Holding

The Tribunal's finding that no reduction in furnace capacity occurred is a factual determination, no question of law arose, and the appeal is dismissed.

Summary

Paras Ship Breakers Ltd installed an 8‑metric‑tonne induction furnace but, due to insufficient power supply from the Gujarat State Electricity Board, claimed it had reduced the furnace capacity to 4.5 MT and sought a lower deemed annual production under Section 3A of the Central Excise Act. The department measured the furnace, examined production records and, after a detailed inquiry, concluded that the actual capacity remained at 8 MT and that no physical modification had been carried out. The Customs, Excise and Gold Control Appellate Tribunal upheld this finding of fact, and the Gujarat High Court dismissed the appeal. The appellant argued that the issue was a question of law concerning the interpretation of the rules on capacity determination. The Supreme Court held that the Tribunal’s factual finding was correct, that no question of law arose, and consequently the High Court could not have entertained the appeal under Section 35G. The appeal was therefore dismissed.

Issues considered

How should the deemed annual production of an induction furnace be determined under Section 3A of the Central Excise Act, 1944?
Whether the alleged reduction in furnace capacity is a question of fact or a question of law.
Whether the High Court could entertain an appeal under Section 35G when only factual issues are involved.

Legislation cited

Central Excise Act, 1944s. 35G, s. 3A

Subjects

Central Excisedeemed annual productioninduction furnacecapacity reductionSection 3ASection 35Gfact vs lawappeal

Judgment

MIS. PARAS SHIP BREAKERS LTD. A
v.
COMMISSIONER OF CENTRAL EXCISE

OCTOBER 12, 2007
B
[S.B. SINHA AND HARJIT SINGH BEDI, JJ.]
~-·

Central Excise Act, 1944-ss.JA and 35G-Deemed annual
production-Manner of determination-Finding offact by Tribunal
l
against assessee-Appeal of assessee dismissed by High Court- C
Correctness of-Held, correct as there was no question of law for
consideration by the High Court.

Appellant-assessee had installed an induction furnace. The
Department sought to determine the deemed annual production of D
Appellant-assessee in terms of Section 3A of the Central Excise Act,
1944 (brought into force w.e.f.14-05-1987) taking into consideration the
capacity of the induction furnace when it was first installed viz. 8 M.T.
Appellant-assessee contended that due to unavailability of requisite E
electrical energy from the State Electricity Board it had to subsequently
bring down the capacity of the induction furnace to 4Yz M. Ts and that
the deemed annual production should be determined accordingly. A
finding of fact was arrived at by the concerned authorities that the
capacity of the said furnace was 8 M.Ts and not 4Yz M.Ts. Tribunal too F
arrived at a finding of fact that no modification had been carried out in
the capacity of the induction furnace. Appeal filed thereagainst was
dismissed by High Court. Hence the present appeal.

Dismissing the appeal, the Court
G
HELD: 1.1. The show cause notice was issued to the appellant by
,..,-' the respondent on the premise thatthe capacity ofthe 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
419 H
420 SUPREME COURT REPORTS [2007] 11 S.C.R.

A furnace or not is essentially a question of fact. The Tribunal has passed
a very detailed order. It took into consideration all the contentions raised
by the appellant. It is evident that on representation having been made
by the appellant that the capacity ofthe furnace stood reduced, a Deputy
Commissioner was deputed by the Department for the purpose of
B measurement and verification of the parameters offurnace. The officers
of the Department had actually seen the melting capacity ofthe furnace
and'the average production. They took into consideration the actual
production recorded in RGI registers. On verification of the relevant
registers, it was found that the actual production recorded was nearer
c to the level of8 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 the concerned Chartered Engineer was examined, who
in his statement, admitted that he had certified the capacity of the
D 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 furnace. According 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
E Mis. Furcon Consultancy Services, stated that the modification had been
carried out in one 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
p determiiaation of the issue, viz., the conduct of the parties, had also been
taken into consideration. [Para 10] [424-F, G, II; 425-A, B, C, D]

1.2. Upon consideration of all relevant facts, as a finding of fact
had been arrived at by the Tribunal, the High Court cannot be said to
G have committed any error in passing the impugned judgment.
[Para 13] [426-G]

1.3. In terms of Section 35G of the Central Excise Act, the High h
Court could entertain an appeal only if a question of law arose. No
question oflaw having, thus, arisen for consideration before the High
H
M/S. PARAS SHIP BREAKERS LTD. v. COMMISSIONER 421
OF CENTRAL EXCISE [SINHA, J.]
Court, the impugned judgment does not suffer from any legal infirmity. A
[Para 15] [427-C, D]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4841 of
2007.
From the final Judgment/Order dated 11.2.2005 of the High Court B
of Gujarat at Ahmedabad in Tax Appeal No. 427 of 2004.
•·· Gaurab Banerjee, D.N. Ray and Sumita Ray for the Appellant.
Gopal Subramanium, A.S.G., Devanish A. Mohta, P.V. Narasimhan
and B. Krishna Prasad for the Respondent. C
The Judgment of the Court was delivered by
S.B. SINHA, J. 1. Leave granted.
2. This appeal is directed against a judgment and order dated D
11.02.2005 passed by a Division Bench of the Gujarat High Court in Tax
Appeal No. 427 of2004 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, was dismissed.
E
3. The 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.
Appellant herein installed an induction furnace, the capacity whereof was
8 M.Ts. It had asked the Gujarat State Electricity Board (Board) for F
~ supply of 3000 KV A of electrical energy. The Board agreed to supply
only 1900 KV A 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 G
capacity was brought down to 4Yz 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
H
422 SUPREME COURT REPORTS . [2007] 11 S.C.R.

