Appeal against CESTAT order held that Rule 5 of 1997 Rules applies even if machinery changes are approved, based on Supreme Court precedent requiring deemed production if approved capacity falls short.
Set aside the CESTAT order dated 16.06.2010; held Rule 5 applies to fix annual capacity based on actual production.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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CEA No. 28 of 2011 (O&M)
IN THE PUNJAB AND HARYANA HIGH COURT AT CHANDIGARH
CEA No. 28 of 2011 (O&M) Date of Decision: January, 06, 2012
Commissioner of Income Tax,
…Petitioner
Versus
M/s Hans Steel Rolling Mills, G.T. Road Khanna, Ludhiana
..Respondent
CORAM: HON'BLE MR. JUSTICE M.M. KUMAR HON'BLE MR. JUSTICE AJAY KUMAR MITTAL
Present: Mr.H.P.S. Ghuman, Advocate for the appellant
Ms. J.J. Kaur, Advocate for the respondent
M.M. KUMAR, J.
'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
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CEA No. 28 of 2011 (O&M)
machinery or any part thereof after seeking approval of the Commissioner of Excise in terms of Rule 4(2) of 1997 Rules?'
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judgment of the CESTAT in the case of M/s Sawan Mal Shibu Mal Steel Rolling Mills v. CCE Chandigarh 2001 (127) ELT 46 (Tri.-LB) 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:
“6. 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
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reason for interference in the impugned order and hence the appeal fails and is hereby dismissed.”
(Emphasis added)
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“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 subSection (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
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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.”
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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:
“5. 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.”
“18. As noted above, Section 3A was inserted
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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 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. 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. Subrule (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
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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 redetermination 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 redetermination 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.”
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CEA No. 28 of 2011 (O&M)
(M.M. KUMAR) JUDGE
(AJAY KUMAR MITTAL) JUDGE
January 6, 2012 Atul
2 issues framed by the court
Whether Rule 5 of the Hot Re-rolling Steels Mills Annual Capacity Determination Rules, 1997 applies when a manufacturer changes machinery after obtaining Commissioner approval?
Whether the Supreme Court judgment in Commissioner of Central Excise Chandigarh v. Doaba Steel Rolling Mills reversed the earlier High Court view?
Colour shows how this judgement treated each authority
M/s Sawan Mal Shibu Mal Steel Rolling Mills v. CCE ChandigarhReferred¶21
M/s Sawan Mal Shibu Mal Steel Rolling Mills v. CCE Chandigarh 2001 (127) ELT 46 (Tri.-LB)
CCE v. Doaba Steel Rolling MillsDistinguished¶23
CCE v. Doaba Steel Rolling Mills 2003 (54) ELT 142
Commissioner of Central Excise Chandigarh v. Doaba Steel Rolling MillsFollowed¶30
Commissioner of Central Excise Chandigarh v. Doaba Steel Rolling Mills 2011 (269) E.L.T. 298 (S.C.)
Commissioner of Central Excise Chandigarh v. Doaba Steel Rolling MillsApplied¶58
Doaba Steel Rolling Mills's case (supra)
3 provisions across 2 enactments
Commissioner of Income Tax
M/s Hans Steel Rolling Mills
M.M. KUMAR
AJAY KUMAR MITTAL
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
