2014 (9) TMI 665 - AT - Central Excise

Interpretation of proviso 7 of the Rule 9 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 - Monthly payment of duty - Whether the duty demand is sustainable as per the provisions of 7th proviso to Rule 9 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 inasmuch as, the said rule provides for demand of duty on the basis of higher of the number of operating machines installed when the duty was last paid and the number of machines found installed when the default in duty payment was made goods and such higher number of machines should be deemed to have been installed as per the said proviso - Difference of opinion - majority order - Held that - if the contention of the Revenue is accepted then a person who had not filed a declaration regarding number of packing machines as required under Rule 6 of the Rules and the Revenue found that the manufacturer is using higher number of packing machines then declared and a manufacturer who declared the exact number of packing machines intended to be used by filing declaration under Rule 6 of the Rules are to be treated on the same footing. A manufacturer who was found to be declared less than the number of machines and a person who filed a declaration regarding the number of packing machines to be used cannot be treated on the same footing. The 7th proviso to Rule 9 of the Rules cannot be read in a manner to say that a manufacturer who declared the number of machines by filing necessary declaration and a manufacturer who misdeclared the number of machines are liable for same treatment. Appellant filed declaration in April 2011 regarding change of number of packing machines and the declaration was accepted by the proper officer and fixed the monthly liability. There is no evidence on record to show that prior to filing declaration in April 2011 appellants were manufacturing goods with higher number of machines than declared. As there is no misdeclaration found by Revenue on the part of the appellant regarding number of machines used for manufacture of Pan Masala, I agree with the view taken by learned Member (Judicial) holding that the demand by invoking the proviso 7 to Rule 9 of Rules is not sustainable. The appellants are liable to pay duty with interest as per the proviso 2 to Rule 9 of Rules - Decided in favour of assessee.

Issues Involved:
1. Interpretation and application of the 7th proviso to Rule 9 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008.
2. Determination of duty liability in case of default in payment of duty.
3. Imposition of interest and penalty.

Issue-wise Detailed Analysis:

1. Interpretation and Application of the 7th Proviso to Rule 9:
The central issue revolves around the interpretation of the 7th proviso to Rule 9, which deals with situations where a manufacturer defaults in paying the duty by the due date and continues to operate packing machines. The proviso states:
"In case a manufacturer does not pay the duty payable by the due date, and continues to operate any packing machine, then till the time such non-payment continues, he shall be liable to pay the monthly duty based on the number of operating packing machines declared in the month for which duty was last paid by him or the total number of packing machines found available in his premises at any time thereafter, whichever is higher."

The appellant argued that the 7th proviso should only apply if there was a misdeclaration of the number of machines. They contended that the word "found" implies a discovery of more machines than declared, which did not happen in their case as they had declared all machines.

The Revenue, however, maintained that the proviso applies regardless of whether there was a misdeclaration, focusing on the higher number of machines found available at any time after the default.

2. Determination of Duty Liability in Case of Default:
The appellant defaulted on duty payments for several months. The Revenue recalculated the duty based on the higher number of machines declared in April 2011, which was 50 machines, leading to a significantly higher duty liability. The appellant argued that this recalculation was not justified as there was no misdeclaration of machines.

The Tribunal examined whether the 7th proviso should be read in conjunction with the 6th proviso, which deals with misdeclaration of retail sale prices. It concluded that the 7th proviso is an independent provision that applies to defaults in duty payment, requiring the higher number of machines to be considered for duty calculation.

3. Imposition of Interest and Penalty:
Interest on the unpaid duty was deemed automatic and consequential once the duty liability was confirmed. However, the imposition of an equivalent penalty under Rule 17 read with Section 11AC was contested. The Tribunal found no evidence of fraud, collusion, or willful misstatement by the appellant, which are prerequisites for such a penalty. Consequently, the penalty was set aside.

Separate Judgments Delivered:
- Majority Decision: The majority held that the 7th proviso to Rule 9 applies independently of any misdeclaration. Therefore, the duty demand based on the higher number of machines found in April 2011 was upheld, but the penalty was set aside due to the absence of fraudulent intent.
- Dissenting Opinion: One member disagreed, arguing that the 7th proviso should only apply in cases of misdeclaration. Since there was no misdeclaration, the appellant should only be liable for interest on the delayed duty payment, not the recalculated higher duty.

Conclusion:
The appeal was allowed with consequential relief, confirming the duty liability based on the 7th proviso but setting aside the penalty. The Tribunal emphasized a strict interpretation of the taxing statute, ensuring that the legislative intent and clear language of the law are upheld.

← Previous Next →