K.L. Rekhi, Member (T)

1. The dispute in this case is on the method of calculation of average production of sugar for the purpose of grant of the Central Excise Duty Concession (commonly called incentive rebate for higher production) in terms of the exemption notification No. 132/82-C.E., dated 21-4-1982. In order to facilitate the understanding of the controversy, we reproduce this notification below :-

"In exercise of the powers conferred by Sub-rule (1) of rule 8 of the Central Excise Rules, 1944, read with Sub-section (4) of Section 50 of the Finance Act, 1982 (14 of 1982), the Central Government hereby exempts sugar, described in column (1) of the Table below and falling under sub-item (1) of Item No. 1 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), from so much of the duty of excise and special duty of excise leviable thereon as is specified in the corresponding entry in columns (2) and (3) of the said Table.

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Provided that the amount of exemption specified in column (2) or column (3) of the said Table shall not exceed the amount of duty of excise payable on free sale sugar or levy sugar, as the case may be.

Explanation :-In this notification-

(a) "average production" in relation to sugar produced in a period in a factory, means the average production during the corresponding period of each of the preceding three sugar years ;

(b) "free sale sugar" means sugar other than levy sugar ;

(c) "levy sugar" means sugar required by the Central Government to be sold under an Order made under Clause (f) of Sub-section (2) of Section 3 of the Essential Commodities Act, 1955 (10 of 1955) ;

(d) "sugar year" means the period of twelve months commencing on the 1st day of October and ending with the 30th day of September next following.

2. In computing the production of sugar during the period mentioned in column (1) of the Table in respect of a factory mentioned therein-

(i) the data, as furnished in Form R.G. 1 prescribed in Appendix 1 to Central Excise Rules, 1944, or in such other record as the Collector may prescribe under Rule 53 or Rule 173-G of the said rules, shall be adopted ;

(ii) any sugar obtained by refining gur or khandsari sugar shall not be taken into account ;

(iii) any sugar obtained by reprocessing of sugar house products left over in process at the end of any preceding sugar year shall be taken into account ; and

(iv) any sugar obtained by reprocessing of defective or damaged sugar or brown sugar, if the same has already been included in the quantity of sugar produced, shall not be taken into account.

3. Where during the period mentioned in column (1) of the said Table, production in any of the preceding three sugar years was nil, the average production shall be determined as under.-

The average shall be the average of the corresponding periods among the preceding three sugar years in which the factory had actually produced and the period or periods in which it did not produce during the said three sugar years shall be ignored while arriving at the average.

4. Where production during May to September in all the preceding three sugar years was nil, the entire production during May to September, 1982 will be entitled to the exemption under this notification."

2. There is no controversy on the facts of the case. The respondent factory did work in the preceding three sugar years but it did not produce any sugar during the two corresponding periods (May-September) of 1978-79 and 1979-80 seasons. The Assistant Collector held that since the factory had produced sugar during May-September of 1980-81 only, that alone could be considered for arriving at the average production and determining the excess production for the year 1981-82. He held further that since there was no production during May-September of 1978-79 and 1979-80, the period of these years had to be ignored while determining the average production as per Clause 3 of the notification. To put it simply, he divided the total production