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Prakash Iron & Steel v. Commissioner Of C. Ex., Jamshedpur
Factual and Procedural Background
This appeal challenges the determination of the Annual Capacity of Production (ACP) of the appellants' rolling mill. The appellants had applied for determination of ACP under Section 3A of the Central Excises Act, 1944 (the Act), which provides for levy and collection of duty on specified items on the basis of ACP. A provisional capacity in the instant case had earlier been fixed at 692.233 MT taking into account the 'd' factor. The Assistant Commissioner (Preventive) made a surprise visit, measured parameters relevant to ACP determination and recorded the 'd' factor as 176 mm (previously recorded as 159 mm). On that basis the Commissioner finally determined the ACP as 2,377.68 MT and issued the impugned order. The appellants challenged that determination before the Tribunal. The Tribunal earlier (order dated 16-6-99) had remanded the matter to the Commissioner directing re-adjudication in accordance with principles of natural justice. The Commissioner re-adjudicated; the appellants again challenged the revised determination, leading to the present appeal.
Legal Issues Presented
- Whether the re-determination of the 'd' factor (and hence the ACP) during a surprise inspection violated principles of natural justice because company representatives were not associated with the measurement or given an opportunity to rebut the measurement.
- Whether the Commissioner was obliged to follow the earlier directions of the Tribunal (which had remanded the matter) or whether subsequent binding authority from the Supreme Court (referred to as Venus Castings/Venus Steel in the opinion) made the Tribunal's directions inapplicable.
- Whether, having once opted under the relevant rule (sub-rule (3) of Rule 96ZP / Rule 96ZO equivalents), the assessee could again seek to have ACP determined under sub‑section (4) of Section 3A of the Act (i.e., whether the assessee could change the mode of discharge of duty).
Arguments of the Parties
Appellants' Arguments
- The appellants contended that the capacity of their rolling mill was determined “at their back” because responsible officers of the factory were not associated with the measurement of the 'd' factor; thus there was a violation of the principles of natural justice (no opportunity to rebut the finding that 'd' = 176 mm versus earlier 159 mm).
- Counsel urged that the Tribunal had previously remanded the case to the Commissioner with directions to re-adjudicate in accordance with principles of natural justice, and these directions were not followed by the Commissioner, amounting to judicial indiscipline.
- It was submitted that the Commissioner had relied unduly on rules rather than on the statute, and that sub-section (4) of Section 3A specifically provides for determination of actual production. Counsel maintained that the correct ACP was 932.222 MT as earlier determined provisionally, that the appellants had been paying duty on that basis, and that further determination should be quashed.
Respondent's (Departmental Representative) Arguments
- The Departmental Representative submitted that the Commissioner, on de novo adjudication, had considered all relevant points and the appellants' two representations.
- He stated that the verification report was signed by one of the Power of Attorney holders, whose statement (under Section 14) confirmed that the 'd' factor of 176 mm was measured in his presence; accordingly, no breach of natural justice occurred.
- The DR argued that the Commissioner properly relied on subsequent Supreme Court authority (referred to in the order as Venus Castings/Venus Steel) establishing that where an assessee has elected the option under sub‑rule (3) of the relevant rules, the assessee cannot thereafter opt to pay duty under Section 3A(4); hence the Commissioner correctly applied Rule 96ZP(3) (and equivalent rules) over the Tribunal's earlier direction based on Meenakshi Castings.
- The DR prayed that there was no case for interference with the impugned order.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Meenakshi Castings & Ors. v. Commissioner of Central Excise (Tribunal) — reported as 1999 (32) RLT 82 | Interpreted applicability of sub-section (4) of Section 3A of the Central Excises Act (as relied upon previously by the Tribunal in remanding the case). | The Tribunal had relied on this decision in earlier directions to the Commissioner. The court noted that those Tribunal directions existed but held that they were superseded by later Supreme Court authority followed by the Commissioner. |
| Venus Castings / Venus Steel (referred to in the opinion as a Supreme Court decision) | Holds that once an option under sub‑rule (3) of the relevant rule (Rule 96ZO / Rule 96ZP equivalents) is exercised, it is not open to the assessee to exercise the option to pay duty afresh under provisions of Section 3A(4) of the Act. | The Commissioner applied the ratio of this Supreme Court ruling to hold that the assessee was bound by its earlier option under the rules (Rule 96ZP(3)), and not entitled to re-determine ACP under Section 3A(4); the Tribunal accepted that reliance and upheld the Commissioner's order. |
Court's Reasoning and Analysis
The court considered two principal strands of challenge: (1) alleged denial of natural justice in the measurement and re-determination of the 'd' factor and (2) whether the Commissioner failed to follow the Tribunal's directions (judicial indiscipline), in particular by applying the Rules rather than the Section.
