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CASE NO.: Appeal (civil)  4841 of 2007

PETITIONER: M/s. Paras Ship Breakers Ltd

RESPONDENT: Commissioner of Central Excise

DATE OF JUDGMENT: 12/10/2007

BENCH: S.B. Sinha & Harjit Singh Bedi

JUDGMENT: J U D G M E N T  [Arising out of  SLP (Civil) No. 10073 of 2005] S.B. SINHA, J :          1.      Leave granted. 2.      This appeal is directed against a judgment and order dated 11.02.2005  passed by a Division Bench of the Gujarat High Court in Tax Appeal No.  427 of 2004 whereby and whereunder the appeal preferred by the appellant  herein from a judgment and order of the Customs, Excise and Gold Control  Appellate Tribunal dated 22nd May, 2003 as well as Miscellaneous order  dated 6th February, 2004, was dismissed.

3.      The issue involved in this appeal is as to how the deemed annual  production in terms of Section 3A of the Central Excise Act, 1944 which  was brought into force with effect from 14.05.1987 should be determined.   Appellant herein installed an induction furnace, the capacity whereof was 8  M.Ts.  It had asked the Gujarat State Electricity Board (Board) for supply of  3000 KVA of electrical energy.  The Board agreed to supply only 1900  KVA input of power.  The said furnace was manufactured by Inductotherm  (India) Ltd.  Keeping in view the fact that the appellant could not obtain  supply the requisite quantity of electrical energy, it thought of reducing the  capacity of the said induction furnace.  According to it, the capacity was  brought down to 4 = M.Ts from 8 M.Ts.  Appellant contends that the  Department was informed thereabout.  Allegedly, an inspection was carried  out and the capacity of the said induction furnace was also noticed by the  inspecting team.  Despite the same, a show cause notice was issued as to  why the deemed annual production should not be determined on the basis  that the capacity of the said furnace was 8 M.Ts.  A finding of fact was  arrived at by the concerned authorities that the capacity of the said furnace  was 8 M.Ts, and not 4 = M.Ts.

4.      Mr. Gourab Banerjee, learned senior counsel appearing on behalf of  the appellant, would submit that the appellant had obtained a certificate from  M/s. Furcon Consultancy Services to show that the possible capacity of the  furnace was 4.5 M.Ts. for melting steel and in view of the fact that the  Board was not in a position to supply 3000 KVA at 11 KV to the Unit, the  appellant had no other option but to reduce the capacity of the said furnace.   In this connection, our attention has been drawn to the following letter dated  16.07.1997 issued by the Board:

\023In connection to your letter cited above regarding  increase in power requirement from 2400 KVA to  3000 KVA at 11 KV to your unit to Khakhariya, it  is informed you that your total power requirement  of 3000 KVA cannot be catered at 11 KV as per  feasibility received from our field office.         Please note that as per recent amendment  condition No. 28 power requirement of 2500 KVA  and above requirement to be catered at 66 KV or

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above voltage as per condition of supply.  We are  accordingly advising our E.E. (Const.) Amreli to  send feasibility report.\024   

5.      A certificate dated 4.09.1997 was issued by a Chartered Engineer  wherein the following observation was made:

\023c.  Crucibles are converted to 4500 Kg.  capacity due to lack of power supply.\024

6.      Our attention has also been drawn to a letter dated 7.04.2000 issued  by the Customs and Central Excise, Commissionerate, Rajkot addressed to  the Deputy Commissioner wherein it was stated:

\023Parameters which are crucial for the  determination capacity of production of the  Induction furnace were measured in presence of  the authorized person of the unit (Drawing of the  measurement is enclosed herewith).  As shown in  the drawing the heating coils which wrapped  around the Crucible Furnace are only upto \023Metal  Level\024.  Hence, only upto that level scrap can be  melted.  Weighment of Iron ingots, duly  manufactured in during the visit were made.  In  each batch, number of ingots manufactured on an  average taken from three batches comes to 42 nos.  per batch.  And the weight of five nos. of ingots  from different batches was taken and the average  weight of one ingot came to 98 kgs.  Hence,  average production on the basis of this calculation  comes to 4.1 tones per batch.  Moreover, one heat  (batch) time required is about 1 hours and 30  minutes.\024   

