Holding

When each rolling mill has a separate reheating furnace, the Annual Capacity of Production is the sum total of the capacities of all rolling mills, regardless of simultaneous operability.

Summary

Channy Enterprises operates two hot‑rolled steel mills, each equipped with its own reheating furnace. After installing a second furnace (with a single motor that prevents simultaneous operation), the Commissioner, relying on the 26‑February‑1998 circular, fixed the unit’s Annual Capacity of Production (ACP) by adding the capacities of both mills. The appellant argued that, because only one motor serves both furnaces, the ACP should be based on the higher‑capacity mill alone, invoking the formula in Rule 3 of the ACP rules. The High Court and CEGAT dismissed the appellant’s claims, holding that the circular was applicable. The Supreme Court affirmed that the circular expressly states that when each rolling mill has a separate reheating furnace, the ACP is the sum of the capacities of all mills, irrespective of whether they can run simultaneously, and therefore upheld the Commissioner’s assessment. The Court also held that the Commissioner’s prior approval of the second furnace does not affect the statutory assessment under the rules.

Issues considered

Whether, for a unit having multiple rolling mills each with a separate reheating furnace, the ACP should be determined by summing the capacities of all mills or by taking the capacity of the higher‑capacity mill alone.
Whether the 1998 circular clarifies the method of ACP determination in such a scenario.
Whether the appellant’s expert certificate and the fact that both furnaces share a single motor affect the ACP calculation.

Legislation cited

Central Excise Act, 1944s. 35-H(1), s. 3-A
Central Excise Rules, 1944s. 96(ZP)
Induction Furnace Annual Capacity Determination Rules, 1997s. 3, s. 4

Subjects

Annual Capacity of ProductionCentral ExciseRolling MillsReheating FurnaceCircular 26‑Feb‑1998Excise Duty AssessmentExpert CertificateCEGATHigh Court

Judgment

A
M/S CHANNY ENTERPRISES
v.
COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH

APRIL 5, 2005
B
[RUMA PAL AND C.K. THAKKER, JJ.]

Excise:

Central Excise Act, 1944-Section 3A-lnduction Furnace Annual C
Capacity Determination Rules, 1997-Rules 3 and 4-Circular dated 26-2-
1998-Central Excise Rules, 1944-Rule 96(ZP)-Hot rolled steel products-
Levy of duty on the basis of Annual Capacity of Production(ACP)-Assessee
having two rolling mills, each mill with a separate heating furnace-
Commissioner relying upon the 1998 Circular determining the ACP by clubbing D
the capacity of both the mills-Correctness of-Held: Correct-The 1998
Circular clearly says that the capacity of the higher of the two mills would be
taken for assessing the ACP only if each rolling mill did not have a separate
heating furnace-If each rolling mill had a separate heating furnace, then the
capacity of the unit would be the sum total of the capacity of each rolling mill
in the unit irrespective of the fact that only one mill operated at a time. E
With effect from 1st September 1997, steel ingots and billets were
notified under Section 3-A of the Central Excise Act, 1944 for levy of excise
duty on the basis of Annual Capacity of Production (ACP) of the factory
producing such goods. For determination of the ACP, the Induction
Furnace Annual Capacity Determination Rules, 1997 were framed. In F
answer to a query raised as to how would the ACP be determined if a
unit has more than one rolling mill in the same premises but operates only
one rolling mill at a time, it was clarified by Circular dated 26th February
1998 issued by the Board that if a unit has one re-heating furnace with
two rolling mills, then the higher capacity of the two mills should be taken G
as the assessed annual capacity for the unit. However, if each rolling mill
has a reheating furnace, the cap~city of the unit would be the sum total
of the capacity of each rolling mill in the unit.

Appellant has two mills in which it manufactures hot rolled steel
251 H
252 SUPREME COURT REPORTS [2005] 3 S.C.R.

A products. Prior to 1st September 1999, it had one heating furnace and its
ACP was fixed on "that basis. The appellant subsequently installed a second
furnace but, according to the appellant, there was only one electric motor
which meant that both the furnaces could not be operated simultaneously.
Pursuant to the said change, the Commissioner on the basis of the 1~8
B Circular determined the ACP of Appellant by clubbing the capacity of
both the rolling mills. Appeal against the Commissioner's order being
dismissed by CEGAT, Appellant filed Reference Petition under Section
35-H (I) of the Act as wet! as a writ petition before High Court, which
were dismissed.

C In appeal before this Court the appellant contended that the formula
for determination of the ACP was on the basis of one motor per unit; that
therefore despite having two furnaces since there was only one motor
which was common to both, in terms of the said Circular the capacity of
the higher of the mills should have been taken as the ACP. Respondents
however contended that the question of taking the higher capacity of the
D two mills would only arise if there was one re-heating furnace.

