Customs, Excise and Gold Tribunal - Delhi
Malhotra Industrial Corporation vs Cce on 6 September, 2002
Equivalent citations: 2003(87)ECC229, 2003(159)ELT605(TRI-DEL)
JUDGMENT C.N.B. Nair, Member (T)
1. The appellant is a hot re-rolling steel mill. It was discharging its Central Excise duty liability in terms of Section 3 A of the Central Excise Act based on the annual capacity of production determined by the jurisdictional Commissioner of Central Excise in accordance with Hot, Re-Rolling Steel Mills Annual Capacity Determination Rules, 1997. Even so, impugned order has held that higher duty amount is payable by the appellant on account of re-determination of the annual capacity of production. A penalty of Rs. 25 Lakhs has also been imposed on the appellant. This appeal challenges those findings.
2. The facts of the case are that the hot steel re-rolling mills are liable to pay duty on compounded levy basis in terms of Section 3A of the Central Excise Act. The compounding is done based on the annual capacity of production of the machinery installed in a re-rolling mill. Further, the annual capacity of production is determined by the jurisdictional Commissioner based on information about the machinery furnished by the re-rolling mill. The present appellant furnished the particulars of machinery and the Commissioner passed his order dated 16.10.97 determining the annual capacity of production. The appellant was liable to pay duty as applicable to the annual capacity determined by the Commissioner of Central Excise Officers visited the appellants' factory on 30.1.1998 and verified the machinery. It was observed that the appellants had 3 pinion stands described as "A", "B" and "C", "C" being the last and finishing stand. The Officers observed that pinion stand "C" was not connected with any rolling mill and was lying idle. The finishing mill was found coupled with pinion stand "A" and finished products were being rolled out finally through this pinion stand "A". In the impugned order it has been held that since the appellant was not producing with the help of pinion stand "C", the duty liability was to be worked-out in terms of annual capacity determined by taking into account factors relevant to pinion stand "A", and not factors relevant for pinion stand "C" as had been done under order dated 16.10.93, the relevant factor being 'd'-factor. The higher duty demand is the result of adopting the 'd' of pinion stand "A" in the place of the 'd' factor or pinion stand "C".
3. The appellants have contested the impugned order as totally illegal and contrary to the scheme of compounding. It is their submission that under the compounded levy scheme applicable to hot re-rolling steel mills, once the annual capacity is fixed, the temporary non-working of a pinion stand is no ground for revising the annual capacity of production. It is contended that Department of Revenue had laid down the method for determining the annual capacity in its Circular No. 331/47/97 CH dated 30.8.97. The appellants have pointed out that para 4 (a) of the Circular had stated that the term "nominal center distance" is the "pinion center distance of the pinion stand connecting the last re-rolling mill drive of the finishing mill excluding any pinch roll, which is not a finishing stand." It is the appellants' contention that their mill has 3 pinion stand and "C" is the last pinion stand connecting the last rolling drive of the finishing mill. This position had been accepted and annual capacity determined by the Commissioner in terms of the rules in his order dated 16.10.1997. Appellant has submitted that the non-working of pinion stand "C" on the date of the visit of the officers was on account of temporary defects in the machinery and that is no reason for re-determining the annual capacity of production. During the hearing of the case learned Counsel took us to the evidence and pointed out that the defect in the machinery was for a very short period and the appellant had restored the original lay out with pinion stand "C" as the last pinion stand. And that the annual capacity of production remained unchanged. The learned Counsel submitted that refixation of annual capacity under proviso 3 to Sub-rule (3) of Rule 962P is called for only in a case of change of machinery which brings about change in the installed capacity of production and not in a case of repair of machinery. Learned Counsel also relied on the decision of this Tribunal in the case of Ashok Iron & Steel Mills v. Commissioner of Central Excise, Allahabad, 2001 (127) ELT 496 (T) in support of the contention that provision regarding re-fixation of capacity would not be applicable to a case of repair, As against the aforesaid submissions on behalf of the appellants, learned SDR took us through the order and pointed out that this is a case where verification based on information gathered had shown that the appellant had actually not been working pinion stand "C" and was working the mill by connecting it with pinion stand "A". It was contended that in these circumstances, the Commissioner was right in holding that capacity was to be determined taking into account the 'd' factor relevant to the pinion stand "A" to which the last rolling mill drive of the finishing mill had been connected.
4. This is a case of payment of duty at compounded rates in terms of Section 3A of the Central Excise Act. The basis for compounding is the annual capacity of production of the machinery installed. Actual production is not to be taken into reckoning. The appellant had declared the relevant particulars of machinery installed in his factory and the same had been accepted and annual production capacity determined by the Commissioner under Hot Re-Rolling Steel Mills Annual Capacity Determination Rules. Once the determination of annual production capacity took place, the appellant was to discharge its duty liability as applicable to that capacity. Again, without reckoning the actual production. Under Such an arrangement of compounding, time-to-time breakdown of machinery, the interim arrangements made for production and the time taken for repair etc. are not of any relevance for payment of Central Excise duty. The only case where re-determination of capacity and revision of duty arises under the scheme is the event of change in the re-rolling capacity of the mill installed in the factory. In the present case, there is no dispute that the appellant had not made any change in the machinery, which brought about a change in the re-rolling capacity installed in the mill. In such a situation, it is of no relevance whether a particular pinion stand was non-functional for a short while and the rolling machinery was actually connected to another pinion stand. A mill working under the compounded scheme is entirely at liberty to arrange its production, repair of machinery etc. according to its best judgment, once it discharges duty liability at the compounded rate. That the last pinion stand was not connected at the particular time of verification is of no significance. The strength and weakness of compounded levy system is that what actually happened from day-to-day on the production front is not material to the payment of tax. The Revenue is not to ask for a higher levy based on the actual production. Nor is the assessee entitled to any remission for short period of dislocation. The exceptions to this arrangement is prolonged non-production or change in the installed capacity. The adjudication proceedings do not concern either type of case. It is also clear from a perusal of the Circular No. 331/47/97-CX dated 30.8.1997, that the 'd' factor relevant for determining the capacity of production is "the pinion center distance of the pinion stand connecting the last rolling mill drive of the finishing mill excluding any pinch roll." It is not in dispute that according to the layout of the appellants' mill, pinion stand 'C' was the last. It was so at the time of filing of application for compounding, it remained so during the visit of the Central Excise Officers and the passing of the impugned order. Therefore, the original determination carried out by the Commissioner was done according to the rules for determination of annual capacity and the instructions of the Government on the subject. There was no justification for deviating from the annual capacity so determined. The impugned order was wholly misdirected in setting out to re-determine the annual capacity and in demanding Central Excise Duty merely because pinion stand "C" was not functional for a short period.
5. In view of what has been stated above, the appeal is allowed with consequential relief, if any, to the appellant.