2017 (10) TMI 1366 - HC - Central Excise

Order passed by the Settlement Commissioner in Settlement case - manufacturing and packing of Om Brand unmanufactured tobacco - The levy of Central Excise duty is not on the basis of its clearance but is on the basis of compounded levy scheme for chewing tobacco and unmanufactured tobacco - The Settlement Commission, allowed the settlement on petitioners paying full duty of ₹ 3 crores and only reduction was granted in penalty and protection was granted qua prosecution. Held that - The power of the Settlement Commission is essentially probing into the extinguishing circumstances that has been pleaded and examined the material placed before it by the assessee and came to its own conclusion, which is not an adjudicatory powers to access the less power to examine and give its findings qua the fact of the assessee which would indicate that Settlement Commissioner has applied its mind to the aspect pleaded and circumstances placed along with the documents in support thereof. The Settlement Commission coming to the conclusion on a premise that as per Tobacco machine, Commission is not examining the aspect of consumption of electricity, raw material etc., would paid into insignificance is not borne out by close perusal of the Rules, more specifically Rule 6(iii), who has by way of employment of language i.e. operating machine , the said would presupposes that there is merely an existence of machine in the factory would in own strength is not making authority entitled to count the machine capacity for slapping the duty and word operating machine would receive to take into consideration only the operating machine and even there is a specific plea that machine was not operating, it was bounden duty casted upon to clarify and examine the material placed on record and said material are available or not in that regard, the commission has to give its findings. The matter is required to be remanded back to the Settlement Commission for its reconsideration - petition allowed by way of remand.

Summary

Issues Involved:

1. Legality of the Settlement Commission's order dated 29-7-2016.
2. Determination of the installation date of the second pouch packing machine.
3. Compliance with principles of natural justice by the Settlement Commission.
4. Interpretation and application of relevant provisions of the Central Excise Act and the 2010 Rules.
5. Admissibility and relevance of statements recorded during the investigation.
6. Consideration of evidence such as electricity consumption and production reports.

Detailed Analysis:

1. Legality of the Settlement Commission's Order:
The petitioner challenged the order dated 29-7-2016 by the Settlement Commission, arguing that the order was passed without considering various submissions and evidence, thus violating principles of natural justice. The petitioner sought a writ of certiorari to quash the order and settle the matter for ?66 lakhs as initially accepted.

2. Determination of the Installation Date of the Second Pouch Packing Machine:
The core issue was whether the second pouch packing machine was installed in October 2013 or August 2014. The petitioner claimed the machine was installed in August 2014 and provided evidence such as electricity bills and production reports. The department, however, argued that the machine was installed in October 2013, based on statements from the machine supplier and other witnesses.

3. Compliance with Principles of Natural Justice:
The petitioner contended that the Settlement Commission failed to address their submissions and evidence, thus breaching principles of natural justice. The Commission was accused of relying solely on statements without proper reasoning or consideration of the petitioner's evidence.

4. Interpretation and Application of Relevant Provisions:
The case involved interpreting provisions of the Central Excise Act and the 2010 Rules, particularly regarding the installation and operation of machines. The petitioner argued that duty liability arises only upon the installation and operation of machines, and the burden of proof lies with the department to establish the installation date.

5. Admissibility and Relevance of Statements Recorded During the Investigation:
The petitioner challenged the reliance on statements recorded during the investigation, arguing that such statements should be tested by cross-examination as per Section 9D of the Central Excise Act. The department maintained that these statements had evidentiary value and supported their case.

6. Consideration of Evidence:
The petitioner provided detailed evidence, including electricity consumption and production reports, to demonstrate that the second machine was used only from August 2014. The Settlement Commission was criticized for not adequately considering this evidence and for misinterpreting the provisions of Rule 18 of the 2010 Rules.

Judgment:
The court found merit in the petitioner's arguments and noted that the Settlement Commission failed to adequately consider the evidence and submissions. The court emphasized the importance of determining whether the machine was operational, as this was crucial for assessing duty liability. The matter was remanded back to the Settlement Commission for reconsideration, specifically to determine the operational status of the machine. The interim arrangement of ?3 crores paid by the petitioner was to remain with the authority, subject to the final outcome.

Conclusion:
The petition was allowed to the extent of remanding the matter back to the Settlement Commission for a fresh decision on the operational status of the machine. The court directed the Settlement Commission to consider all evidence and submissions comprehensively and provide a reasoned order.