On denial of natural justice:
- The Commissioner undertook a detailed examination and recorded findings in paras 5.4–5.7 of his order (reproduced in the opinion). The Commissioner observed that invoices established that the assessee had procured gear pinions of size 158 mm, but there was no evidence that those pinions had been installed at the relevant time. The Commissioner also noted that the assessee had repeatedly claimed a 'd' factor of 159 mm despite being aware that even a 1 mm increase would materially increase duty liability.
- The Commissioner relied on the fact that the measurement performed by the Assistant Commissioner (Preventive) was signed by a responsible representative of the assessee and that the same representative confirmed the measurement in his statement recorded under Section 14. On that basis the Commissioner concluded there was no unfairness in the verification process.
- The Commissioner rejected the request to deputize a technical expert for measurement because the 'd' factor is variable (capable of changing by simple placement/removal of LYNA in the gearbox) and, if an expert were deputed with notice to the assessee, the object of the verification regime under Section 3A could be frustrated. The Commissioner also held that a Chartered Engineer's certificate did not assist the assessee in the face of direct, verifiable measurement confirmed by the assessee's representative.
- The Tribunal (this court) reviewed these findings, found that the Commissioner had gone into the issue in depth, and stated that there was no basis to hold that principles of natural justice were violated. The court expressly agreed with the Commissioner's observations and conclusions on this point.
On compliance with Tribunal directions / applicability of subsequent authority:
- The Commissioner explained in para 6.1 that once an assessee elects to discharge duty under the option provided by sub‑rule (3) of Rule 96ZP (paralleling Rule 96ZO), the scheme of the rules (as explained by the Supreme Court in the Venus decision) prevents the assessee from thereafter switching to pay duty under sub‑section (4) of Section 3A. The Commissioner treated Rule 96ZP(3) as binding in the circumstances.
- The court examined this reasoning and observed that although the Tribunal's earlier remand and directions had been based on the Tribunal's view in Meenakshi Castings (1999 (32) RLT 82), the Supreme Court had in the interim laid down a conflicting or overriding principle in Venus Castings / Venus Steel. The Commissioner followed the Supreme Court's ratio, and therefore the Tribunal's earlier directions were no longer controlling.
- Having accepted the Commissioner's legal position (that the Supreme Court's decision binds and that the assessee is constrained by its earlier option under the rules), the court concluded that the Commissioner's reliance on the rules and the Supreme Court authority was appropriate and that the Commissioner's order did not amount to judicial indiscipline or error.
In sum, the court analyzed the factual findings (signed measurement sheet, confirmation under Section 14 statement), legal reasoning about the effect of an assessee's election under the rules, and relevant precedent, and found the Commissioner's determinations both factually and legally sustainable.
Holding and Implications
Final Disposition: The appeal is dismissed and the impugned order is upheld.
Direct Effect on the Parties: The Commissioner's determination of the Annual Capacity of Production at 2,377.68 MT is confirmed. The appellants' challenge alleging violation of natural justice and improper application of law was rejected.
Broader Implications: The court accepted the Commissioner's reliance on subsequent Supreme Court authority (referred to in the opinion as Venus Castings / Venus Steel) which, as applied by the Commissioner, precludes an assessee from changing the mode of duty payment once an option under the relevant rule (sub-rule (3) of Rule 96ZP / equivalent) is exercised. The opinion does not purport to create a new precedent; rather, it applies existing authority and upholds the administrative determination. No additional broader or novel legal principle was announced by this order beyond the application of the authorities and rules discussed.
[Order per : G.R. Sharma, Member (T)]. - This is an appeal filed against the determination of the Annual Capacity of Production (ACP) of rolling mill.
2. The facts of the case briefly stated are that the appellants have a rolling mill. They applied for determination of the ACP. Section 3A was introduced in the Central Excises Act, 1944 for levy and collection of duty on specified items on the basis of ACP. Provisional capacity of the mill in the instant case was fixed at 692.233 MT taking into account the ‘d’ factor. The determination was based on earlier verification.
