Per C.N.B. Nair :

M/s. Sawan Mal Shibu Mal Steel Rolling Mills manufactures hot re-rolled products of non-alloy steel by operating a hot steel re-rolling mill. They are liable to pay duty at compounded rates in terms of Section 3A of Central Excise Act 1944. The duty is determined depending on the annual capacity of production, or such factors relevant to the annual capacity of production of the factory in terms of sub-section (2) of Section 3A of the Central Excise Act. Further, Hot Rolling Steel Mills Annual Capacity Determination Rules 1997 issued under sub-section (2) of Section 3A of Central Excise Act laid down, how the annual capacity of hot re-rolling mills is to be determined. Rule 3 of these rules stipulates that annual capacity shall be determined in the manner laid down therein. The formula for determination of the annual capacity as stated under sub-rule (3) of Rule 3 is as under :-

"Annual Capacity = 1.885x10-4

Number of utilised hours (in metric tonnes)"

Rule 4 of the same Rule relates to calculation of capacity of production among other things, in the case of "any change in the mill capacity". Sub rule (2) of that rule reads as under :-

"(2) In case a manufacturer proposes to make any change in installed machinery or any part thereof which tends to change the value of either of the parameters `d', `n', `e', `i' and `speed of rolling' referred to in sub-rule (3) of Rule 3, such manufacturer shall intimate about the proposed change to the Commissioner of Central Excise in writing, with a copy to Assistant Commissioner of Central Excise, at least one month in advance of such proposed change, and shall obtain the written approval of the Commissioner before making such change. Thereafter the Commissioner of Central Excise shall determine the date from which the change in the installed capacity shall be deemed to be effective."

Rule 5 which has also relevance to the present reference reads as under :-

"In case, the annual capacity determined by the formula in sub-rule (3) of Rule 3 in respect of a mill, is less than the actual production of the mill during the financial year 1996-97, then the annual capacity so determined shall be deemed to be equal to the actual production of the mill during the financial year 1996-97."

2. Facts of the present case are that the appellants opted for payment of duty on compounded basis and their annual capacity was determined by the Commissioner at 3154.253 MTs. per annum. Since this annual capacity determined was less than the actual production of the mill during 1996-97 the Commissioner ordered that annual capacity shall be deemed to be equal to the production of the mill during the financial year 1996-97, i.e. 5390.340 MT. The deemed capacity was fixed in terms of Rule 5 of the Re-Rolling Steel Mill Annual Capacity Determination Rule 1997. Later on the appellant informed the Central Excise Commissioner that they have made change in the installed machinery which has already the relevant parameters for calculation of the annual capacity. Based on that they sought recalculation of the annual capacity of the mill. The recalculated capacity came to 3488.535 on account of change in the "d" factor. Thus, the change in the machinery resulted in a higher annual capacity. Since this augumented annual capacity was also lower than the deemed capacity (based on the actual production of 1996-97), the Jurisdictional Commissioner ordered that the annual capacity of 96-97 shall be deemed to be the annual capacity even after change in the "d" factor. The appellant challenges this decision contending that Rule 5 which permits adoption of the actual production of 1996-97 has non-application in the case of a change in the annual capacity on account of change in machinery. The appellant's contention is that only Rule 4 (2) will be applicable in a case of change in annual capacity on account of change of machinery and that Rule 5 could have no application whatsoever in such a case. The appellants have relie