1. The issue involved in this Appeal, filed by M/s. Paras Ship Breakers Ltd., relates to the determination of Annual Capacity of Production of their induction furnace under Induction Furnace Annual Capacity Determination Rules, 1997.
2. Shri P.C. Jain, learned Advocate, mentioned that Appellants manufacture, inter alia, M.S. Ingots of non-alloy steel; that they purchased one Induction Furnace having capacity of 8 MTs from M/s.
Inductotherm (India) Ltd. under invoice dated 29.1.1996; that as the furnace was not performing properly the matter was discussed with the supplier who under letter dated 27.1.97 informed that the problem was due to sanctioned power load inasmuch as the furnace required 3000 kW power whereas the Power sanctioned to them was less and advised the Appellants to decrease the furnace capacity to 4 to 4.5 MT by raising up the bottom to match the power of 1900 kVA; that they assigned the said work to Mr. B.K. Shukla, Proprietor of M/s. Furcon Consultancy Services, Rajkot who started the work of modification on 14.5.1997; that on that very day, they informed the Range Superintendent about the modification in the capacity of Furnace under letter dated 14.5.97; that reduction in the capacity of the furnace was completed on 16.5.97 and Mr. Shukla certified that capacity had been reduced to 4.5 MTs; that this fact was also intimated to Superintendent under letter dated 16.5.97.
2.2 The learned Advocate, further, mentioned that after introduction of levy of duty on the basis of annual capacity of production (ACP) with effect from 1.9.97, they opted for payment of duty on compounded basis under Rule 96 ZO of the Central Excise Rules, 1944 and declared the capacity of their furnace to be 4.5 MTs.; that ACP was provisionally fixed by the Commissioner to be 4.5 MTs; that Central Excise officers carried out certain verification, including measurements of Parameters of the furnace and also effected seizure of ingots lying in the factory on 28.12.99; that they requested the Commissioner under letter dated 14.2.2000 to depute the technical staff for verification of the furnace; that Deputy Commissioner visited their factory who informed them under letter dated 4.5.2000 that the capacity of the furnace was found to be 4.5 MTs; that after issuing a show cause notice dated 19.6.2000 followed with an addendum dated 24.10.2000, the Commissioner, under the impugned Order, has determined the ACP at 8 MTS on the basis of invoice issued by the supplier of furnace.
3.1 The learned Advocate submitted that the Commissioner's finding that the capacity of the induction furnace had not undergone any change and was very much at the level of 8 MTs is nothing but pure conjecture and surmise without any evidence; that even before the Annual Capacity Determination Rules (ACD Rules) came into existence, they had informed the Department in May 1997 about the planned reduction in the capacity of furnace; that even the verification done by the Department on 28.12.99 also clearly suggests that there has been modification in the capacity of the furnace; that the Commissioner has solely based his findings on the verification done by the Officers on 28.12.99 without appreciating that the same was challenged by them under their letter dated 14.2.2000 in pursuance to which Deputy Commissioner was deputed for the purpose of measurement and verification of the parameters of the furnace on 8.3.2000; that the officers had actually seen the melting capacity of the furnace and the average production was found to be 4.1 MT approximately. He also submitted that a perusal of the Joint Verification Report dated 28.12.99 would show that the dimensions are the same as found by the officers who visited factory on 8.3.2000; that the Commissioner has not paid any attention to the findings of the officers and letter dated 4.5.2000 of the Deputy Commissioner informing that the capacity of the furnace was 4.5 MTs.
