2010 (3) TMI 149 - HC - Central Excise

Hot Steel Rerolling Mill Manufacture of Hot Re-rolled products of non-alloy steel which were chargeable to duty in terms of Section 3A of the Central Excise Act 1944 - The Commissioner of Central Excise Chandigarh fixed the production capacity of the Hot Steel Re-rolling Mill with the respondent at 8490.815 MT per annum provisionally under Rule 5 of the Determination Rules. Because of dismantling of one unit of Re-rolling Mill the capacity came down and accordingly a request was made by the respondent to declare the parameters to redetermine the annual capacity to 5976.715 MT. In view of the changed parameters the annual capacity was redetermined and it was found that capacity has actually come down to 3106.460 MT. But despite the capacity having been reduced the annual capacity was determined on the basis of Rule 5 of the Determination Rules. - The Commissioner who was the adjudicating authority in this case applied Rule 5 of the Determination Rules and determined the capacity of the respondent at 5559.810 MT. This order was challenged by the respondent (assessee) before the Tribunal which has accepted its appeal. Held that as there was a change in reduction in the parameters mentioned in sub-Rule 3 of Rule 3 of the Determination Rules therefore the respondent is liable to pay the duty on the basis of actual production - The provisions of Rule 5 cannot be invoked in a case where after the determination of the capacity for the year 1996-97 the Unit makes a change in the capacity and the production actually comes down. If such a course were permitted the result would be grossly unfair decided in favor of assessee

Summary

Issues involved:
1. Interpretation of Rule 5 of the Annual Capacity Determination Rules in relation to duty levied based on actual capacity.
2. Application of Rule 4 regarding changes in installed machinery parameters affecting duty determination.
3. Compliance with Rule 4(2) and its impact on invoking Rule 5 for duty calculation.

Analysis:
The judgment by the High Court of Punjab & Haryana dealt with an appeal filed by the Revenue challenging an order of the Customs, Excise & Service Tax Appellate Tribunal. The case involved a Hot Steel Rerolling Mill Unit where the production capacity was initially fixed at 8490.815 MT per annum under Rule 5 of the Determination Rules. Due to the dismantling of a unit, the capacity was reduced, and a request was made to redetermine it to 5976.715 MT, which further decreased to 3106.460 MT. Despite the reduced capacity, duty was determined based on Rule 5 by the Commissioner, leading to the respondent challenging this decision before the Tribunal.

The key contention was whether duty should be based on the actual reduced capacity or the capacity determined under Rule 5. The respondent argued for duty calculation on actual production capacity due to the dismantling of a unit, citing a previous case where it was held that duty cannot be demanded for capacity that no longer exists. The Court agreed with the respondent, emphasizing that when parameters change, duty should be based on actual production, as in the Doaba Steel Rolling Mills case.

Regarding the questions raised in the appeal, the Court held that in cases of parameter changes affecting capacity, duty should align with actual production. It was noted that the respondent had duly informed the Department about the capacity changes, ensuring compliance with Rule 4(2) and justifying the dismissal of the appeal. The judgment favored the respondent, emphasizing adherence to the legal provisions and the principles established in previous rulings.

In conclusion, the Court upheld the Tribunal's decision, ruling in favor of the respondent and dismissing the appeal by the Revenue. The judgment highlighted the importance of aligning duty calculations with actual production capacity in cases of parameter changes, ensuring fair treatment and compliance with the Determination Rules.

This detailed analysis provides a comprehensive understanding of the legal issues addressed in the judgment by the High Court of Punjab & Haryana.