1. These are connected appeals involving common questions of law and fact. Hence, these are taken up together for disposal. Appeal No.1390/83 relates to the differential duty for the period 1-1-79 to 30-11-79 for Rs. 3,08,365.71. Appeal No. 1391/83 pertains to the period 1-12-79 to 31-3-80 involving Rs. 2,24,120.64. The third appeal is in respect of the period 1-4-80 to 31-5-80, the differential duty being Rs. 1,33,249.48. The facts leading to the Appeals are as follows: 2. The Appellants are, inter alia, manufacturers of Kraft Paper having their factory at Wahegaon, Aurangabad. During April, 1974, the Appellants decided to instal the said paper mill. On 20-5-74, they filed an application to the Ministry of Industries, New Delhi for the requisite licence to instal the said paper mill with installed capacity of 5000 M T. On 16-9-75, licence was issued to the Appellants to instal the paper mill with an annual installed capacity of 5000 M.T. The Ministry of Industries, by their letter dated 20-10-75 permitted the Appellants the installation of necessary machinery subject to the satisfaction of the Government. The Appellants imported second hand machinery with a production capacity of 10-17 tons a day. The necessary import licence was issued on 3-6-76. The imported machinery was purchased from GEIN-MASKINER A.B. (Sweden). As per the certificate issued by Consulting Engineer, Firma, Ivar W. Nilsen, dated 22nd October, 1975, this machine was manufactured in 1918 but had since then been rebuilt and modernized several times. The working width was 124".
The machine was mainly intended for producing papers in gram weight 40 grs/m2 and a production of 17-20 tons. On 8-1-79, the Central Excise Deptt. wanted the Appellants to get a certificate from the DGTD authorities that the annual installed capacity of the mill was not more than 5000 M.T. per year. The Appellants addressed the Directorate General of Technical Development, New Delhi, for indication of the actual installed capacity of the mill. On 15th May 1979, the DGTD issued the necessary communication and the relevant portion reads as follows : "You have been granted an Industrial licence No. CIL/348 (15), dated 16-9-76 for setting up a new unit at Aurangabad, Maharashtra for the manu facture of 5000 tonnes of Kraft Paper. You have been granted permission for import of a Second-hand plant with a capacity of 15 to 20 tonnes per day depending upon the grammage of paper to be produced.
As per our records, the capacity registered of your unit is 5000 tonnes per annum." 3. As already observed, the mill was commissioned in 1979. Notification No. 128 of '77 was issued on 18-6-77 which granted exemption of 75% of the Excise duty leviable in respect of the paper mill whose annual installed capacity did not exceed 2000 tonnes. The same notification also granted exemption of 60% of the duty in respect of paper mill whose annual installed capacity did not exceed 5000 tonnes. The Appellants were availing of the exemption under this notification. They were filing the necessary Classification Lists and were clearing their goods. On 29-7-80, a show cause notice was issued alleging, inter alia, that the actual installed capacity of the Appellants mill was 6600 M.T.per year as per the received opinion of the DGTD. The appellants replied to the show cause notice on 21-8-80 contending that they should be supplied with the necessary correspondence leading to the report.
They also urged that the DGTD did not inspect the machinery. Further, the calculation on the basis of 330 working days was clearly erroneous since the Appellants mill worked only for 300 days. The calculation of the installed capacity based on the working capacity was also not tenable. Similarly, show cause notices were issued for later periods, claiming differential duty as set out in the earlier paragraphs. The contentions of the appellants were rejected. There was an appeal to the Appellate Collector, which also met the same fate.
4. Mr. Lachman Dev, the Consultant who appeared on behalf of the Appellants, argued that when the Appellants placed the order, the notification was not in force. There was no intention to supress the actual installed capacity. The licence was issued for the purchase of the machinery with the installed capacity of 5000 tonnes and the DGTD has issued a certificate to that effect. The Consultant also relied on the New Collegiate Dictionary, wherein the term 'instal' has been defined as to establish in an indicated place, condition or status. He stated Chemical Engineer's Hand Book, Fifth Edition by Robert Parry and Cecil H. Chilton-Glossary, 25-45 and 25-47, defined capacity, time-efficiency and Stream days as under : - "CAPACITY : The estimated maximum level of production on a sustained basis, preferably expressed with the corresponding estimate of 'time-efficiency' (q.v.) TIMT-EFFICIENCY : The fraction of total time during which a facility is in productive operation. See Stream days.
STREAM DAYS : "Time Efficiency" (q.v.) expressed as operating days per year, allowing down time for maintenance, and other foreseeable interruptions of production." 5. He urged that the DGTD's second opinion was got behind the back of the Appellants, that the show cause notice was issued before DGTD's second certificate was furnished to the Appellants, and that the letter sent by the Deptt. to the DGTD seeking the opinion gave an exaggerated picture of loss of revenue which resulted in the certificate of bias despite the prior opinion. No grounds were pointed out in the second certificate to dislodge the earlier report. The calculation on the basis of average production cannot be the criterion to decide the installed capacity. The mill remained shut down on several occasions and the figures arrived at cannot have any technical basis. Further, the capacity of the production should be -determined on a sustained basis depending upon the climate, the raw material and such other factors. Shri Lakhman Dev also argued that in respect of Cement, the Notification No. 194/79 referred to registered capacity. He urged that the show cause notice in respect of first and second Items were clearly barred by time. In the case of soap, the Board has sent letter F. No.38/78/57/CX. IV, dated 12-1-79 that the capacity should be worked out on the basis of a single cycle a day for 300 days a year. He also drew our attention to the Circular No. 8/84, dated 30-1-84 issued by All India Small Paper Mills Organisation which referred to the clarification issued by Central Excise as early as '77 which states that the installed capacity of the mill should normally be taken as equivalent to the capacity recognised by Government by way of Industrial licence or registration. It is pointed out that the actual production may, however, be lower or higher than the installed capacity. It reads "Directorate General of Technical Development would be able to certify the installed capacity of the paper mill, particularly in cases where there is no doubt, if there is any difficulty with regard to any individual unit, the reference could be made to DGTD".