3.2 He, further, mentioned that the Commissioner had not accepted the changed capacity of the furnace on the premise that after modification of the furnace, the power consumption should have gone down whereas the same had considerably increased; that in Commissioner's opinion, energy saving was the main purpose of making modifications, that this is absolutely not correct; that the problem faced by them was that the furnace was taking longer time for melting; that Shri B.K. Shukla has deposed in his statement that he had advised the Appellants to go for new crucible otherwise their energy consumption would be higher and there would be loss in production; that as they did not obtain a new crucible, their energy consumption had gone up. He also mentioned that Shri Yatgiri, Assistant Manager of M/s. Inductotherm, had deposed in his cross-examination that he had advised the Appellants to increase the power capacity or to reduce the capacity of the furnace as the unchanged furnace required power connection of 3600 kW while their connection was only 1900 kW; that Gujarat Electricity Board had informed them under letter dated 16.9.97 that their "total power requirement of 3000 kVA cannot be catered at 11 kV as per feasibility received from one field staff"; that Shri Yatgiri had also deposed that raising the bottom of the furnace was one of the ways to reduce the capacity of the furnace; that Shri Yatgiri confirmed the reduction in the capacity of the furnace after seeing the dimensions of the furnace recorded in the Panchnama and those recorded in the Original diagram of the furnace. He submitted that there is no substance in Commissioner's finding that had there been any change in the capacity of the furnace, the same would not have escaped from the notice of the qualified service engineer of the supplier; that Shri Dholakia had stated in his depositions made on 12.12.2000 that job carried out was on the Panel side and not on the crucible side which was not attended to by their engineers. He contended that nothing turns on the aspect of not informing the modification of furnace to M/s. Inductotherm as the Appellants were free to get the modification from anybody, whosoever was found to be economical; that the Commissioner's finding that had the bottom changed, the same should have been at the level of 112 cms, is not correct; that the original height of the crucible was 1900 mm which was reduced by 21" (i.e. 53.34 (CM) by raising the bottom of the crucible; that as such the reduced height would be around 1300 mm only and not 112 cms, that the verification done on 28.12.99 clearly discloses that the dimension of the furnace had been changed from 1900 mm x 1050 mm to 1300 mm x 1000 mm which means the capacity of the furnace has been reduced.
3.3 The learned Advocate said that the Commissioner had been carried away by the actual production recorded in RG 1 registers which according to him is nearer to the level of 8 MTs. He submitted that the production can vary depending upon various factors such as power supply, quality of scrap, amount of scrap fed into the crucible, that for the purpose of Rule 96 ZO read with ACD Rules, actual production is immaterial; that it is the capacity of the furnace which is material for the purpose of charging duty; that based on the installed capacity (including changed capacity), duty liability is required to be determined and the manufacturer is free to take as much production as possible; that as per the ratio of the decision of the Supreme Court in Commissioner of Central Excise & Customs v. Venus Castings (P) Ltd. 2000 (69) ECC 1 (SC) : 2000 (117) ELT 273 (SC), actual capacity of production is not the criterion for collection of duty in lump sum.
3.4 He also mentioned that on 28.12.99, actual production of 5.86 was taken in a single heat, that said weight had been erroneously taken as it included the weight of some of the moulds with ingots; that moreover during the Panchnama, the crucible was filled upto the top of the crucible; that it should have been filled upto the coil level only; that the officers who conducted verification on 8.3.2000, found that capacity to be 4.5 MTs. after taking melting in three heats. He contended that the Adjudicating Authority has contradicted himself as on the one hand he said that the capacity was found to be 5.86 MTs while on the other hand he said that it was nearer to the level of 8 MTs.
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 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 Shreeje Concast Ltd. v. Commissioner of Central 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 would be the quantity of bunch that it can produce in one operation in the bunch the annual capacity would be based upon it. That this is so it is clear from the provisions of Rule 4. This Rule provides for determining the annual capacity in case where a manufacturer proposes to increase or reduce the capacity of the induction furnace. "No doubt the Rules does refer to "installed capacity." In the context of the other Rule it is clear that this is too the capacity of a furnace, not when it was initially constructed, but after the increase or decrease referred to in that Rules, newly determined installed capacity". He emphasized that since Rule 4 provides for change in the capacity in a case where the capacity is already fixed at the commencement of the Scheme, the change which has already taken place before the commencement of the scheme, is required to be given due weightage and consideration, that the last sentence of Rule 4 of ACD Rules makes it obligatory on the part of Commissioner to determine the date from which the change in the installed capacity has taken place.
5. Finally, he submitted that there is no provision in the Rules for making provisional assessment; that even the Circular No. 325/41/97-CX dated 25.7.97 gave the Commissioner only one month's time to determine the capacity of the finance; that even in Circular No. 331/47/97-CX dated 30.8.97, it is mentioned that the instructions contained in Circular dated 25.7.97 may be read in conjunction with the changes made; that it cannot, therefore, be said to be a case of provisional assessment and consequently the demand of duty is barred by limitation.