7.      Despite the same, Mr. Banerjee would submit that a show cause  notice was issued purported to be only on the premise that the appellant had  not intimated any proposed change in the induction furnace to the  Commissionerate which is contrary to the fact as such an intimation had  been given to the authorities, as would appear from the show cause filed by  the appellant therein on 6.02.2001 wherein it was stated:

\023\005We have found out from our records that on the  date of carrying out modifications i.e. on  14.5.1997 we had addressed a letter dated  14.5.1997 to the Superintendent of Central Excise,  AR-Sihor, intimating that we were carrying out  changes in the capacity of our crucible through  M/s Furcon Consultancy Services.  We have given  detailed reasons necessitating such modification.   A copy of the said letter dated 14.5.1997, duly  received in the office of the said Superintendent, is  enclosed for your perusal.  After completion of the  changes, we again informed the said  Superintendent vide our letter dated 16.5.1997, a  receipted copy of which is also enclosed for  perusal.  Even though at that time the compounded  levy was not in force, still we kept the Department  informed of the changes carried out by us.  It is,  therefore, not correct to allege that the department  was not informed about the changes.\024   

       It was urged that the said statement having not been factually

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disputed, what arose for consideration was the legal interpretation of the  rules.

       The said contention of the appellant, however, was rejected by the  respondent on the ground that modification of the capacity of induction  furnace was irrelevant; the only relevant criterion therefor being the installed  capacity.

       Mr. Banerjee would submit that such a finding on the part of the  respondent was eminently unreasonable as the said conclusion could not  have been arrived at in view of the extant rules.   

8.      Submission of Mr. Gopal Subramanium, learned Additional Solicitor  General appearing on behalf of the respondent, on the other hand, is that the  Tribunal having arrived at a finding of fact, no question of law arose for  consideration before the High Court.   

9.      Section 3A(2) of the Central Excise Act reads as under:

\023(2) Where a notification is issued under sub- section (1), the Central Government may, by rules,  provide for determination of the annual capacity of  production, or such factor or factors relevant to the  annual capacity of production of the factory in  which such goods are produced, by the  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 only during a part of the year,  the production thereof shall be calculated on  proportionate basis of the annual capacity of  production.\024   

10.     The show cause notice dated 19.06.2000 was issued to the appellant  by the respondent on the premise that the capacity of the induction furnace is  in excess of 4.5 MTs.  The question as to whether in effect and substance the  appellant had reduced the capacity of the said induction furnace or not is  essentially a question of fact.  The Tribunal has passed a very detailed order.   It took into consideration all the contentions raised by the appellant herein.   It is evident that on representation having been made by the appellant that  the capacity of the furnace stood reduced, a Deputy Commissioner was  deputed by the Department for the purpose of measurement and verification  of the parameters of furnace on 8.03.2000.  The officers of the Department  had actually seen the melting capacity of the furnace and the average  production.  They took into consideration the actual production recorded in  RG I registers.  On verification of the relevant registers, it was found that the  actual production recorded was nearer to the level of 8 M.Ts.  The rule no  doubt provides for determining the annual capacity in case where  manufacturer proposes to increase or decrease the capacity of the induction  furnace but before the said authorities even Shri Deepak Shah, Chartered  Engineer was examined.  In his statement, he admitted that he had certified  the capacity of the furnace on the basis of the documents produced and  information made available to him by the appellant.  It was, therefore,  evident that he had not carried out any physical verification of the furnace.   According to the said witness, the actual production may vary from 10% to  20% of the capacity shown in the joint verification report.  Even the officer  of M/s. Furcon Consultancy Services, Shri B.K. Shukla stated that the  modification had been carried out in one of the crucible only but a certificate  was issued in respect of both the crucibles.  The Tribunal, therefore, arrived  at the finding that in fact no modification was carried out in the crucible of  the said induction furnace.  Various other circumstances which were relevant  for determination of the issue, viz., the conduct of the parties, had also been  taken into consideration.  

