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Judgment
M.M. Kumar, J.—The instant appeal filed u/s 35G of the Central Excise Act, 1944 (for brevity ''the Act'') is directed against final order dated 16.06.2010 (A-2), passed by Customs, Excise and Service Tax Appellate Tribunal, New Delhi, (for brevity ''the CESTAT''). The question of law raised in the instant appeal is as follows:
Whether Rule 5 of the Hot Re-rolling Steels Mills Annual Capacity Determination Rules, 1997 (for brevity ''1997 Rules'') would apply to a case where a manufacturer had made changes in installed machinery or any part thereof after seeking approval of the Commissioner of Excise in terms of Rule 4(2) of 1997 Rules?
In order to put the controversy in its proper perspective, few facts would be necessary. M/s Hans Raj Steel Rolling Mills-respondent were engaged in the manufacture of hot re-rolled products of non-alloy steel during the period from 01.09.1997 to 31.03.2000. They were charged to duty u/s 3A of the Central Excise Act, 1944 and had opted to pay duty under Rule 96ZP(3) of the Central Excise Rules, 1944 (for brevity ''the Rules''). For the determination of annual capacity (ACP), respondent had declared the parameters of their mill. However, one of the important parameters ''D'' was changed w.e.f. 11.12.1998 after obtaining permission from the competent authority. As per the formula envisaged by Rule 3 of the 1997 Rules, the ACP of the unit was fixed at 3355.005 MT from 01.09.1997 to 10.12.1998 and 981.952 MT for the period commencing from 11.12.1998 to 31.03.2000 provisionally. It was finalized by the Commissioner vide order dated 27.04.1998 by re-determining the same as 3355.00 MT from 01.09.1997 to 10.12.1998 and 1890 MT from 11.12.1998 to 31.03.2000. The order dated 27.04.1998 was challenged by the respondent and vide final order dated 29.06.1998, the CESTAT remanded the case to the Commissioner. The Commissioner in order in original observed that respondent had changed the parameter w.e.f. 11.12.1998 after obtaining permission from the Commissioner and according to changed parameter, the capacity of the respondent was reduced. The Commissioner placed reliance on a judgment of the CESTAT in the case of 2001 (94) ECR 1 55 and concluded that the provisions of Rule 5 of the 1997 Rules, which postulates payment of lump sum amount, were not applicable to determine the ACP. Feeling aggrieved, the appellant filed an appeal before the CESTAT, which has reiterated the view taken by the Commissioner. The CESTAT placing reliance on the judgment of this Court in the case of CCE v. Doaba Steel Rolling Mills 2003 (54) ELT 142 held as under:
Undisputedly, the Larger Bench has held that when the change of machinery leads to reduction in annual capacity, the said rule would not apply. It is not in dispute that the said ruling has not been set aside by any of the High Court or Apex Court till this day. Being so, as pointed out by ld. Advocate for the respondents the law on the point is very clear that in case of change in machinery leading to reduction of annual capacity, the provisions of Rule 5 could not be attracted. The reduction has resulted on account of changes brought in the machinery. It is also to be noted that when factually the production can be ascertained, the question of applying the deemed principles comprised under Rule 5 cannot arise. Though it is contended that the decision of Hon''ble Punjab & Haryana High Court has been challenged before the Apex Court, admittedly, there is no stay granted to the said decision. Accordingly, we do not find any reason for interference in the impugned order and hence the appeal fails and is hereby dismissed.
(Emphasis added)
Mr. H.P.S. Ghumman, learned counsel for the Revenue has vehemently argued that question of law is no longer res integra and stands finally settled by a judgment of Hon''ble the Supreme Court in the case of Commissioner of Central Excise, Chandigarh Vs. Doaba Steel Rolling Mills, and argued that the judgment of this Court on which the CESTAT has placed reliance in fact stand reversed by Hon''ble the Supreme Court. Therefore Rule 5 of the 1997 Rules would apply and despite the change in the parameter of installed capacity, the respondent has to pay in accordance with the provisions of Rule 5 of 1997 Rules.
Ms. J. J. Kaur, learned counsel for the respondent has however, submitted that there are other appeals pending before Hon''ble the Supreme Court and instant appeal may be adjourned. She has further submitted that even a review has been filed against the judgment of Hon''ble the Supreme Court in Doaba Steel Rolling Mills''s case (supra) and therefore, the judgment of Hon''ble the Supreme Court cannot be regarded as final view on the issue.
Having heard learned counsel for the parties and perusing the paper book with their able assistance, we are of the considered view that the issue raised by the revenue-appellant is squarely covered in its favour by the judgment of Hon''ble the Supreme Court rendered in Doaba Steel Rolling Mills''s case (supra).
It is appropriate to mention that Section 3Awas inserted on 14.05.1997 in the Act to charge excise duty on goods on the basis of annual capacity of production of mills etc. in respect of the notified goods. The aforesaid provisions insofar as relevant for the decision of this case is set out below:
3A. Power of Central Government to charge excise duty on the basis of capacity of production in respect of notified goods:-(1) Notwithstanding anything contained in section 3, where the Central Government, having regard to the nature of the process of manufacture or production of excisable goods of any specified description, the extent of evasion of duty in regard to such goods or such other factors as may be relevant, is of the opinion that it is necessary to safeguard the interest of revenue, specify by notification in the Official Gazette, such goods as notified goods and there shall be levied and collected duty of excise on such goods in accordance with the provisions of this Section.
