2003 (3) TMI 131 - HC - Central Excise

Summary

Issues Involved:
1. Validity of Rule 3 of the Induction Furnace Annual Capacity Determination Rules.
2. Quashing of the order dated 30-9-1997 and letter dated 11-3-1998.
3. Re-determination of the annual capacity of production considering the power factor.

Issue-wise Detailed Analysis:

1. Validity of Rule 3 of the Induction Furnace Annual Capacity Determination Rules:
The petitioner, a steel industry, challenged Rule 3 of the Induction Furnace Annual Capacity Determination Rules as being unreasonable and arbitrary. The petitioner argued that the rule violated Section 3A of the Central Excise Act, which allows the Central Government to charge excise duty based on the capacity of production. The petitioner contended that the rule failed to consider the power factor, which is crucial for determining the production capacity of the furnace. The court noted that Section 3A(2) provides for the determination of annual capacity by considering relevant factors, including power. The court held that power is a vital factor in determining the capacity and that the rule should be interpreted to include power as a relevant factor. Instead of striking down the rule, the court decided to read it down to include the power factor, ensuring a fair determination of the annual capacity.

2. Quashing of the order dated 30-9-1997 and letter dated 11-3-1998:
The petitioner sought to quash the order dated 30-9-1997, which determined the annual capacity of production at 16,000 MTs, and the letter dated 11-3-1998, which rejected the petitioner's claim based on the power factor. The petitioner argued that the determination was factually incorrect and not based on the actual capacity of the furnace. The court observed that the respondents had determined the capacity based on available documents indicating the capacity of the furnace/crucibles, as per the notification dated 25-7-1997. However, the court found that the respondents expressed helplessness due to the absence of a provision to consider the power factor. The court held that the power factor plays a vital role in determining the annual capacity and directed the respondents to re-determine the capacity by considering the power factor.

3. Re-determination of the annual capacity of production considering the power factor:
The petitioner argued that the actual capacity of the crucible based on the furnace power pack would be 3.600 MT, and the power factor should be considered in determining the annual capacity. The court noted that the petitioner had provided sufficient material to support the relevance of the power factor. The court held that there is no prohibition under the rules for considering the power factor and that it should be included in the determination process. The court directed the respondents to re-determine the actual capacity by considering the power factor and allowed the petitioner to produce additional material within four weeks. The court set aside the previous determination and provided a timeline of eight weeks for compliance with the order.

Conclusion:
The court allowed the writ petition, set aside the order dated 30-9-1997, and directed the respondents to re-determine the annual capacity by considering the power factor. The court emphasized the importance of including the power factor in the determination process to achieve a fair and reasonable assessment of the production capacity. The court's decision ensures that the determination of the annual capacity aligns with the provisions of Section 3A of the Central Excise Act and the relevant rules.