at 1106.82 MT. The Appellant contested this final ACP, arguing that the Commissioner did not provide reasons for overruling the Chartered Engineer certificate and that the increase from 1055.435 MT to 1106.82 MT was arbitrary and legally impermissible.

Payment of Duty under Rule 96ZP(1) and Rule 96ZP(3):
The Appellant did not opt for the scheme for payment of duty under Rule 96ZP(1) or Rule 96ZP(3) at the introduction of the compounded levy scheme under Section 3A of the Central Excise Act, 1944. They opted for Rule 96ZP(3) only for the financial year 1999-2000. The Department contended that the Appellant was liable to pay duty under Rule 96ZP(1) for the financial years 1997-98 and 1998-1999 and under Rule 96ZP(3) for the year 1999-2000. The Commissioner confirmed the demand for a differential duty of Rs 2,94,196 against the Appellant.

Appellant's Arguments and Department's Contentions:
The Appellant argued that they should pay duty based on actual production for the years 1997-98 and 1998-99, citing a Supreme Court decision allowing such an option. The Department maintained that the Appellant's sudden plea for fixation of ACP based on actual production was an attempt to evade legitimate duty payments fixed by the Commissioner.

Decision and Rationale:
The Tribunal observed that the Appellant fell under Rule 96ZP(1) for the period from 01.09.1997 to 31.03.1999 and thus should pay duty as per the ACP of 1106.82 MT fixed by the Commissioner. While the Appellant argued for payment based on actual production under Section 3A(4), they failed to provide evidence for redetermination of ACP. Consequently, the ACP fixed by the Commissioner stood, and the Appellant needed to pay duty accordingly. The Tribunal upheld the demand for duty but set aside the interest and penalty charges, citing a Supreme Court decision declaring such provisions under Rule 96ZP as invalid.

Conclusion:
The Tribunal upheld the demand for duty as per the ACP fixed by the Commissioner, set aside the interest and penalty charges, and pronounced the order on 04 May 2023.