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CASE NO.: Appeal (civil)  2415 of 2005

PETITIONER: M/s Channy Enterprises

RESPONDENT: Commissioner of Central Excise, Chandigarh

DATE OF JUDGMENT: 05/04/2005

BENCH: Ruma Pal & C.K. Thakker

JUDGMENT: J U D G M E N T

(Arising out of SLP ) No. 14175 of 2003)

RUMA PAL, J.

               Leave granted.

The appellant has two mills in which it  manufactures hot rolled steel products.  With effect  from 1st September 1997, the Government of India  notified ingots and billets under Section 3-A of the  Central Excise Act, 1944 for levy of excise duty on the  basis of the annual capacity of production (ACP) of the  factory.  To give effect to the scheme, Rules were  framed for determination of the annual capacity of  production of a factory producing such notified goods  known as the Induction Furnace Annual Capacity  Determination Rules 1977.  By the Rules, the ACP of a  factory was taken to be a fixed multiple of the total  capacity of the furnaces installed in the factory.  The  manner of levy and collection of duty was governed by  Rule 96(ZP) of the Central Excise Rules, 1944 also  issued under Section 3A of the Act. Circular dated     26th February 1998 had been issued by way of a  clarification in answer to questions  raised in connection  with the operation of the Rules.  One of the questions  so raised was: "How would the annual capacity of  production be determined if a unit  has more than one rolling mill in  the same premises but operates  only one rolling mill at a time."

In answer to this, it was clarified that:

"If a unit has one re-heating furnace  with two rolling mills, then the  capacity of the higher of the two  mills should be taken as the  assessed annual capacity for the  unit.  However, if each rolling mill  has a reheating furnace, the  capacity of the unit would be the  sum total of the capacity of each

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rolling mill in the unit".

Prior to 1st September 1999, the appellant had  one heating furnace and the appellant’s ACP was fixed  on that basis.  The appellant then installed a second  furnace but, according to the appellant, there was only  one electric motor  which meant that the both furnaces  could not be operated simultaneously.  The appellant  notified the change to the Commissioner under Rule 4  of the Rules.  According to the appellant, the approval  was communicated to the appellant by the  Commissioner’s letter dated 25th August 1999 after  which the appellant filed a revised declaration on        1st September 1999.  Response was given to this on  17th October 2000 by the Commissioner’s office which  sought to club the capacity of both the rolling mills  since the second heating furnace had been installed on  the basis of the circular dated 26th February 1998.  The  appellant’s submission that the circular did not have  any application to the appellant’s case because both  the furnaces could not be operated simultaneously was  rejected by the Commissioner who then proceeded to  fix the ACP by clubbing the capacity of both the rolling  mills.   An appeal was preferred by the appellant to the  Customs Excise and Gold Control Appellate Tribunal  (CEGAT) which rejected the appellant’s appeal and  affirmed the Commissioner’s order.  The appellant filed  a Reference Petition under Section 35-H (I) of the Act  as well as a writ petition contending that the  respondents were not justified in determining the ACP  of the appellant by taking the capacity of both the mills  together.  The High Court dismissed the Reference  Application and the Writ Petition holding that no  question of law arose from the order of the Tribunal.  It  was also found that the CEGAT had considered all  aspects of the matter and had correctly determined the  question raised. The appellant has contended that all the fora had  erred in overlooking the formula provided under Rule 3  for determination of the ACP which showed that a vital  element of the formula included the revolutions per  minute of the drive.  This, according to the appellant,  showed that the formula for calculating the ACP was on  the basis of one motor per unit.  It is therefore  submitted that despite having two electric furnaces  since there was only one motor which was common to  both, then in terms of the circular issued by the Board  itself the capacity of the higher of the mills should have  been taken as the ACP.   The second submission is that  the appellant had submitted a certificate from the  National Institute of Secondary Steel Technology, a  Government Institute, which certified that the two mills  could not be run simultaneously with the same motor  and common flywheel.   It is contended that the  Commissioner could not discard the opinion of an  expert and determine the technical issue on the basis  of his own opinion. It was finally submitted that the  Commissioner had himself approved the setting up of  the second furnace within the ACP of the units. Learned counsel appearing for the respondents  has submitted that the circular dated                        26th February 1998 relied upon by both the parties had  been misconstrued by the appellant.  It is submitted  that the question of taking the higher capacity of the  two mills would only arise if there was one re-heating

