2011 (4) TMI 995 - Commissioner - Central Excise

Manufacturing of Gutkha and Pan Masala - Demand of duty on 5 pouch packing machines under Rule 9 read with proviso to Section 11A(1) of the Act along with interest under Section 11AB of the Act - held that - A perusal of Notification No. 42/2008, dated 1-7-2008 clearly reveals without any ambiguity that the same Retail Sale Price can hold good for two different notified goods i.e. for/Pan Masala and Pan Masala containing tobacco (Gutkha). The concept of notified goods, as shall/be clear from the above is not at all dependent upon and determined by Retail Sale Price . Likewise the concept of Retail Sale Price as spelt out in the entire scheme regulated by Notification No. 42/2008 and 30/2008 is not at all determined by the nature of specified goods. It cannot therefore be the case of anybody that with change in notified goods, there will he change in Retail Sale Price also and therefore only because two different notified goods are manufactured on a machine, two different Retail Sale Prices are involved. The case of the department rests on assumption that only because two different notified goods were manufactured on the same machine during the period, their Retail Sale Prices get changed and deeming provision relating to new Retail Sale Price gets attracted. Facts of the case as also the legal provisions do not at all warrant this assumption. - Decided in favor of assessee.

Summary

Issues Involved:
1. Whether manufacturing two different notified goods of the same Retail Sale Price (RSP) on the same pouch packing machine is treated as the use and installation of one machine or two different machines under Rule 8 of the Pan Masala Packing Machine (Capacity Determination and Collection of Duty) Rules, 2008.

Detailed Analysis:

1. Context and Background:
The appellants, engaged in manufacturing 'Pukar' Brand Pan Masala and Gutkha, were subjected to a surprise check by Central Excise Officers. They found 30 pouch packing machines, with 29 machines packing Gutkha and one machine packing Pan Masala, both with an MRP of Rs. 1/-. The appellants had declared 24 machines for Gutkha and 6 for Pan Masala. This discrepancy led to the issuance of a Show Cause Notice (SCN) and subsequent adjudication, confirming a duty demand of Rs. 16,25,000/- on 5 machines, along with penalties and confiscations.

2. Department's Contention:
The department argued that since the appellants used the same 5 machines for both Gutkha and Pan Masala of the same RSP, these should be treated as additional machines per Rule 6(6), 8, and 13(2) of the Pan Masala Rules, 2008. A second SCN was issued, resulting in a confirmed demand of Rs. 46,25,000/- and corresponding penalties.

3. Appellants' Argument:
The appellants contended that there is no provision in the Pan Masala Rules, 2008 that treats the manufacturing of two different notified goods of the same RSP on one machine as the use of two machines. They argued that the expression 'new Retail Sale Price' in Rule 8 does not apply to their case since they did not change the RSP but manufactured two different products of the same RSP on one machine.

4. Legal Provisions and Interpretations:
- Rule 4 of the Pan Masala Rules, 2008: The relevant factor for production is the number of packing machines.
- Rule 8 of the Pan Masala Rules, 2008: If a machine is used for goods of a new RSP during the month, it is deemed an additional machine.
- Section 3A of the Central Excise Act, 1944: Specifies duty liability based on the annual capacity of production, factoring in the nature of goods and RSP.

5. Analysis of Notifications and Provisions:
- Notification No. 29/2008 and 30/2008: These notifications specify Pan Masala and Gutkha as notified goods and outline the duty calculation based on machine capacity and RSP.
- Notification No. 42/2008: Defines 'Retail Sale Price' and clarifies that the same RSP can apply to different notified goods.

6. Judgment:
The adjudicating authority's interpretation that manufacturing two different notified goods of the same RSP on the same machine constitutes the use of two machines was found to be incorrect. The legal provisions and facts did not support the assumption that different notified goods automatically imply different RSPs, thereby attracting additional duty liability. The Chief Commissioner's view also did not support the department's stance.

Conclusion:
The impugned Order-in-Original No. 58/ADC/LKO/2010, dated 16-8-2010, was set aside. The appeal was disposed of in favor of the appellants, concluding that the manufacturing of two different notified goods of the same RSP on one machine does not constitute the use of two machines for duty calculation purposes under the Pan Masala Rules, 2008.