"The issue which is required to be determined is as to whether in the relevant period the assessee was manufacturing ingots of non-alloy steel or such ingots were being incidentally produced. As the operation of Section 3A of the Central Excise Act, 1944 in this case would commence from 1-9-1997, the production pattern of non-alloy steel ingots from April, 1997 to Aug., 1997 as well as in the preceding years would be relevant for determining the issue in question. In 1994-95,1995-96 and 1996-97 the ratio of production of the steel castings and non-alloy steel ingots is 1 :0.86,1 : 0.81 and 1 : 0.55 respectively. This production pattern does not support the contention of the assessee that the production of non-alloy ingot steel was only incidental. The production figures of April, 1997 to Aug, 1997 also do not lend any support to the assessee's contention. The assessee is relying on the production figures of Sept., 1997 onwards to prove its point. These figures cannot be taken as the figures of relevant period for determining as to whether on 1-9-1997, the assessee is to be excluded from the operation of Section 3A ibid by virtue of explanation (b) to Notification No. 30/97-C.E. (NT) dated 1-8-1997. It is correct that the assessee was manufacturing both the steel castings as well as non-alloy steel ingots in the period under consideration. This fact however, does not exclude the assessee from the purview of Notification No. 30/97-C.E. (NT). The rationale for assessment under Section 3A ibid in respect of certain goods is the extent of evasion of duty in regard to such goods. As such no exception can be allowed to the applicability of the notifications issued under Section 3A(1) of the Central Excise Act, 1944 unless specified.
In view of the foregoings I order that the assessee is liable for assessment under Section 3A(1) of the Central Excise Act, 1944 as on 1-9-1997. In this regard the annual production capacity of the induction furnace is to be taken as 3200 m.t. It is however, open to the assessee to seek benefit for the period when there was no production of M/s. Ingots in terms of Induction Furnace Annual Capacity Determination Rules, 1997." 2. Being aggrieved by the order, the appellants have filed the captioned appeal. The facts of the case briefly stated are that the appellants are registered with the Central Excise Department for the manufacture of castings of steel, alloy steel, stainless steel and non-alloy steel ingots. They are using a induction furnace. The production capacity of the induction furnace according to the invoice dated 26-5-1984 is 1,000 kgs. A dispute arose on account of the claim of the assessee that they were mainly producing castings and incidentally manufacturing non-alloy steel ingots and as such were excluded from the ambit of Section 3A of the Central Excise Act, 1944 by virtue of explanation clause of Rule 96ZO(3). The Department scrutinised the production figures of the assessee for the year 1996-97 which revealed that the assessee/appellant had manufactured ingots to the tune of 40% of their total production and alleged that in view of the fact that 40% of the production could not be the incidental production as contended by the assessee and determined the annual production capacity of the induction furnace as 3200 m.t. and directed the appellant to pay duty accordingly. The matter came up earlier also and was remanded to the ld. Commissioner directing him to take the actual figures of production of MS Ingots into consideration for determining whether the determination of furnace capacity was necessary and pass appropriate orders in accordance with law. The Commissioner in pursuance of these directions of this Tribunal passed the impugned order as indicated above.
3. Shri R. Santhanam, ld. Counsel appearing for the appellants submits that the impugned order has wrongly been passed by relying on production figures of the three preceding financial years which are not relevant for the present case; that the appellants are engaged in the business of manufacture of steel castings and the production of MS Ingots is incidental thereto. He submitted that the production of MS Ingots was approximately 10% of the total production during the relevant period from Sept., 1997 to March, 1998. He submitted that the total production during this period was 467.920 m.t. whereas the production of non-alloy steel ingots was only 45.025 m.t. He submitted that the ld. Commissioner has taken into consideration the production figures of the preceding three years and did not confine himself to the production figures of the relevant period as indicated above. He submitted that the appellants were not put to notice while taking the production figures of the preceding three years. He submitted that since the production of MS Ingots was less than 10%, the capacity of production of MS Ingots is incidental and the explanation under Rule 96ZO(3) stipulates that where steel castings and products of stainless steel are ordinarily produced, and MS Ingots are incidentally produced, Sub-rule 3 of Rule 96ZO will not apply. He submitted that thus the provision of Section 3A of the Rules made thereunder would not apply in their case. Ld. Counsel submitted that the appellant is entitled to Modvat credit and that duty of excise had been correctly paid on the ingots under Section 3 at 15% after availing the Modvat credit. Ld.
Counsel also submitted that the ld. Commissioner was duty bound to comply with the appellate direction and to follow the bindings of CBEC circular as well as Rule 96ZO under which the appellant is totally excluded from the purview of Section 3A. The ld. Counsel therefore prayed that the impugned order may be set aside and the appeal may be allowed.