(2) Where a notification is issued under sub-Section (1), the Central Government may, by rules,
(a) provide the manner for determination of the annual capacity of production of the factory, in which such goods are produced, by an officer not below the rank of Assistant Commissioner of Central Excise and such annual capacity shall be deemed to be the annual production of such goods by such factory; or
(b) (i) specify the factor relevant to the production of such goods and the quantity that is deemed to be produced by use of a unit of such factor; and
(ii) provide for the determination of the annual capacity of production of the factory in which such goods are produced on the basis of such factor by an officer not below the rank of Assistant Commissioner of Central Excise and such annual capacity of production shall be deemed to be the annual production of such goods by such factory:
Provided that where a factory producing notified goods is in operation during a part of the year only, the annual production thereof shall be calculated on proportionate basis of the annual capacity of production:
Provided further that in a case where the factor relevant to the production is altered or modified at any time during the year, the annual production shall be re-determined on a proportionate basis having regard to such alteration or modification.
It was under sub-Section (2) of Section 3-A of the Act that a notification dated 25.07.1997, was issued and the Central Government framed the 1997 Rules, which were made effective from 01.08.1997. The aforesaid Rules deal with the determination of annual capacity of production of a factory producing re-rolled products as contained in the said notification. Rules 3 and 4 of 1997 Rules deal with the manner of determination of annual capacity of production. Rule 4 of 1997 Rules postulates that the capacity of production for any part of the year, or any change in the total hot re-rolling mill capacity, shall be calculated pro rata on the basis of the annual capacity of production. A manufacture could effect change in installed machinery or any part thereof by intimating to the Commissioner of Central Excise in writing. However, Rule 5, which is significant for disposal of the controversy in the case in hand put everything beyond doubt and the same reads as under:
In case, the annual capacity determined by the formula in sub-rule (3) of rule 3 in respect of a mill, is less than actual production of the mill during the financial year 1996-97, then the annual capacity so determined shall be deemed to be equal to be actual production of the mill during the financial year 1996-97.
Hon''ble the Supreme Court rejected the argument concerning non-application of Rule 5 of 1997 Rules even in case where parameters have been reduced after securing permission from the Commissioner and has resulted into reduction in production. The view of Hon''ble the Supreme Court with regard to interpretation of various provisions is discernible from paras 18 and 19 of the judgment of Hon''ble the Supreme Court which read as under:
As noted above, Section 3A was inserted in the Act to enable the Central Government to levy Excise duty on manufacture or production of certain notified goods on the basis of annual capacity of production to be determined by the Commissioner of Central Excise in terms of the Rules to be framed by the Central Government. Section 3Aof the Act is an exception to Section 3of 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. Rule 3 of 1997 Rules framed in terms of Section 3A(2)of the Act lays down the procedure for determining the annual capacity of production of the factory. Sub-rule (3) of that Rule contains a specific formula for determination of annual capacity of production of hot rolled products. This is the only formula whereunder the annual capacity of production of the factory, for the purpose of charging duty in terms of Section 3A of the Act is to be determined. Second proviso to sub-section (2) of Section 3A of the Act contemplates re-determination of annual production in a case when there is alteration or modification in any factor relevant to the production of the specified goods but such re-determination has again to be as per the formula prescribed in Rule 3(3) of the 1997 Rules. It is clear that sub-rule (2) of Rule 4, which, in effect permits a manufacturer to make a change in the installed machinery or part thereof which tends to change the value of either of the parameters referred to in sub-rule (3) of Rule 3, on the basis whereof the annual capacity of production had already been determined would obviously require re-determination of annual capacity production of the factory/ mill, for the purpose of levy of duty. It is plain that in the absence of any other Rule, providing for any alternative formula or mechanism for re-determination of production capacity of a factory, on furnishing of information to the Commissioner as contemplated in Rule 4(2) of the 1997 Rules, such determination has to be in terms of sub-rule (3) of Rule 3. That being so, it must logically follow that Rule 5 cannot be ignored in relation to a situation arising on account of an intimation under Rule 4(2) of the 1997 Rules. Moreover, the language of Rule 5 being clear and unambiguous, in the sense that in a case where annual capacity is determined/ redetermined by applying the formula prescribed in sub-rule (3) of Rule 3, Rule 5 springs into action and has to be given full effect to.
It is thus, evident that the judgment of this Court rendered in the case of Doaba Steel Rolling Mills''s case (supra) stands reversed and the appeal of the Revenue has been allowed. Therefore, it cannot be said that the present matter is not covered by the judgment of Hon''ble the Supreme Court in Doaba Steel Rolling Mills''s case (supra) where the appeal of the Revenue has been allowed.
While following the judgment of Hon''ble the Supreme Court in Doaba Steel Rolling Mills''s case (supra), we hold that the Rule 5 of 1997 Rules would spring into action and the annual capacity so determined shall be deemed to be actual production during the financial year 1996-97, which is period involved in the present case.
In view of the above, this appeal is allowed in favour of the Revenue and against the respondent. The order of the CESTAT dated 16.06.2010 is set aside.
The parties are left to bear their own costs.