Dismissing the appeal, the Court

HELD : 1. It is not the appellant's case that the 1998 Circular was
incorrect. On the contrary it has been relied on to claim that the ACP
E should have been determined with reference to the mill which had the
higher capacity. The Circular in answer to a query which exactly reflects
the issue in this case, clearly says that the capacity of the higher of the
two .mills would be taken for assessing the ACP only if each rolling mill
did not have a separate re-heating furnace. If each rolling mill had a
F separate. heating furnace, as the appellant admittedly does, then the
capacity of the unit would be the sum total of the capacity of each rolling
mill in the unit irrespective of the fact that only one mill operated at a
time. The language could not be plainer. What the appellant's argument
overlooks is that the scheme did not operate on the basis of the actual
production but on the capacity of the rolling mills to produce. There is
G therefore no reason to differ.with the ~iew expressed by the Commissioner,
CEGAT and the High Court. [255-E-H]

Hindustan Ferodo Ltd. v. Collector of Central Excise, (1997) 89 ELT
16(SC) and Aditya Steel Industries Ltd. v. CCE & C, Bhubaneswar, (2002)
H 53 RL T 1068, distinguished.
CHANNY ENTERPRISES v. C.C.E. [RUMA PAL, J.] 253

2. The appellant's contention that the second mill was set up after A
the approval of the Commissioner is of no consequence. The approval
granted by the Commissioner did not in any way affect the assessment
required to be made in accordance with the Rules. 1257-B)

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2415 of2005. B
Form the Judgment and Order dated 27 .11.2002 of the Punjab and
Haryana High Court in C.E.C.No. 102 of 2002.

P.C. Jain, Sandeep Jain and Rajesh Kumar for the Appellant.

R. Venkataramani, V.G. Pragasam and P. Parmeswaran with for the
c
Respondent.

The Judgment of the Court was delivered by

RUMA PAL, J. Leave granted. D
The appellant has two mills in which it manufactures hot rolled steel
products. With effect from lst September 1997, the Government of India
notified -ingots and billets under Section 3-A of the Central Excise Act, 1944
for levy of excise duty on the basis of the annual capacity of production
(ACP) of the factory. To give effect to the scheme, Rules were framed for E
determination of the annual capacity of production of a factory producing
such notified goods known as the Induction Furnace Annual Capacity
Determination Rules 1997. By the Rules, the ACP of a factory was taken to
be a fixed multiple of the total capacity of the furnaces installed in the
factory. The manner of levy and collection of duty was governed by Rule F
96(ZP) of the Central Excise Rules, 1944 also issued under Section 3A of the
Act. Circular dated 26th February 1998 had been issued by way of a
clarification in answer to questions raised in connection with the operation of
the Rules. One of the questions so raised Was:

"How would the annual capacity of production be determined if a G
unit has more than one rolling mill in the same premises but operates
only one rolling mill at a time."

In answer to this, it was clarified that :
H
254 SUPREME COURT REPORTS [2005) 3 S.C.R.

A "If a unit has one re-heating furnace with two rolling mills, then the
· capacity of the higher of the two mills should be taken as the assessed
annual capacity for the unit. However, if each rolling mill has a
reheating furnace, the capacity of the unit would be the sum total of
the capacity of each rolling milf in the unit".

B Prior to lst September 1999, the appellant had one heating furnace and
the appellant's ACP was fixed on that basis. The appellant then installed a
second furnace but, according to the appellant, there was only one electric
motor which meant that the both furnaces could not be operated
simultaneously. The appellant notified the change to the Commissioner under
C Rule 4. of the Rules. According to the appellant, the approval was
communicated to the appellant by the Commissioner's letter dated 25th August
1999 after which the appellant filed a revised declaration on lst September
1999. Response was given to this on 17th October 2000 by the Commissioner's
office which sought to club the capacity of both the rolling mills since the
D second heating furnace h'ad been installed on the basi~ of the circular dated
26th February 1998. The appellant's submission that the circular did not have
any application to the appellant's case because both the furnaces could not
be operated simultaneously was rejected by the Commissioner who then
proceeded to fix the ACP by clubbing the capacity of both the rolling mills.
An appeal was preferred by the appellant to the Customs Excise and Gold
E Control Appellate Tribunal (CEGA T) which rejected the appellant's appeal
and affirmed the Commissioner's order. The appellant filed a Reference
Petition under Section 35-H (I) of the Act as well as a writ petition contending
that the respondents were not justified in determining the ACP of the appellant
by taking the capacity of both the mills together. The High Court dismissed
F the Reference Application and the Writ Petition holding that no question of
law arose from the order of the Tribunal. It was also found that the CEGA T
had considered all aspects of the matter and had correctly determined the
question raised.

The appellant has contended that all the fora had erred in overlooking
G the formula provided under Rule 3 for determination of the ACP which
showed that a vital element of the formula included the revolutions per minute.·
of the drive. This, according to the appellant, showed that the formula for
calculating the ACP was on the basis of one motor per unit. It is therefore
submitted that despite having two electric furnaces since there was only one
H motor which was common to both, then in terms of the circular issued by the
-- CHANNY ENTERPRISES v. C.C.E. [RUMA PAL, J.]

