ORDER
P.G. Chacko, Member (J)
1. Appeal No. E/1213/2001 filed by the assessee is against order dated 19.9.2001 passed by the Commissioner of Central Excise, Coimbatore confirming demand of duty of over Rs. 1.10 crores against them for the period 16.12.1998 to 31.5.2000 under Rule 96ZQ(3) the Central Excise Rules, 1944. The Commissioner also ordered recovery of interest on duty in terms of Rule 96ZQ(5)(i) of the Rules. He also imposed penalty equal to duty under Rule 96ZQ(5)(ii) of the Rules. The above demand of duty is based on Annual Capacity of Production (ACP) determined by the Commissioner for the above period, wherein rail length of galleries was also included as part of total rail length of stenter. After noticing that the Hon’ble Supreme Court had held galleries to be excluded from the stenter dimension for the purpose of determination of ACP of independent textile processor, learned Commissioner revised the ACP of the appellants and raised fresh demand of duty against them. A part of this demand, covering the period 16.12.98 to February 2000, was made through Order No. 16/2004 dated 21.4.2004, and the rest of the demand covering the period June 2000 to February 2001 was made through Order No. 7/2005 dated 11.2.2005. Each of these orders also demanded interest on duty and imposed a penalty in the aforesaid manner. These orders dated 21.4.2004 and 11.2.2005 are under challenge in Appeal Nos. E/986/2004 and E/308/2005 respectively.
2. After examining the records and hearing both sides, we find that a major part [16.12.1998 to February 2000] of the period of dispute covered by Appeal No. 1213/2001 is overlapped by the period of dispute covered by Appeal No. E/986/2004. Appeal No. 1213/2001 is against a demand of duty based on the original determination of ACP by the Commissioner and Appeal No.E/986/2004 is against the revised demand of duty based on revised ACP determined by the Commissioner. Appeal No. E/308/2005 is against the revised demand of duty for the period June 2000 to February 2001. In view of the two appeals filed against demands of duty based on revised ACP, the earlier Appeal No. 1213/2001, which is against the demand of duty based on original ACP determined by the Commissioner is infructuous and the same is dismissed.
3. In Appeal Nos. 986/2004 and 308/2005, the major contention raised by the appellants is one with reference to certain provisions of Rule 3 of the Hot Air Stenter Independent Textile Processors Annual Capacity Determination Rules, 1998. Rule 3 of the said rules laid down the method of determination of ACP of an independent textile processor, for the purpose of payment of duty under Rule 96ZQ read with Section 3A. One of the factors required to be considered in the context of determination of ACP was mentioned in Clause (i), which reads as under:
(i) The number of chamber (of a hot-air stenter), each of which having a rail length of upto 3.05 meter on each side, installed in such factory shall be construed as one chamber and any fraction exceeding such rail length of any such chamber shall be computed on a pro-rata basis;
In both the appeals, this provision has been misconstrued by the appellants. According to the appellants, only where a chamber has rail length of not less than 3.05 meter on each side, it could be treated as one chamber. It is said that each of the five chambers of the stenter in question had only rail length of 3.00 meter on each side and therefore it is claimed that it was not liable to be treated as one chamber and the ACP should be determined on a pro-rata basis. Learned consultant has reiterated this view of the appellants today. We have heard learned SDR also, who reiterates the findings recorded in the impugned orders.
4. In terms of the above provision of Sub-rule (3) of Rule 3 of the Hot Air Stenter Independent Textile Processors Annual Capacity Determination Rules, 1998, where a chamber of any hot-air stenter had a rail length of 3.00 meter on each side, it was liable to construed as one chamber as done by the Commissioner of Central Excise in his orders dated 21.4.2004 and 11.2.2005 and therefore the question of determining ACP pro-rata with reference to the ACP based on rail length of 3.05 meter would not arise.
5. Learned consultant has also pointed out that Rule 3 ibid was struck down by the Hon’ble Madras High Court and therefore the demands of duty raised by the Commissioner should be set aside. If this contention were to be accepted, the assessee would have to pay duty in terms of Section 3 of the Central Excise Act. Our queries as to whether duty was paid correctly in terms of Section 3 have not received satisfactory response. The levy of interest on duty and the imposition of penalty are also sought to be challenged on the strength of the High Court’s judgment. Here again, the appellants have no answer to our queries as to whether they paid appropriate duty in terms of Section 3 of the Act. The assessee cannot challenge the Commissioner’s orders on mutually contradictory grounds. Hence we are unable to accept the present plea of learned consultant, which is not figuring in the memoranda of appeals. It is claimed that the duty based on revised ACP was paid by the assessee, and this claim has not been successfully contested. The question now is whether the assessee is liable to pay interest on the amount of duty belatedly paid and whether they are liable to be penalized for the default. After consulting the relevant provisions viz. 96ZQ(5)(i) and (ii), we find that the penalty provision is mandatory inasmuch as rate of interest was also laid down therein. As regards penalty, however, there seems to be an element of discretion in determination of this quantum. This discretion needs to be exercised according to sound principles of justice. In this connection, it is submitted by learned consultant that the company was declared sick by the BIFR. It appears from the records that the company was declared sick by the BIFR and further proceedings for its rehabilitation are going on pursuant to an order of remand by the appellate authority under Section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985. It is also submitted by learned consultant that, for a few months the duty payments were in excess, while, for the remaining months there was shortage of payment. These submissions are also not contested. We are of the view that, in the circumstances placed before us, a penalty equal to duty will be harsh. It is also noticed that, though the extent of delay of payment of duty was known, learned Commissioner did not quantify the penalty to be imposed on the assessee. It is admitted by learned consultant that a few minor payments were made after the impugned orders were passed. For default of payment of duty, the relevant provision prescribed “a penalty equal to an amount of duty outstanding from him at the end of such month or Rs. 5,000/- whichever is greater”. It appears from this provision, the extent of default for each month must be ascertained and penalty to be determined in the facts and circumstances of the case. The Commissioner has not done this job. In the circumstances, after upholding the demand of duty raised by the Commissioner in his orders dated 21.4.2004 and 11.2.2005, we direct the Commissioner to quantify the penalty to be imposed on the assessee in terms of Rule 96ZQ(5) (ii) of the Central Excise Rules, 1944. It is made clear that this determination of penalty shall be done after taking into account the facts and circumstances detailed herein before and for the ends of justice. The assessee shall be given a reasonable opportunity of being heard also. The appeals E/986/2004 and E/308/2005 are disposed of.
(Dictated and pronounced in open Court)