2014 (2) TMI 325 - AT - Central Excise

Duty demand u/s 11A(1) - manufacturing of gutkha - Installation of two packing machines whereas only one machine was declared - Pan Masala Packaging Machines (Capacity Determination and Collection of Duty) Rules, 2008 - Held that - as per explanation to Rule 18 of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules 2008 mere installation of FFS machine engaged in production/manufacture was sufficient to establish duty liability. Rule implies that use and working condition of machines is not required. As per provisions of Rule 17 & 18 of Pan Masala Packing Machines (Capacity Determination and Collection) Rules, 2008 and prima facie view of outcome of investigations, appellants are liable for payment of duty which is to be calculated from July, 2008 to October, 2009. Duty liability has been calculated amounting to Rs.4 crores for the above period. - Conditional stay granted.

Issues Involved:
1. Evasion of Central Excise Duty
2. Non-declaration of pouch packing machines
3. Seizure of unaccounted goods and raw materials
4. Validity of statements and evidence
5. Application of Rule 17 and Rule 18 of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008
6. Duty liability calculation and pre-deposit requirement

Issue-wise Detailed Analysis:

1. Evasion of Central Excise Duty:
The officers of the Kanpur Regional Unit of DGCEI found that the appellants were engaged in the evasion of Central Excise duty by using two pouch packing machines for manufacturing gutkha without proper declaration. The central excise duty of Rs.4 crores was confirmed under Section 11A(1) of the Central Excise Act, 1944, along with an equivalent amount of penalty under Rule 17 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008, read with Section 11AC and Rule 25 of the Central Excise Rules, 2002. Interest recovery under Section 11AB was also ordered.

2. Non-declaration of Pouch Packing Machines:
The appellants had only declared one Form Fill & Seal (FFS) machine in their factory premises in July 2008 and did not file any declaration for subsequent periods. During a search on 29.10.2009, two operational pouch packing machines were found in undeclared premises. Statements from the supervisor and proprietor confirmed the use of these machines for manufacturing 'VIKAS' brand gutkha without declaring them to the department.

3. Seizure of Unaccounted Goods and Raw Materials:
During the search, raw materials and loose gutkha valued at Rs.87,910 were found in the undeclared premises. Additional raw materials and packing materials valued at Rs.5,53,655 were also found, with no records or bills to account for these stocks. The unaccounted goods were seized on the spot.

4. Validity of Statements and Evidence:
The appellants challenged the validity of the statements made by Shri Ashish Gupta and Shri Rajeev Gupta, claiming they were retracted and not admissible. However, the tribunal noted that the statements were corroborated by other evidence, including the presence of pouch packing machines, raw materials, and packaging materials specific to 'VIKAS' brand gutkha. The statements of other related parties, such as suppliers and repair service providers, further supported the findings.

5. Application of Rule 17 and Rule 18 of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008:
The tribunal referred to Rule 17(2), which deems that undeclared machines are considered operational from 1.7.2008 for duty calculation purposes. Rule 18's explanation states that goods are deemed manufactured if a packing machine is installed, irrespective of its usage or working condition. These rules were applied to establish the duty liability of Rs.12.50 lakh per machine per month.

6. Duty Liability Calculation and Pre-deposit Requirement:
Based on the rules, the duty liability was calculated at Rs.4 crores (Rs.12.50 lakhs per machine per month x 2 machines x 16 months). The tribunal directed the appellants to make a pre-deposit of Rs.1 crore within eight weeks, with the remaining amount of duty and penalty stayed until the appeal's disposal.

Conclusion:
The tribunal found sufficient evidence to support the findings of the adjudication order, confirming the evasion of central excise duty by the appellants through the use of undeclared pouch packing machines. The appellants were directed to make a pre-deposit of Rs.1 crore, with the remaining amount stayed pending the appeal. The judgment emphasized the application of Rule 17 and Rule 18 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008, in determining the duty liability.

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