Board itself the higher capacity of the mills should have been taken as the
255

ACP. The second submission is that the appellant had submitted a certificate
A

from the National Institute of Secondary Steel Technology, a Government
Institute, which certified that the two mills could not be run simultaneously
with the same motor and common flywheel. It is contended that the
Commissioner could not discard the opinion of an expert and determine the B
technical issue on the basis of his own opinion. it was finally submitted that
the Commissioner had himself approved the setting up of the second furnace
within the ACP of the units.

Learned counsel appearing· for the respondents has submitted that the
circular dated 26th February 1998 relied upon by both the parties had been C
misconstrued by the appellant. It is submitted that the question of taking the.
higher capacity of the two mills would onfy arise if there was one re-heating
furnace. According to the .respondents, the installation of the two rolling
mills and two heating furnaces had not been disputed by the apl'ellant before
the Commissioner. It is said that the Commissioner had applied his mind to D
the expert's certificate but had rejected it because it was issued after a lapse
of nine months from the date of the withdrawal of the capacity based
assessment scheme on 31st March 2000. The Commissioner in fact determined
the issue on the basis of the admitted facts and on an interpretation of the
1998 circular.
E
The respondent's contentions are correct. It is not the appellant's case
that the 1998 circular was incorrect. On the contrary it has been relied on to
claim that the ACP should have been determined with reference to the mill
which had the higher capacity alone. The circular in answer to a query which
exactly reflects the issue in this case, clearly says that the capacity of the F
higher of the two mills would be taken for assessing the ACP only if each
rolling mill did riot have a separate re-heating furnace. If each rolling mill
had a separate heating furnace, as the appellant admittedly does, then the
capacity of the unit would be the sum total of the capacity of each rolling
mill in the unit irrespective of the fact that only one mill operated at a time.
The language could not be plainer. What the appellant's argument overlooks G
is that the scheme did not operate on the basis of the actual production but
on the capacity of the rolling mills to produce. We, therefore, see no reason
to differ with the view expressed by the Commissioner, CEGA T and the
High Court.
H
256 SUPREME COURT REPORTS {2005) 3 S.C.R.

A The criticism of the action of the Tribunal in Hindustan Ferodo Ltd. v.
Collector of Cef!tral Excise, ( 1997) 89 EL T 16 SC where the Tribunal· had
entered into the arena of dispute and in effect given evidence on behalf of
the Revenue before itself, would not apply here. The. Revenue in that· case
had led no evidence in support of its case . .The assessee had. In the present
B case CEGA T proceeded on the basis of the admitted facts and relied on the
language of the circular to reject the appellant's·. appeal.

The appellant has also sought support from a decision of the. Kolkata
Bench of CEGAT in Aditya Steel Industries Ltd. v. CCE & C, Bhubaneswar,
(2002) 53 RL T I 068. The Tribunal relied upon the Board's circulars No.325/
C 41/97-CX dated 25.7.1997 and 326/42/97-CX to hold that where it was not
technically possible to run two mills simultaneously because of a common
power supply, the capacity of the stand by mill was not to be taken into
consideration for determining the. ACP.

D We do not agree. Separate schemes were formulated under Section 3A
(}f the Ac_t,in re.latioJ? tp in~llction(urnaces and hot rMolling mills. Circular
325 dated 25.7.1997 dealt with induction furnaces and specifically provided:

"In this context, it is understood that some induction furnace units
have, what they call "idle" crucible. It is reported that at any point of
E time only one crucible is used and the other remains idle. h1 such
cases, it is claimed, the induction furnace unit has one transforM~t
and one electrical panel..As .such the capacity of the induction furnace
is relatable to crucible(s), excluding the "idle (separate or stand by)"
crucible. This aspect may kindly be examined on basis of facts of
each such case and the furnace capacity may be ascertained
F
accordingly".

Circular No. 326 also dated 25. 7 .1997 dealt with the capacity of
production of hot re-rolling mills. There is no paragraph in this circular
similar to the quoted paragraph relating to the ACP of induction furnaces.
G Paragraph I 8 of Circular No. 326 ·.says that the paragraphs in the circular
explain the salient features of Section 3A scheine as applicable to re-rolling
mills. It also says that the scheme, in general terms, is on the same lines as
that for the Induction Furnace units and that th~refore the explanation on
some of the common features are the same as those containe~ i.n circular No.
H 325. This does not tantamount to saying that all the features of the induction

,.
I '
CHANNY ENTERPRISES v. C.C.E. [RUMA PAL, .I.) 257

furnace scheme were to be incorporated into the hot rolling mill scheme. A
The appellant's contention that the second mill was set up after the
approval of the Commissioner is ofno consequence. The approval granted by
the Commissioner did not in any way affect the assessment required to be
made in accordance with the Rules.
B
In the circumstances, the appe;ll is dismissed but without any order to
costs.

B.B.B. Appeal dismissed.

,.