2017 (2) TMI 666 - HC - Central Excise

Whether duty payable under proviso 7 to Rule 9 of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 is limited to remainder of the period for which the declaration is not filed or in-contravention to the declaration, the manufacturing activities continued? Held that - the 7th proviso restricts the liability to pay the duty for the remaining months meaning thereby the period during which the declaration is either not filed or the declaration is contravened. The availability of the packing machines may be assessed either on the basis of the declaration made in the month when the duty was last paid or the available machines in the premises by verification - Therefore, so far as the availability of the packing machines are concerned, the word whichever is higher would apply but the fact remains that the liability to pay duty is for the remaining months meaning thereby the months during which the duties are not paid as per the declaration filed which can be considered as contravention to the declaration or the duties not paid on account of no declaration having been filed at all. It is not possible to accept the contention of the learned Counsel for the Revenue that the 7th proviso would operate independently for the whole year by excluding the word for the remaining of the financial year nor it is possible to accept the contention that the 7th proviso is not relatable to 6th proviso for the purpose of liability to pay the duty irrespective of the fact that no declaration is filed or that the declaration is contravened while undertaking the manufacturing activity. Appeal allowed - decided in favor of assessee.

Summary

Issues:
Interpretation of Rule 9 and its provisos regarding the payment of duty and liability in case of non-payment.

Analysis:
The High Court of Karnataka heard appeals against a Final Order by the Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench, Bangalore. The main issue revolved around the interpretation of the duty payable under proviso 7 to Rule 9 of the Pan Masala Packing Machines Rules, 2008. The Tribunal had allowed the appeals, leading to the present case. The questions raised by the appellant, concerning the limitation of duty payment under proviso 7, were deemed not ideally phrased. The core query was whether the duty payable under proviso 7 is restricted to the period for which the declaration is not filed or if manufacturing activities continued in contravention of the declaration.

The Tribunal's order revealed that there was no dispute regarding the factual position, with no mis-declaration allegations against the assessee. The Commissioner had confirmed the duty demand based on proviso 7, rejecting the assessee's argument for the application of Proviso-2 for delayed payment. The Tribunal referred to its earlier decisions, particularly the case of Sanket Food Products, to support its reasoning. The disagreement between the Member (Technical) and Member (Judicial) was highlighted, eventually leading to the matter being placed before the 3rd Member for resolution.

The crux of the matter lay in the interpretation of proviso 7 and its connection to proviso 6 of Rule 9. The Revenue contended that proviso 7 was standalone, while the Assessee argued for its association with proviso 6, especially concerning manufacturing activities without a filed declaration. Rule 9, along with its provisos, outlined the manner of duty payment, interest, and scenarios like increase in operating machines or discontinuation of manufacturing. Proviso 7 specifically addressed situations where duty remained unpaid, and the manufacturer continued operating packing machines, specifying the duty liability for the remaining months of the financial year based on declared or available machines.

The Court concluded that proviso 7's liability to pay duty was limited to the remaining months of non-compliance with declaration filing or contravention, rejecting the Revenue's argument for independent operation throughout the year. The judgment favored the Assessee's interpretation, emphasizing the duty payment obligation for the specific period of non-compliance. Ultimately, the Court upheld the Tribunal's decision, dismissing any error in its interpretation. The appeals were disposed of accordingly.