2016 (7) TMI 1104 - AT - Central Excise

Deemed production of Gutkha - whether the deemed production of Gutkha, in respect of the period March, 2012, is to be determined on the basis of the number of operating packing machines in the factory of the appellant, or on the basis of the speed of the machines declared by the appellant? - Held that - Rule 5 of the said Rules fixes the deemed quantity manufactured, by use of one packing machine, with retail sale price printed on the pouch. The above provisions read with the C.B.E.C. Circular dated 24.01.2004 makes the position clear that the relevant factor to be considered for determination of production, is the number of operating machines installed in the factory during the month and the retail sale price printed on the pouches and not on the basis of actual production. It is clear from the above Circular of C.B.E.C. that number of packing machines, operating during the month, is the only relevant factor which forms the basis for determination of deemed production and the duty liability, in terms of Rule 5 of the Capacity Determination Rules, 2008; and not any other factor such as, speed of the machines etc. The impugned orders, adopting the declared speed of the machines as the basis and consequently determination of the deemed quantity of production, are not correct and hence not sustainable under the law.

Summary

Issues:
Determining deemed production of Gutkha based on operating packing machines vs. speed of machines declared by the appellant.

Analysis:
The appeal challenged an order by the Commissioner (Appeals) regarding the capacity determination rules for manufacturing 'pan masala'. The appellant, a manufacturer of 'Gutka', declared the operation of 60 packing machines with specified MRPs. The Central Excise Department alleged that the capacity of 8 new machines purchased by the appellant exceeded the production limit set by the rules. The Assistant Commissioner's order required removal of high-speed machines or payment of double duty, imposing a penalty. The Commissioner (Appeals) upheld this decision, prompting the appellant's appeal to the Tribunal.

The appellant argued that duty payment is tied to the number of operating machines and printed retail prices, not the declared machine speed. Citing Rule 4 and 5 of the Capacity Determination Rules, the appellant emphasized that the authorities' reliance on machine speed was incorrect. The appellant referenced a CBEC Circular supporting their interpretation.

The Revenue's representative contended that deemed production should align with declared machine speed, opposing the appellant's position.

The Tribunal deliberated on whether deemed production should be based on operating machines or declared machine speed. Rule 4 emphasized the number of machines in the factory, while Rule 5 determined deemed production per machine based on retail prices. The Tribunal, supported by a CBEC Circular, clarified that the number of operating machines is the key factor for determining production and duty liability, not machine speed. Consequently, the Tribunal set aside the impugned order, allowing the appeal with consequential relief.

In conclusion, the Tribunal's judgment favored the appellant's argument, emphasizing the significance of the number of operating machines in determining deemed production and duty liability, in line with the Capacity Determination Rules and relevant CBEC Circular.