Daksh Steel (Pvt.) Ltd. vs Commissioner of Central Excise

Prakash Krishna, J.—This appeal has been preferred under Section 35G of the Central Excise Act, 1944 (hereinafter referred to as ''the Act'') against Customs, Excise & Service Tax Appellate Tribunal''s (hereinafter referred to as ''the Tribunal'') order dated 16-10-2003 passed in Appeal No. E/351/03-NBC(A) [2004 (178) E.L.T. 393 (Tribunal)], whereby the Tribunal has dismissed the appeal and confirmed determination of capacity of furnace of the appellant as 3.5 M.T. and annual capacity as 11488 M.T. and rejected the appellant''s contention that the capacity of the furnace is 3 M.T.

The appellants are manufacturers of mild steel ingots of non-alloy steels falling under Chapter 7206.90 of the Central Excise Tarrif Act. Appellants submitted that they are entitled to discharge their Central Excise duty liability under Compounded Levy Scheme framed under Section 3A of the Act. The said scheme levies duty based on the capacity of production.

Section 3A empowers the Central Government to levy excise duty on manufacturer 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. The said Section 3A was inserted and omitted from time to time. It was inserted in the Act for second time by Act No. 26 of 1997 with effect from 14th May, 1997.

The production capacity of furnace of the appellants herein was 4 M.T. initially. Subsequently, the appellants got reduced the annual production capacity of the furnace as provided under the relevant Rules and applied to the Commissioner for re-determination of the reduced capacity of the furnace. The Commissioner got the furnace measured and determined the capacity of furnace at 3.59 M.T. as against 3 M.T. claimed by the appellants. The order of the Commissioner was subject matter of challenge and it ultimately reached to the Tribunal in the first round of litigation. The Tribunal by its earlier order dated 19th July, 2000 accepted the contention of appellants that the order determining capacity was passed in violation of principle of natural justice. Consequently, the matter was restored back to the Commissioner for re-determining the total capacity of furnace after giving an opportunity of hearing to the appellants in person and presenting their evidence. After remand, the appellants'' stand with regard to the production capacity of furnace was not accepted by the department and matter ultimately reached to the Tribunal in appeal and it by the order under appeal confirmed the order passed by the authorities below to it.

The appeal has been admitted on the following substantial questions of law :

"1. Whether the Commissioner of Central Excise has the powers under the IFACD Rules to determine the capacity of production on the basis of his own parameters and measurement in the cases where the manufacturer''s certificate is available?

Whether the Commissioner of Central Excise can determine the annual capacity of production without resorting to the determination of capacity by comparing the capacity with other comparable Furnace installed in any other Factory?

Whether the Appellate Tribunal has committed an error of law in not taking into account the specific argument that the methodology applied by the Commissioner of Central Excise against the Rules prescribed for determination of the Annual Capacity of Production?

Whether the CESTAT has committed an error of law in not taking into account that the Commissioner of Central Excise had committed error of fact and law in not taking into account the actual lining and patching and taking into account the dummy coils while determining the annual capacity of production was right or wrong?"

Sri Pankaj Bhatia, learned counsel for the appellant submits that the authorities below included the Tribunal approached the matter with wrong angle. Submission is that the appellants produced the requisite documents to show that the production capacity was reduced to 3 M.T. and in presence of said document, it was not opened to the Commissioner to determine the capacity of furnace in any other manner. Elaborating the argument, he submits that the Rules framed under Section 3A of the Act, namely, ''INDUCTION FURNACE ANNUAL CAPACITY DETERMINATION RULES, 1997''. On its correct interpretation, it does not empower the Commissioner to ascertain the capacity of furnace in presence of certificate filed by the appellants certifying the reduction in production capacity of furnace by any other manner. Reliance was placed on the Apex Court judgment in the case of Commissioner of Central Excise, Chandigarh v. Doaba Steel Rolling Mills, 2011 (269) E.L.T. 298 to support his contention that in absence of any Rule with regard to re-determination of capacity of furnace enhanced or reduced subsequent to installation of furnace, the changed capacity will be determined as per Rule 3(a) of the said Rules.