-{-y
A 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 4Yi M.Ts.
4. Mr. Gourab Banerjee, learned senior counsel appearing on behalf
B of the appellant, would submit that the appellant had obtained a certificate
from Mis. Furcon Consultancy Services to show that the possible capacity
of the furnace was 4.5 M. T~- for melting steel and in view of the fact that
...
the Board was not in a position to supply 3000 KV A at 11 KV to the
C Unit, the appellant had no other option but to reduce the capacity of the
said furnace. In this connection, our attention has been drawn to the
following letter dated 16.07 .1997 issued by the Board:
"In connection to your letter cited above regarding increase in
power requirement from 2400 KV A to 3000 KV A at 11 KV to
D your unit to Khakhariya, it is informed you that your total power
requirement of 3000 KV A cannot be catered at 11 KV as per
feasibility received from our field office.
Please note that as per recent amendment condition No. 28
power requirement of 2500 KV A and above requirement to be
E
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"
5. A certificate dated 4.09.1997 was issued by a Chartered Engineer
F wherein the following observation was made:
"c. Crucibles are converted to 4500 Kg. capacity due to lack of
power supply."
6. Our attention has also been drawn to a letter dated 7.04.2000
G issued by the Customs and Central Excise, Commissionerate, Rajkot
addressed to the Deputy Commissioner wherein it was stated:
"Parameters which are crucial for the dete1mination capacity of
production of the Induction furnace were measured in presence
H of the authorized person of the unit (Drawing of the measurement
M/S. PARAS SHIP BREAKERS LTD. v. COMMISSIONER 423
OF CENTRAL EXCISE [SINHA, J.]
is enclosed herewith). As shown in the drawing the heating coils A
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 :B
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. I tones per
batch. Moreover, one heat (batch) time required is about I hours
and 30 minutes." c
7. 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 D
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:
" ... We 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- E
Sihor, intimating that we were carrying out changes in the capacity
of our crucible through Mis Furcon Consultancy Services. We have
given detailed reasons necessitating such modification. A copy of
the said letter dated 14.5.1997, duly received in the office of the
said Superintendent, is enclosed for your perusal. After completion F
_y
of the changes, we again informed the said Superintendent vi de
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 G
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.
H
l
~-
424 SUPREME COURT REPORTS (2007] 11 S.C.R.

A The 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.
Mr. Banerjee would submit that such a finding on the part of the
B
respondent was eminently unreasonable as the said conclusion could not
have been arrived at in view of the extant rules. .,
8. Submission of Mr. Gopal Subramanium, learned Additional
Solicitor General appearing on behalf of the respondent, on the other hand,
C is that the Tribunal having arrived at a finding of fact, no question oflaw
. arose for consideration before the High Court.
9. Section 3A(2) of the Central Excise Act reads as under:
"(2) Where a notification is issued under sub-section (1 ), the
D Central Goveniment 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
E production of such goods by such factory: Provided 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 ofproduction."

F 10. The show cause notice dated 19.06.2000 was issued to the
appellant by the respondent on the premise that the capacity of the 'i~
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
G passed a very detailed order. It took into consideration all the contentions
raised by the appellant herein. It is 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
H 8.03.2000. The officers of the Department had actually seen the melting
MIS. PARAS SHIP BREAKERS LTD. v. COMMISSIONER 425
OF CENTRAL EXCISE [SINHA, J.]
capacity of the furnace and the average production. They took into A
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 ·B
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 furnace. According to · C
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
Mis. 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, D
therefore, arrived at the finding that in fact no modification was carried
out in the crucible of the said induction furnace. Various othet
circumstances which were relevant for determination of the issue, viz., th~
conduct of the parties, had also been taken into consideration.
E
11. The Tribunal in its order dated 22.05.2003 held:
"4. 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 tµe
working capacity did not lead to change in the installed capacity F
_y
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, therefcVe, G
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 decisiol'). in
Shreeje Concast Ltd. v. Commissioner of Central Excise & C,
Rajkot, (2002) 139 EL T 131 T wherein it has been held by the H
426 SUPREME COURT REPORTS [2007] 11 S.C.R.

A 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.
B 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. This Rule provides for determining the
annual capacity in case where a manufacturer proposes to increases
c 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)
D 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
E the last sentence of Rule 4 of ACD Rules makes (illegible)
obl~atory 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 noticed:
F " ... These evidences, according to Revenue are (i) measurement
of Crucible volume ofthe furnace (specific gravity x volume) which
works out to be 7.97 MTs (ii) the weight of MS Ingots including
runners and riser produced in a single heat during spot visit was
5.86 MTs (iii) Increase in power consumption and (iv) scrutiny of
G daily production. We find substantial force in the finding of the
commissioner which are contained in the impugned order ... "
13. Upon consideration ofall relevant facts, as a finding of fact had
been arrived at by the Tribunal, in our opinion, the High Court cannot be
H said to have committed any error in passing the impugned judgment.
,...
/ '
MIS. PARAS SHIP BREAKERS LTD. v. COMMISSIONER 427
OF CENTRAL EXCISE [SINHA, J.]
~-1- 14. Relevant portion of Section 35G of the Central Excise Act reads A
as under:
"35G. 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, B
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 oflaw... " C

15. In 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 oflaw having, thus, arisen for consideration before the High Court,
we are of the opinion that the impugned judgment does not suffer from D
any legal in:fumity.
-~ 16. For the reasons aforementioned, there is no merit in this appeal
which is dismissed accordingly. No costs.
B.B.B. Appeal dismissed.