2025 (6) TMI 1576 - AT - Central Excise

Determination of the Annual Capacity of Production of the manufacturer - applicability of Rule 5 of the Hot Re-rolling Steel Mills Annual Capacity Determination Rules 1997 - HELD THAT - There are force in the contention of the learned AR for the Revenue that Rule 5 of the said Rules empowers the Commissioner to adopt the actual production instead of the deemed production arrived at on the basis of the formula for determination of the Annual Capacity of Production of the manufacturer. In CCE Chandigarh Vs. Doaba Steel Rolling Mills 2011 (7) TMI 10 - SUPREME COURT Hon ble Supreme Court observed Rule 5 of the 1997 Rules will be attracted for determination of the annual capacity of production of the factory when any change in the installed machinery or any part thereof is intimated to the Commissioner of Central Excise in terms of Rule 4(2) of the said Rules. It is also found that the appellant without challenging the Annual Capacity of Production determined by the Commissioner disputed the demands raised pursuant to the said determination of the Annual Capacity of Production. There are no merits in the appeal - appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the Annual Capacity of Production of the appellant's hot re-rolled iron and steel products factory, as determined by the Commissioner under the Hot Re-rolling Steel Mills, Annual Capacity Determination Rules, 1997, was valid and binding.
• Whether the differential duty demands raised on the basis of the Annual Capacity of Production determination were justified and sustainable.
• Whether Rule 5 of the Hot Re-rolling Steel Mills, Annual Capacity Determination Rules, 1997, empowering the Commissioner to adopt actual production instead of deemed production calculated by formula, was correctly applied.
• Whether the appellant's challenge to the demands was maintainable in the absence of any challenge to the Annual Capacity determination itself.
• Whether the principles of natural justice and procedural fairness were observed in the adjudication and appellate proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and Binding Nature of Annual Capacity of Production Determination

Relevant Legal Framework and Precedents: The determination of Annual Capacity of Production is governed by the Hot Re-rolling Steel Mills, Annual Capacity Determination Rules, 1997, framed under Section 3A of the Central Excise Act, 1944. Rule 3(3) prescribes a formula for capacity determination, while Rule 5 allows the Commissioner to adopt actual production if it exceeds deemed production. The Supreme Court's decision in CCE, Chandigarh Vs. Doaba Steel Rolling Mills clarified the interpretation and scope of these Rules.

Court's Interpretation and Reasoning: The Tribunal noted that the Annual Capacity was fixed at 8272.798 MTs by the Commissioner following Rule 5, applying the formula and actual production data. The appellant never challenged this determination before any forum. The Tribunal emphasized that the capacity determination is a prerequisite for levy under Section 3A, which is a non obstante provision overriding Section 3.

Key Evidence and Findings: The record showed the capacity was provisionally fixed and then finalized by the Commissioner. The appellant did not dispute the capacity figure but challenged the resulting duty demands. The Commissioner's order and the appellate order both relied on the capacity figure.

Application of Law to Facts: Since the capacity determination was never challenged, it became binding. The Tribunal held that the demands based on this capacity are sustainable unless the capacity determination itself is set aside.

Treatment of Competing Arguments: The appellant's failure to challenge the capacity determination was fatal to its case. The Tribunal rejected the appellant's attempt to dispute demands without disputing the foundational capacity figure.

Conclusion: The Annual Capacity of Production determination was valid, binding, and not subject to collateral attack in the present appeal.

Issue 2: Justification and Sustainability of Differential Duty Demands

Relevant Legal Framework and Precedents: Section 3A of the Central Excise Act enables levy of duty based on annual capacity. The demands for differential duty were issued pursuant to the capacity determination under the 1997 Rules. The Supreme Court's ruling in the Doaba Steel Rolling Mills case affirmed the validity of demands based on such capacity determinations.

Court's Interpretation and Reasoning: The Tribunal found that the demands corresponded to the periods September 1997 to March 1999 and were calculated on the basis of the capacity fixed by the Commissioner. The appellate authority upheld these demands after hearing the appellant and analyzing evidence.