In reply, Sri S.P. Kesharwani, learned standing counsel appeared for the department and submits that the certificate filed by the appellants was not the certificate by the manufacturer of the said furnace and as such, the said certificate cannot be relied upon. It has no evidentiary value. On actual measurement, the production capacity of the furnace was re-determined. No fault could be pointed out with regard to measurements done by the Excise Officials. There is no error in the order under appeal. It was further submitted that on earlier occasion, when the matter had reached to the Tribunal, no objection with regard to measurement, etc. was forwarded by the appellants and only objection was that the Commissioner passed the order determining the production capacity of the furnace without giving any proper opportunity of hearing. For that limited purpose, the order of remand was passed and in this state of affairs, it is not open to the appellants to submit any other plea now.

Considered the respective submissions of the learned counsel for the parties.

As noted by the Apex Court in the case of Doaba Steel Rolling Mills (supra), Section 3A of the Act was inserted in the Act with a view to safeguard the interest of Revenue in the sectors, like induction furnaces, steel re-rolling mills etc., where evasion of Excise duty on goods produced in such mills was rampant. The provision authorizes the Central Government to notify certain goods, for levy and collection of duty of Excise on such goods, in accordance with the provision of the said Section, having regard to the extent of evasion of duty as also other relevant factors. But annual capacity of production of the factory is deemed to be annual production of such goods by such factory on which the assessee is liable to pay duty. Section 3A of the Act opens with non-obstante clause and it gives an overriding effect. The Central Government has framed Rules referred to above under Section 3A of the Act. For the sake of convenience, the relevant portion of the Induction Furnace Annual Capacity Determination Rules, 1997 as also referred by the learned counsel for the parties, is reproduced below :

"3. The annual capacity of production referred to in rule 2 shall be determined in the following manner, namely :

(1) the Commissioner of Central Excise (hereinafter referred to as the Commissioner) shall call for an authenticated copy of the manufacturer''s invoice or trader''s invoice, who have supplied or installed the furnace or crucible to the induction furnace unit, and ascertain the total capacity of the furnaces installed in the factory on the basis of such invoice or document;

(2) if the invoice or document referred to in sub-rule (1) is not available for any reason with the manufacturer then the Commissioner shall ascertain the capacity of the furnaces installed in the induction furnace unit on the basis of the capacity of comparable furnaces installed in any other factory in respect of which the manufacturer''s invoice or other document indicating the capacity of the furnace is available or, if not so possible, on the basis of any other material as may be relevant for this purpose. The Commissioner may, if he so desires, consult any technical authority for this purpose;

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The capacity of production for any part of the year, or for any change in the total furnace capacity, shall be calculated pro rata on the basis of the annual capacity of production determined in the above manner. In case a manufacturer proposes to increase or reduce the capacity of induction furnace, such manufacturer shall intimate about the proposed change to the Commissioner of Central Excise in writing, with a copy to Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, at least one month in advance of such proposed change, and shall obtain the written approval of the Commissioner before making such change. Thereafter the Commissioner of Central Excise shall determine the date from which the change in the installed capacity shall be deemed to be effective."

Sub-rule (1) of Rule 3 provides for determination of annual capacity of production on the basis of authenticated copy of the manufacturer''s invoice or trader''s invoice, who have supplied or installed the furnace or crucible to the induction furnace unit, and ascertain the total capacity of the furnaces installed in the factory on the basis of such invoice or document. On its plain language, the said rule is applicable to furnace or crucible at the time of its installation.