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furnace.  According to the respondents, the installation  of the two rolling mills and two heating furnaces had  not been disputed by the appellant before the  Commissioner.  It is said that the Commissioner had  applied his mind to the expert’s certificate but had  rejected it because it was issued after a lapse of nine  months from the date of the withdrawal of the capacity  based assessment scheme on 31st March 2000. The  Commissioner in fact determined the issue on the basis  of the admitted facts and on an interpretation of the  1998 circular.  The respondent’s contentions are correct. It is not  the appellant’s case that the 1998 circular was  incorrect. On the contrary it has been relied on to claim  that the ACP should have been determined with  reference to the mill which had the higher capacity  alone.  The circular in answer to a query which exactly  reflects the issue in this case, clearly says that the  capacity of the higher of the two mills would be taken  for assessing the ACP only if each rolling mill did not  have a separate re-heating furnace.  If each rolling mill  had a separate heating furnace, as the appellant  admittedly does, then the capacity of the unit would be  the sum total of the capacity of each rolling mill in the  unit irrespective of the fact that only one mill operated  at a time.  The language could not be plainer. What the  appellant’s argument overlooks is that the scheme did  not operate on the basis of the actual production but on  the capacity of the rolling mills to produce.  We,  therefore, see no reason to differ with the view  expressed by the Commissioner, CEGAT and the High  Court. The criticism of the action of the Tribunal in  Hindustan Ferodo  Ltd. v. Collector of Central  Excise:1997 (89) ELT 16(SC) where the Tribunal  had entered into the arena of dispute and in effect  given evidence on behalf of the Revenue before itself,  would not apply here.  The Revenue in that case had  led no evidence in support of its case.  The assessee  had.  In the present case CEGAT proceeded on the  basis of the admitted facts and relied on the language  of the circular to reject the appellant’s appeal. The appellant has also sought support from a  decision of the Kolkata Bench of CEGAT in Aditya  Steel Industries Ltd. v. CCE & C, Bhubaneswar:  2002 (53) RLT 1068.  The Tribunal relied upon the  Board’s circulars No.325/41/97-CX dated 25.7.1997  and 326/42/97-CX to hold that where it was not  technically possible to run two mills simultaneously  because of a common power supply, the capacity of the  stand by mill was not to be taken into consideration for  determining the ACP.  We do not agree. Separate schemes were  formulated under Section 3A of the Act in relation to  induction furnaces and hot re-rolling mills. Circular 325  dated 25.7.1997 dealt with induction furnaces and  specifically provided: "In this context, it is understood that  some induction furnace units have, what  they call "idle" crucible. It is reported  that at any point of time only one  crucible is used and the other remains  idle. In such cases, it is claimed, the  induction furnace unit has one  transformer and one electrical panel.  As

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such the capacity of the induction  furnace is relatable to crucible(s),  excluding the "idle (separate or stand  by)" crucible. This aspect may kindly be  examined on basis of facts of each such  case and the furnace capacity  may be  ascertained accordingly".

Circular No. 326 also dated 25.7.1997 dealt with  the capacity of production of hot re-rolling mills.  There  is no paragraph in this circular similar to the quoted  paragraph relating to the ACP of induction furnaces.   Paragraph 18 of Circular No. 326 says that the  paragraphs in the circular explain the salient features of  Section 3A scheme  as applicable to re-rolling mills.  It  also says that the scheme, in general terms, is on the  same lines as that for the Induction Furnace units and  that therefore the explanation on some of the common  features are the same as those contained in circular No.  325.  This does not tantamount to saying that all the  features of the induction furnace scheme were to be  incorporated into the hot rolling mill scheme.   The appellant’s contention that the second mill  was set up after the approval of the Commissioner is of  no consequence.  The approval granted by the  Commissioner did not in any way affect the assessment  required to be made in accordance with the Rules. In the circumstances, the appeal is dismissed but  without any order to costs.