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11.     The Tribunal in its order dated 22.05.2003 held:

\0234. The learned Advocate, further, contended that  the Commissioner seems to have laboured under a  misconception of the scope of ACD Rules as he  had observed that change in the working capacity  did not lead to change in the installed capacity of  the furnace; that the ACD Rules do not talk of  \021installed capacity\022 as the Rules require capacity of  the furnace installed in the factory to be  determined; that the Rules even provide for  increase and reduction of the capacity of the  furnace even where a particular capacity has  already been determined; that, therefore, where  any change is effected before or after the  introduction of compounded levy scheme, such  increased or reduced capacity has to be given due  weight and regard.  He relied upon the decision in  Shreeje Concast Ltd. Vs. Commissioner of Central  Excise & C, Rajkot, 2002 (139) ELT 131(T)  wherein it has been held by the Tribunal that \023The  Rules do not at any point speak of capacity of a  furnace when it is first manufactured.  They refer  to only capacity and the specified parameter on  which the capacity is to be based.  One of the  parameters is the total capacity of the furnace  installed in the site.  Such capacity is evidently the  capacity that is present.  The capacity of the  furnace after would be the quantity of bunch that it  can produce in one operation (illegible) bunch the  annual capacity would be based upon it.  That this  is so (illegible) from the provisions of Rule 4.   This Rule provides for determining the annual  capacity in case where a manufacturer proposes to  increases or (illegible) the capacity of the  induction furnace.  \023No doubt the Rules does  (illegible) \023installed capacity\024.  In the context of  the other Rule it is clear that (illegible) too the  capacity of a furnace, not when it was initially  constructed, but (illegible) the increase or decrease  referred to in that Rules, newly determined  (illegible) capacity\024.  He emphasized that since  Rule 4 provides for change (illegible) capacity in a  case where the capacity is already fixed at the  commencement of the scheme, the change which  has already taken place before (illegible)  commencement of the scheme, is required to be  given due weightage (illegible) consideration; that  the last sentence of Rule 4 of ACD Rules makes  (illegible) obligatory on the part of Commissioner  to determine the date from which the change in the  installed capacity has taken place.\024

12.     In its judgment, the Tribunal has noticed:

\023\005These evidences, according to Revenue are (i)  measurement of Crucible volume of the furnace  (specific gravity x volume) which works out to be  7.97 MTs (ii) the weight of MS Ingots including  runners and riser produced in a single heat during  spot visit was 5.86 MTs (iii) Increase in power  consumption and (iv) scrutiny of daily production.   We find substantial force in the finding of the  commissioner which are contained in the

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impugned order\005\024

13.     Upon consideration of all relevant facts, as a finding of fact had been  arrived at by the Tribunal, in our opinion, the High Court cannot be said to  have committed any error in passing the impugned judgment.   

14.     Relevant portion of Section 35G of the Central Excise Act reads as  under: \02335G. Appeal to High Court (1) An appeal shall lie to the High Court from  every order passed in appeal by the Appellate  Tribunal on or after the 1st day of July, 2003 (not  being an order relating, among other things, to the  determination of any question having a relation to  the rate of duty of excise or to the value of goods  for the purposes of assessment), if the High Court  is satisfied that the case involves a substantial  question of law\005\024

18.     In terms of Section 35G of the Central Excise Act, the High Court,  thus, could entertain an appeal only if a question of law arose.  No question  of law having, thus, arisen for consideration before the High Court, we are  of the opinion that the impugned judgment does not suffer from any legal  infirmity.

19.     For the reasons aforementioned, there is no merit in this appeal which  is dismissed accordingly.  No costs.