6. Mr. Jain, S.D.R., argued that the manufacturer's letter did not refer to the installed capacity. He emphasized that the second opinion of the DGTD should be accepted, especially as no cross-examination was sought and that report was not challenged. According to Mr. Jain, the Deptt. rightly calculated the installed capacity depending upon the maximum average production. The previous letter by DGTD was not final in the matter. He also stated that there were sufficient allegations in the show cause notice attracting the extended period of limitation.
7. Mr. Lachman Dev, in reply, pointed out that the Appellants specifically asked the DGTD to give his certificate in respect of the installed capacity and that he gave the same. Further, the officer of DGTD who gave the second certificate was dead and hence there was no question of cross-examining him in respect of the certificate issued.
He said that it was fallacious to accept the later certificate without sufficient material.
8. We have given our careful considerations to the contentions raised.
The Notification No. 128/77 refers to the 'Annual installed Capacity'.
The clarification issued by the Ministry shows that in respect of annual installed1 capacity for the purpose of extending the exemption under Notification No. 128/77 the capacity recognised by Government by way of Industrial licence or registration should normally be taken into consideration. In this case, the licence issued to the Appellants refers to capacity as 5000 M.T. The import licence for the machinery was also given approving this quantity. The manufacturers have sent a certificate issued prior to the notification in question which clearly shows that this machine was built more than 57 years ago and that machine was mainly intended to produce 17-20 tonnes a day. The manufacturers have in their letter dated 24-10-75 hoped that with necessary modifications the machine would be able to produce somewhere between 4500-5000 tonnes annually. The installed capacity of a machine or the designed capacity cannot, therefore, be equated to the working capacity. Normally the production, especially, in regard to paper, depends upon the climatic condition, quality of paper and the nature of the pulp used. At Sweden Pulp made out of Pine Wood or soft wood appears to have been used. But the appellants are using Bagasse/Straw and other agricultural raw-materials. Even in 1983, the Consulting Engineer of Pulp and Paper Industries at Sweden has confirmed that this machine could be able to give production within 4500-5000 tonnes per annum. At this end, this machine was inspected by the DGTD, when a specific certificate in respect of installed capacity was sought for by the Appellants, on the behest of the Deptt. This certificate dated 15th May, 1979 unequivocally points out that the capacity of the unit was 50CO tonnes per annum. Of course, subsequently, the DGTD appears to have issued another certificate, setting out a higher outturn. But as rightly pointed out by Mr. Lachman Dev, much emphasis cannot be placed on the second opinion because there was no inspection of the factory by the authority who issued the same. Therefore, it is rightly contended that the calculation was based on certain conjectures, assumptions and surmises. A mechanical calculation of multiplying 20 tons per day X 330 days is without basis. This method of calculating the installed capacity is without any technical support. The installed capacity is normally the designed capacity of the machinery supported by the production on a sustained basis. In l980 E.L.T. A1CO it is stated that "Any paper mill, or any kind of mill/machine for that matter, is designed by the manufacturers for a particular installed capacity.
Though this is subject, of course, to 5 or 10% or so depending upon the various exigencies due to stress and strain met within normal working but its installed/rated capacity is a good average beyond which it is prone to breakages and fails often if it continuously works overloaded.
Thus a mill/machine has two capacities, the installed/rated capacity and the working capacity, the latter generally kept lower than the former for efficient and smooth functioning. Calculation of the installed/rated capacity is a specialised job to be handled by the technical experts/designers and is not at all simple".
9. The impugned order treating the "installed capacity" as equivalent to "working capacity" is, therefore, not sustainable. The Deptt. has proceeded on a theoretical calculation ignoring the installed capacity of the machinery borne out by authentic records, 10. The appellants have also produced the technical experts opinion of M/s. Paper Tech. Consultants, Bombay dated 21-7-80 who in respect of this machinery has certified that this machine was expected to produce 4500-5000 tonnes per annum. Further, when there is a doubt in interpreting a fiscal statute, benefit of the doubt should be given to the assessee. The Appellate Collector has pointed out that the DGTD has not referred to "installed capacity" in his letter dated 15-5-79. But a perusal of the prior correspondence clearly indicates that the opinion of the DGTD was sought for only in respect of the installed capacity and that he has issued the communication in regard to it. Of course, on some days the production was above 20 M.T., but on that basis one cannot approve that the installed capacity was more than 5000 tonnes since we find from the show cause notice that on several days, the production ranged between 16-17 M.T. Hence, we are of the view that the impugned orders cannot be sustained and the appeals are allowed.