3. The Assistant Commissioner of Head Quarter (Preventive) visited the factory of the appellants by surprise and took measurement of various parameters essential for determination of the ACP. He found that the ‘d’ factor was 176 mm as against the earlier of 159 mm. Therefore, the Commissioner finally determined ACP of the factory as 2377.68 MT and ordered accordingly.
4. Arguing the case of the appellants, Shri N.C. Roychowdhury, ld. Sr. Advocate submits that the capacity of their rolling mill was determined at their back inasmuch as responsible officers of the factory were not associated with the measurement of ‘d’ factor. He submits that there was violation of the principles of natural justice inasmuch as no opportunity was given to them to rebut the allegation that the ‘d’ factor was 176 mm as against the earlier measurement of 159 mm. He submitted that this violation has led to grave injustice to the appellants.
5. Ld. Sr. Counsel further submitted that earlier the case had come up to the Tribunal and this Tribunal in their order dated 16-6-99 had remanded the case to the Commissioner with direction, “We agree with the contention of the ld. Sr. Advocate, Shri N.C. Roychowdhury that the mistakes apparent from the record have taken place in passing the impugned order dated 17-2-99 by the Tribunal. Consequently, we recall that order. We also observe, that as rightly pointed out by him, that the Commissioner’s Order dated 12-13/10/98 as conveyed by the Assistant Commissioner (Technical) is set aside for the apparent infirmity as mentioned above. He is directed to re-adjudicate the case and re-determine the annual capacity in terms of sub-section (4) of Section 3A of the Act in accordance with the principles of natural justice. Appeal is thus allowed by way of remand.”
6. Ld. Counsel submits that these directions of the Tribunal were not followed by the ld. Commissioner; that this amounts to judicial indiscipline; that the ld. Commissioner has gone wrong by not following these directions; that the ld. Commissioner has relied upon more on the Rules than on the Section; that the sub-section (4) and Section 3A of the Central Excises Act specifically provides for determination of actual production. Ld. Sr. Counsel, therefore, submitted that the correct ACP of the rolling mill was 932.222 MT as determined provisionally. Ld. Sr. Counsel also submitted that the appellants have been paying duty on that basis and that further determination was not warranted and should be quashed.
7. Shri A.K. Chattopadhyay, ld. DR submits that the ld. Commissioner while deciding the case on de novo adjudication has considered all these points. He submits that he has considered the two representations filed by the appellants. He submits that in so far as the re-determination of the ACP is concerned, verification report was signed of one of the Power of Attorney Holder whose statement was recorded and who even in his statement confirmed that the ‘d’ factor of 176 mm was measured in his presence. The ld. DR, therefore, submits that there was no violation of the principles of natural justice; that re-determination of the ‘d’ factor was done before the responsible officer of the appellants’ Company.
8. On the question of following the direction of the Tribunal, ld. DR submits that the earlier directions of the Tribunal were based on the decision of the Tribunal in the case of Meenakshi Castings & Ors. v. Commissioner of Central Excise, Kanpur reported in [ (Tribunal) = 1999 (32) RLT 82].
9. Ld. DR, therefore, prays that no case is made out by the appellants for any interference with the impugned order.
11. We have heard the rival submissions and also perused the case law. We have also examined the impugned order on various points. The first issue hotly pleaded before us was denial of natural justice. The ld. Commissioner examined this issue and his observations contained in paras 5.4, 5.5, 5.6 and 5.7 are reproduced below :-
“5.4 In the representation the assessee have contented that during the year 1997, they have changed the size of their pinion From 5” to 158 mm. In support of their above plea they have submitted photo copy of relevant Bills under which they had procured gear pinion of size 158 mm in 1977 and March 1998. From these bill/invoice, it is found that the assessee had procured 3 gear pinion of size 158 mm in April 1997 and 4 gear pinions in March 1998. These invoices establish that they had procured gear pinion of size 158 mm. But the assessee till date at no stage produced any evidence to show that in 1997 or even in March 1998 when they had procured gear pinion of size 158 mm under cover of above invoices they had changed gear pinion of their mill by placing procured gear pinion having size 158 mm. Further the assessee have procured gear pinion of size 158 mm but they repeatedly claim the size of gear pinion centre as 159 mm in spite of the fact that the assessee is aware that by a increase of even 1 mm in ‘d’ factor their duty liability would have increased by Rs. 1,800/- per year. In practice, gear pinions of a rolling mill is changeable. It is not relevant that they possess gear pinion of size 158 mm. The relevant fact is what is ‘d’ factor when their mill is in operation because as admitted by them in their under Sec. 14 statement dated 22-2-1998 that mere placing LYNA in gear box, ‘d’ factor of gear pinion size 158 mm increases to 176 mm. Hence, the above, contention of the assessee does not held the case of the assessee.