Sub-rule (2) of Rule 3 provides that in the case of non-availability of such invoice or document referred to in sub-rule (1) for any reason with the manufacturer then the Commissioner shall ascertain the capacity of the furnaces installed on the basis of the capacity of comparable furnaces installed in any other factory in respect of which the manufacturer''s invoice or other document indicating the capacity of the furnace is available or, if not so possible, on the basis of any other material as may be relevant for this purpose. It further provides that the Commissioner may, if he so desires, consult any technical authority for this purpose.

On a reading of sub-rules (1) and (2) of Rule 3, the following principles for determining annual capacity of production of a factory of furnace or crucible, emerge.

(i) In a situation where authenticating manufacturer''s invoice or trader''s invoice, who have supplied or installed the furnace or crucible to the induction furnace unit is available, the total capacity of such furnace shall be determined on the basis of such invoice or document.

(ii) In absence of such invoice or document, the capacity shall be determined with comparable furnaces installed in any other factory in respect of which the manufacturer''s invoice or other document indicating the capacity of the furnace is available.

(iii) In absence of two aforesaid situations, it shall be determined on the basis of any other material as may be relevant for the purpose of determination of capacity and for this purpose; the Commissioner may consult any technical authority for this purpose.

Having noticed the principle relating to determination of capacity of furnace as mentioned in the aforesaid Rules, 1997, coming to the facts of the present case, the argument of the appellants'' counsel that the reduced capacity should be determined on the basis of such invoice by invoking sub-rule (1) of Rule 3 needs consideration. The factual aspect of the case is that the appellants got reduced annual capacity of production of furnace already installed. In this connection, strong reliance has been placed upon a voucher issued by Industofur Engineers I.N.C. dated 11th February, 1999, reproduced in the order of the Tribunal. Therein, it is mentioned that production capacity was reduced from 4 M.T. to 3 M.T. in the column of "description". It is written that the charges are related to ''JOB WORK FOR''. This is anchor sheet of the appellants'' case. The said document has not been relied upon any of the authorities including the Tribunal on the findings that it relates to ''JOB WORK''. At this juncture, learned counsel for the appellants laid emphasis with the help of judgment of Apex Court in Doaba Steel Rolling Mills (supra) that the capacity of furnace should be taken as 3 M.T. by invoking Rule 3(1) of the Rules, 1997.

We see no reason to agree with him. Rule 3(1) of the Rules envisages a document in the form of authenticated copy of the manufacturer''s invoice or trader''s invoice, who have supplied or installed the furnace. There is no material before us to show that the furnace in question was supplied or installed by M/s. Industofur Engineers I.N.C. Relied upon the decision of the Apex Court in the case of Doaba Steel Rolling Mills (supra), does not advance the case of the appellants.

Having held so that in the facts of the present case, sub-rule (1) of Rule 3 will not apply then sub-rule (2) of Rule 3 will be applicable and the Commissioner has determined the annual capacity of production on the basis of aforesaid Rule correctly. It is pertinent to note that in the earlier round of litigation, the following observations have been made by the Tribunal in its order dated 19th July, 2000.

"This verification of dimensions cannot be disputed. However, we note that the ld. Commissioner in the Order-in-Original has stated that the total capacity of the furnace was to be determined on the basis of a formula evolved in consultation with the technical expert. What this formula was, was not indicated to the assessee. We note that the assessee was not given any opportunity about this formula evolved after consultation with the technical authorities. Thus there has been a violation of principles of natural justice. In the circumstances, we sent the appeal back to the ld. Commissioner for re-determination of total capacity of the furnace after giving the appellants an opportunity of being heard in person and presenting their evidence."

There being no dispute with regard to verification of dimensions and giving an opportunity of hearing to the appellants or the formula applied by the Commissioner for determination of production capacity, we find no merits in the appeal. The questions raised in the appeal are answered by providing that relied upon the document is not manufacturer''s certificate, therefore, Rule 3(1) will not apply. Before us, no argument was advanced with regard to Question Nos. 2, 3 and 4 and as such the questions are left and are treated as not pressed.

There is no merits in the appeal. The appeal is dismissed.