4. Shri Satnam Singh, ld. SDR appearing for the respondent Commissioner submits that the ld. Commissioner in order to verify that the trend of production had correctly taken the production figures of 1994-95,1995-96 and 1996-97 with a view to determine as to what was the normal production and incidental production. He submitted that the emphasis in the explanation under Rule 96ZO(3) is on incidental production of MS Ingots. He submitted that incidental production cannot be determined on the basis of the production of a particular month or a few months but the trend is to be found by looking at the production of a few years preceding the claim of the appellant. He submitted that the ld. Commissioner has rightly observed that the production figures of Sept., 1997 onwards cannot be taken as figures for determining the incidental production. Ld. SDR submitted that during the material period, the fact remains that the assessee was manufacturing both the steel castings as well as non-alloy steel ingots. However to determine as to the production of non-alloy steel ingots was incidental, it was essential to examine the pattern of production during the preceding year which has rightly been done by the ld. Commissioner. He, therefore, prayed that the impugned order may be upheld and the appeal may be rejected.
5. On a careful consideration of the submissions made and on perusal of explanation under Rule 96ZO(3), we find that the emphasis is on normal production of the induction furnace and incidental production, we will have to examine as to what incidental production means we note that incidental in Oxford Dictionary has been defined as "Occurring as something casual or of secondary importance; not directly relevant to etc...". Further the Hon'ble Calcutta High Court in the case of Hukamchnnd jute Mills (AIR 1958 Cal. 68) held that a thing is said to be incidental to another when it pertains to the principal thing. The testing of machinery used in the manufacture of a product such as margarine is incidental to the manufacture of margarine. This was held by the KB Bench in the case of Tlmrogood v. Van Den Berghs (1951 2 KB 537). The incidental has been judicially interpreted to mean necessary in certain contexts which does not mean a matter of casual nature only.
The Hon'ble A.P. High Court in the case of Andhra Prabha Pvt. Ltd. [1989 (73) STC 260] held "where a dealer carries on the business of printing, publishing and selling newspapers, the activity of selling old surplus newspapers is incidental to the main business, not an integral part of it". This Tribunal in the case of Adreena Industries v. Collector - 1987 (28) E.L.T. 364 held that "incidental refers to an occasional or casual process." 6. After examining the various meanings given to the term incidental we note that the admitted position was that the appellant manufactures castings, stainless steel products and also non-alloy steel ingots. For coming within the mischief of the explanation to Rule 96ZO(3) we have to determine as to what is the ordinary production and what is incidental and whether for determining the ordinarily produced goods and incidentally produced goods is it necessary to examine the pattern of the preceding few years or is it necessary to confine ourselves to the relevant period. Ld. Commissioner examined the production of the preceding few years and on that basis came to the conclusion that the induction furnace was being used for production of MS Ingots of substantial quantity in comparison to the production of steel castings or stainless steel products. On examination of the issue, we find that the period in dispute is from Sept., 1997 to March, 1998. This is a period which is relevant for purpose of determination of the goods produced ordinarily or goods produced incidentally. We note that in the month of Sept., 1997 against the total production of 62.440, the production of non-alloy steel ingots was 11.325 m.ts. For the month of Oct., 1997 as against the total production of 64.215 m.ts., the production of non-alloy steel ingots was 7.430. In the month of Nov., 1997 against the total production of 61.600 m.ts., the production of non-alloy steel ingots 8.435 mts. For the month of Dec, 1997 as against the total production of 70.060 m.ts., the production of non-alloy steel ingots was 9.360 and for the month of Jan., . 1998 as against the total production of 73.810 m.ts. the production of non-alloy steel ingots was 8.475 m.ts. During the months of Feb. & March, there was no production of non-alloy steel ingots. Looking to the facts that we are concerned with the determination of annual capacity for the period from Sept. '97 to March, 1998. It will be necessary to examine the figures of production of steel castings and the stainless steel products vis-a-vis, non-alloy steel ingots. There is no necessity of going to the preceding years to determine the trend inasmuch as an induction furnace can be used both of production of castings, stainless steel products and non-alloy steel ingots. We, therefore, hold that it was not necessary to go to the preceding years, the examination should have confined to the relevant period i.e. from Sept., 1997 to March, 1998.
Examining the figures of this period whereas there was no production of non-alloy steel ingots during the months of Feb., 1998 and March, 1998, the production of non-alloy steel ingots during the months of Sept. to Jan. was only a small percentage and cannot be termed as goods ordinarily produced. Therefore, we hold that production of non-alloy steel ingots during the period from Sept., 1997 to March, 1998 was incidental and hence Sub-rule 3 of Rule 96ZO will not apply to determination of APC of the furnace of the appellant.
7. During the period April, 1998 to Dec, 1998, there was no production of non-alloy steel ingots and therefore, the question of examining the production of goods incidentally produced as non-alloy steel ingots will not be applicable to the production of the furnace of the appellant and they will not be covered by Sub-rule 3 of Rule 96ZO(3).
8. In view of the above findings, the impugned order is set aside and the appeal is allowed with consequential relief, if any, in accordance with law.