Ship Breakers Ltd Vs. Commissioner of Central Excise  Insc 1062 (12 October 2007)
Sinha & Harjit Singh Bedi
out of SLP (Civil) No. 10073 of 2005] S.B. SINHA, J:
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,
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.
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.
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.
this connection, our attention has been drawn to the following letter dated
16.07.1997 issued by the Board:
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.
note that as per recent amendment condition No. 28 power requirement of 2500
KVA and above requirement to be catered at 66 KV or above voltage as per
condition of supply. We are accordingly advising our E.E. (Const.) Amreli to
send feasibility report.
certificate dated 4.09.1997 was issued by a Chartered Engineer wherein the
following observation was made:
Crucibles are converted to 4500 Kg. capacity due to lack of power supply.
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:
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 Metal
Level. 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.
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:
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.
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. It was urged that the said
statement having not been factually disputed, what arose for consideration was
the legal interpretation of the rules.
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.
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.
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.
Section 3A(2) of the Central Excise Act reads as under:
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:
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.
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.
took into consideration all the contentions raised by the appellant herein.
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
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
The Tribunal in its order dated 22.05.2003 held:
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 installed capacity 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 Excise & C, Rajkot, 2002
(139) ELT 131(T) wherein it has been held by the Tribunal that The 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.
Rule provides for determining the annual capacity in case where a manufacturer
proposes to increases or (illegible) the capacity of the induction furnace.
No doubt the Rules does (illegible) installed capacity. 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.
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. 12. In its judgment, the Tribunal has
evidences, according to Revenue are
of Crucible volume of the furnace (specific gravity x volume) which works out
to be 7.97 MTs
the weight of MS Ingots including runners and riser produced in a single heat
during spot visit was 5.86 MTs
Increase in power consumption and
scrutiny of daily production.
find substantial force in the finding of the commissioner which are contained
in the impugned order
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.
Relevant portion of Section 35G of the Central Excise Act reads as under:
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
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.
For the reasons aforementioned, there is no merit in this appeal which is
dismissed accordingly. No costs.