5.5 The contention of the assessee that ‘d’ factor measured by A.C. (Prev.) during his surprise visit is not correct cannot be accepted because the same was measured in presence of the responsible representative of the assessee who after measurement signed the measurement sheet and subsequently in his under Section 14 statement confirmed such measurement as correct.
5.6 The request of the assessee to depute technical expert for measurement of ‘d’ factor is also not acceptable because ‘d’ factor is changeable by mere placement of LYNA in gear box or removing LYNA from the gear box. If technical expert under knowledge to the assessee is deputed the object behind levy of duty under Section 3A of CEA shall be frustrated. Moreover, such deputation was necessitated when ‘d’ or ‘n’ or ‘i’ factor of rolling mill was not verifiable. But in the case of the assessee, the same was verifiable and were verified correctly in presence of a responsible representative of the assessee. This fact of correct verification has been confirmed by the assessee in their under Section 14 statement as well as by putting signature on the measurement sheet. Hence the above prayer of the assessee is rejected. Similarly, Chartered Engineer’s Certificate also does not help the assessee.
5.7 In view of above discussions, I confirm ACP in the case of Rolling Mill of the assessee as 2377.68 MT.”
12. We find that the issue has been gone into in depth by the Commissioner. We do not see any reason to hold otherwise. We agree with the observations of the Commissioner that there was no violation of the principles of natural justice.
13. In regard to judicial indiscipline by not following, the directions of the Tribunal, we note that the position has been amply clarified by the Commissioner in para 6.1 which are reproduced below :-
“6.1 Now I find that the assessee have opted to discharge their duty liability provisions of sub-rule (3) of Rule 96ZP of the CER’ 44. I further find that sub-section (3) of Section 3A of CEA’44 has provided to collect duty in the manner as may be prescribed. In case of Induction furnace duty in the manner as may be prescribed under Rule 96ZO(1) or Rule 96ZO (3). Similarly, in the case of Rolling Mill products duty is collected in the manner prescribed under Rule 96ZP(1) or Rule 96ZP(3). I also find that Rule 96ZO(1) is pari materia. Rule 96ZP(3) and Rule 96ZO(3) is pari materia [Rule 96ZP(3)]. In the case of Venus Steel reported in (S.C.), Hon’ble Supreme Court has clearly held that once option under sub-rule (3) of Rule 96ZO has been exercised it is not open to exercise option to pay duty afresh under provisions of Section 3A(4) of CEA’44. Applying ratio of above ruling of the Hon’ble Supreme Court the assessee is bound to discharge their duty liability as per their option under provision contained in Rule 96ZP(3). In view of above the contention of the assessee that their monthly average production is very low and the decision of the Supreme Court relied upon in their defence do not vitiate my finding as above. Also the decision of the CEGAT reported in 1999 (32) RLT 82 (CEGAT) in the case of Meenakshi Castings & Ors. and observations made therein with regard to applicability of sub-sec. (4) of Section 3A of CEA’ 44 does not interfere my finding as above in view of the decision of the Supreme Court relied in this order.”
14. On analysis of the above observations, we note that the Commissioner has followed the directions of the Hon’ble Supreme Court in the case of Venus Castings reported in . The Commissioner has rightly followed the decision in the case of Venus Castings ignoring the directions of the Tribunal based on Meenakshi Castings & Ors. reported in [ (Tribunal) = 1999 (32) RLT 82] because in the meantime, the Apex Court had already laid down the law. Therefore, the objection of the ld. Sr. Counsel about the judicial indiscipline and following the Rules without following the Act no longer survives.
15. In view of the above discussions and findings and the observations of the ld. Commissioner, we do not see any reason to interfere with the impugned order and the impugned order is, therefore, upheld and the appeal is rejected.
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