6. Countering the arguments, Shri D.N. Chaudhary, learned Senior Departmental Representative, submitted that the issue to be determined is the Annual Capacity of production of the furnace installed in the factory of the Appellants; that on the basis of the declaration filled by the Appellants, the Commissioner had fixed the capacity provisionally and they had given an undertaking for payment of differential duty; that it is the case of the Appellants that the original invoice of M/s. Inductotherm who had supplied the furnace has no relevance in determining the annual capacity of production of the said furnace; that Rule 3 of the ACD Rules, 1997, directs the Commissioner to ascertain the total capacity of production of the Furnace; that a joint physical verification of the capacity was undertaken on 28.12.99; that the parameters of the induction furnace were measured by Shri Bacchan Singh Chauhan, Production Manger in presence of two independent witnesses and Shri Hitesh Bhai Shah, Director, under regular Panchnama and the capacity of furnace arrived at after calculating the volume of crucible was found to be 7.97 MTs; that Shri Dipak Shah, Chartered Engineer had admitted in his statement that he had certified the capacity of furnace on the basis of documents produced and the information made available by the Appellants; that as such he had not done the physical verification of the furnace; that he also deposed in his statement that the actual production may vary from 10% to 20% or the capacity shown in the Joint Verification Report; that Shri B.K. Shukla of Furcon Consultancy Services, has deposed in his statement that modification was carried out in one of the crucible only; that however, he had issued the Certificate for both the crucibles. The learned Senior Departmental Representative referred to Para 1.11 of the impugned Order to show the contradictions; that Shri Bhupatrai Shah, Director, has deposed in his statement dated 1.5.2000 that if the excess stock of MS Ingots seized was shown on records, the capacity forthcoming from record would be more than 4.5 MT; that the diameter of the crucible was not changed whereas in his statement dated 3.2.2000 Shri Shukla had stated that diameter of the crucible was changed from 1054 mm to 1000 mm; that this has happened because of some mistake on the part of Shri Shukla as diameter of the crucible was not changed; that Shri Shukla had deposed that whytheat (sic) castables, claimed to have been used in raising the bottom of the furnace, were purchased from ACC dealer but Shri Shah, Director, had deposed that the same was available in their stock; that further on perusal of RG 23-C Part I register for April and May, 1997 it was found that no stock of such whytheat (sic) castables had been shown; that they had also not produced any invoice for purchase of whytheat castables; that these all go to show that the capacity of the furnace was not modified. He emphasized that it does not Appeal to commonsense that the Appellants would not contact the supplier of the furnace about modification; that Inductother.m had also opined that the method adopted by Shukla was not the right way as it may cause adverse effect on functioning of the furnace inasmuch as lot of energy would be lost in the bottom; that further the Service Engineers of Inductotherm during their visit, had not observed any change in the Parameters or in the capacity of the furnace; that claimed change from 8 MTs to 4.5 MT would not escape from the notice of a qualified service engineer.
7.1 The learned Senior Departmental Representative also submitted that Shri Shukla had claimed that they using better quality of scrap maximum production of 55 MTs could be achieved; that the RGI record of the Appellants reflects production upto 76 MTs [Para 3.6 of the impugned Order]; that Shri Shukla had claimed that the consumption of electricity shall be lesser than the power consumption with installed capacity; that on the other hand, the Power consumption, after the so called modification, had considerably increased instead of going down [Para 3.7 of the impugned Order]. He also contended that it is not possible to get production of 5.86 MTs in a single heat from the furnace of capacity of 4.5 MTs. The Learned Senior Departmental Representative submitted that it is thus clear that the Certificate by Shri Shukla about capacity of finance being 4.5 MTs has been issued without there being actual modification in the capacity of the furnace.
He also mentioned that subsequent verification done on 8.3.2000 cannot have any evidentiary value in as much as the said evidence had been presented after the investigation had commenced and the Appellants had the opportunity to make alteration; that the verification on 28.12.99 was done in the presence of the Director of the Appellants and in view of other evidences such as production, power consumption, etc., the same is authentic.