Key Evidence and Findings: Demand notices for amounts of Rs.7,27,740/-, Rs.12,40,920/-, and Rs.12,40,920/- were issued for three half-year periods. The appellant did not produce evidence to disprove the demands or the basis thereof.

Application of Law to Facts: Since the capacity determination was valid and the demands were calculated accordingly, the demands were legally sustainable.

Treatment of Competing Arguments: The appellant's arguments were largely procedural or based on pending litigation elsewhere, without substantive evidence to negate the demands. The Tribunal noted absence of details or justification for adjournments or delay tactics.

Conclusion: The differential duty demands were justified and upheld.

Issue 3: Application and Interpretation of Rule 5 of the 1997 Rules

Relevant Legal Framework and Precedents: Rule 5 of the Hot Re-rolling Steel Mills, Annual Capacity Determination Rules, 1997, allows the Commissioner to adopt actual production figures in place of deemed production arrived at by formula under Rule 3(3). The Supreme Court in the Doaba Steel Rolling Mills case extensively interpreted Rule 5, confirming its applicability and scope.

Court's Interpretation and Reasoning: The Tribunal relied on the Supreme Court's analysis, which held that Rule 5 "springs into action" when annual capacity is determined or re-determined by applying the formula, particularly when there are changes in installed machinery or other relevant factors. The Tribunal found no reason to depart from this settled principle.

Key Evidence and Findings: The Commissioner applied Rule 5 to fix capacity at 8272.798 MTs, reflecting actual production exceeding deemed production. The appellant did not challenge the validity of Rule 5 or its application.

Application of Law to Facts: The Tribunal held that the Commissioner's use of Rule 5 was correct and legally sound, and the appellant's failure to challenge it rendered the demands sustainable.

Treatment of Competing Arguments: The appellant's challenge to the demands was not supported by any argument against Rule 5's validity or its application. The Tribunal rejected any implicit contention that the formula alone must be binding without recourse to actual production.

Conclusion: Rule 5 was correctly applied to determine Annual Capacity of Production, supporting the duty demands.

Issue 4: Procedural Fairness and Observance of Natural Justice

Relevant Legal Framework and Precedents: The principles of natural justice require that the appellant be given a fair opportunity to present its case. The matter had earlier been remanded by this Tribunal for fresh consideration after observing natural justice principles.

Court's Interpretation and Reasoning: The present impugned order was passed after hearing the appellant and analyzing evidence. The Tribunal found that the Commissioner(Appeals) had complied with natural justice requirements in the de-novo appellate proceedings.

Key Evidence and Findings: The record showed multiple hearings and opportunities afforded to the appellant. The appellant's repeated failure to appear or produce evidence was noted.

Application of Law to Facts: The Tribunal concluded that procedural fairness was observed. The appellant's absence and failure to justify adjournments did not warrant further delay.

Treatment of Competing Arguments: The appellant's reliance on pending Supreme Court proceedings without substantiation was rejected as insufficient to delay disposal.

Conclusion: Principles of natural justice were duly observed and the appeal was properly adjudicated.

3. SIGNIFICANT HOLDINGS

The Tribunal upheld the Annual Capacity of Production determination fixed at 8272.798 MTs under the Hot Re-rolling Steel Mills, Annual Capacity Determination Rules, 1997, including the application of Rule 5 allowing adoption of actual production over deemed production.

The Tribunal relied on the Supreme Court's authoritative interpretation in the Doaba Steel Rolling Mills case, particularly the following reasoning:

"Rule 5 of the 1997 Rules will be attracted for determination of the annual capacity of production of the factory when any change in the installed machinery or any part thereof is intimated to the Commissioner of Central Excise in terms of Rule 4(2) of the said Rules."

"Section 3A of the Act is an exception to Section 3 of the Act the charging Section and being in nature of a non obstante provision, the provisions contained in the said Section override those of Section 3 of the Act."

The Tribunal concluded that since the appellant never challenged the capacity determination itself, the demands for differential duty based on that capacity were sustainable and valid.

Finally, the Tribunal rejected the appeal, holding that the impugned order confirming the differential duty demands was legally sound and that no further adjournments or delays were justified in the absence of substantive grounds.