7.2 Finally the learned Senior Departmental Representative, submitted that the demand of duty is not time barred; that Para 9 of Circular dated 25.7.97 is only directory and not mandatory as it requested that the Commissioner may issue orders promptly; that as the Compounded Levy Scheme on the basis of annual capacity of production was a new scheme, and all facts were not known, the assessment was ordered to be provisional; that it has been held by the Tribunal in Commissioner of Central Excise, Chandigarh v. D.K. Alloys, 2001 (138) ELT 740 (T) that a case of provisional determination of annual capacity of production under the Compounded Levy Scheme stands on a footing different from a case of provisional assessment of duty under Rule 9B. He also relied upon the decision in Commissioner of Customs, Nhava Sheva v. Alfa Exim, 1996 (95) ELT 366 (T) wherein it has been held that execution of a Bond for Provisional Assessment is not necessary.
8. In reply, the learned Advocate submitted that a reasonable time limit has to be read into Rule for finalization of the assessment.
Reliance has been placed on the decision in Government of India v.Citadel Fine Pharmaceuticals, 1989 (23) ECC 307 (SC) : 1989 (42) ELT 515 (SC). He also mentioned that Deepak Shah had stated in his statement that he had physically verified the parameters.
9. We have considered the submissions of both the sides. The Appellants' contentions are that they got modified their induction furnace from 8 MT capacity to 4.5 MT by Shri Shukla and kept the Department informed. In addition they have also given a Certificate of one Deepak Shah, Chartered Engineer and on verification by a team of Central Excise officers, headed by Deputy Commissioner, who found the capacity of the Furnace at 4.1 MTs. On the other hand, the Adjudicating Authority has discarded these certificates in view of the evidences brought on record on account of investigation carried out by the officers. These evidences, according to Revenue are (i) measurement of Crucible volume of the furnace and derivation of the capacity of the furnace (specific gravity x volume) which works out to be 7.97 MTs (ii) the weight of MS Ingots including runners and risers produced in a single heat during spot visit was 5.86 MTs (iii) Increase in power consumption and (iv) scrutiny of daily production. We find substantial force in the findings of the Commissioner which are contained in the impugned Order. The Commissioner has initially provisionally determined the capacity of the furnace to be 4.5 MT on the basis of the declaration filed by the Appellants. But on the basis of an intelligence to the effect that they had suppressed the actual capacity of production, a team of Central Excise Officers visited the factory premises of the Appellants on 28.12.1999 and the measurement of the furnace was taken by the Production Manager of the Appellants in the presence of Shri Hiteshbhai Shah, Director of the Appellants and independent witnesses. The capacity of Furnace arrived at after calculating the volume of crucible was found to be 7.97 MT. Weight of MS Ingots, including runners and risers, manufactured in a single heat was found to be 5.86 MT on weightment. These facts are duly recorded in Panchnama and "Joint Verification Report" signed both by the Director and Production Manager of the Appellants besides Panchas and the officers of the Department.
We observe from the perusal of Panchnama and "Joint Verification Report" that both Director and Production Manager have signed the same without any reservation or any indication that the measurements have not been taken properly. It is also surprising that the objection to these documents has been raised for the first time by a letter dated 14.2.2000, that is after more than 45 days, addressed to the Commissioner. In this letter the Appellants had merely mentioned about reduction in the capacity of the furnace by Shri Shukla and verification of capacity on the day of visit of non-technical officials of the Department during the absence of the person looking after the furnace which resulted into misunderstanding and requested to depute technical person for verification of furnace. It has not been mentioned in the said letter as to what was misunderstanding. We observe from the statement dated 28.12.99 of the Production Manager that he mentioned in answer to a question about the capacity of furnace being 7.97 MT, that he was present during the Panchnama and the depth and diameter of furnace were measured in his presence which are correct. He, further, stated that they do not fill up the furnace completely. Similarly Shri Hitesh Bhai Shah, Director holding the responsibility of production, Sales and Purchase also stated that they could not load the furnace with the scrap about coil height since the sanction power is 2500 kVA and this power was sufficient for production of 4.5 Ton finished product; the ingots did not exceed 4.5 Tons. From these statements recorded after Panchnama and Joint Verification Report that there was no misunderstanding of any sort and the measurements were taken correctly. According the Director and Production Manager of the Appellant they could not fill up the furnace completely on account of insufficiency of power and the finished product would not exceed 4.5 M Tons. Even this contention of theirs is not found to be entirely correct as the Commissioner has mentioned in Para 3.6 of the impugned Order the production of MS Ingots alone to be 73.100 MT and including runners and risers to be 75680 MT on 14.1.99 and these figures are 73.500 and 76.095 respectively on 24.1.99. The learned Advocate had also produced the Production Report for the month of January 1999 which showed Production per heat not more than 4.5 and total production to be 73.500 MT on 24.1.99 on account of 17 Heats. The learned Senior Departmental Representative has pointed out that there is nothing to show the authenticity and veracity of these Production Reports.
When the Production Manager was questioned about records maintained by them in respect of production, he had deposed that they give lists of number of ingots to the office and do not keep any copy of such list.
Further it has also come on record that one heat takes about 1 hour and 30 minutes and one cannot run the furnace 100% of the time as one will require time for deslagging, recharging, etc. We also observe that no averments has been made to this effect in the Memorandum of Appeal challenging the finding of the Commissioner in Para 3.6 of the impugned Order except mentioning that the production can vary depending upon various factors such as power supply, quality of scrap, amount of scrap fed into the crucible. The Commissioner has recorded a finding in the impugned Order that Shri B.K. Shukla had stated that the maximum production of 55 MT only could be obtained and that too under ideal conditions. No proof of existence ideal conditions has been brought on record.
10. The learned Senior Departmental Representative has highlighted the fact that on the date of visit of officers on 28.12.99, the weight of ingots in one heat was found to be 5.86 MT which is much more than 4.5 MT which, according to the Appellants included the weight of moulds also. No such objection was taken when this fact was recorded in Panchnama on 28.12.99 nor was there any mention in their letter dated 14.2.2000. It also appears that they had not succeeded in proving that the weight of some of the mould was also taken into account. It has been deposed by Shri Shukla in his statement dated 3.2.99 that ingot weights can be more only by 10 to 15% of normal capacity. He had also answered in negative to the question as to whether was it possible for the Appellants to obtain production of 5.860 MT in a single heat from a furnace of 4.5 MT when they were filing metal upto 90 cm level The Appellants have not succeeded in establishing that the measurement taken and conclusions mentioned in Panchnama and Joint Verification Report dated 28.12.99 are not correct. We agree with the learned Senior Departmental Representative that subsequent visit of the Deputy Commissioner has to be given no weight against the Joint Verification Report. The Adjudicating Authority has also referred to other materials/ evidence in support of his findings such as only one crucible was supposed to be modified by Shri Shukla whereas he gave Certificate for the entire furnace; the Service Engineers of M/s.
Inductotherm who visited the factory of the Appellants for servicing the Panels of the furnace did not notice any modification in the furnace; contradictions about the source of supply of whytheat castables, increase in power consumption.
11. We also do not find any force in the contention of the Appellants that the entire demand is time barred as the assessments were not provisional as they had not executed any bond. It is not disputed by the Appellants that the Annual capacity of production was provisionally approved by the Commissioner after they and filed the declarations.
This by itself is sufficient to make the entire assessments provisional and the Commissioner, under the impugned Order, has finalized the assessment after determining the Annual Capacity of Production finally and demanded the duty. Mere non-execution of Bond does not take away the character of Provisional from the assessment once the annual capacity of production itself has admittedly been approved provisionally. It has been held by the Larger Bench of the Tribunal in Mardia Steel Ltd. v. Commissioner of Central Excise, Indore, 2001 (43) RLT 53 (Cegat-B) that "Samrat International Pvt. Ltd. envisages payment of duty on provisional basis pending decision of classification list or price list for these payments to be treated as provisional procedure contemplated by Rule 9 B is not to be followed." Both the circulars of the Board also do not support the contention of the Appellants that there cannot be provisional assessment in the case of Compounded Levy Scheme. It has been mentioned in Circular dated 25.7.97 that Commissioners are required to determine the Annual Capacity of production promptly and it is requested that such orders may kindly be issued and arranged to be communicated well before 31.8.97. The Scheme itself was postponed and it came into force from 1.9.97. The Commissioner has issued the provisional Order. Thus, the demand of duty is not barred by time limit. We, accordantly, uphold the demand of duty.
12. We, however, agree with the learned Advocate that confiscation of the seized goods is not warranted as the duty under Section 3A of the Central Excise Act is payable on the basis of the annual capacity of production as determined by the Commissioner. We, therefore, set aside the confiscation ordered by the Commissioner. For the same reason, this is not a fit case for imposition of penalty on the Appellants under Rule 173Q(1)(b) of the Central Excise Rules, 1944.