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2017 (7) TMI 459 - HC - Central ExciseRule 6(2) of the Pan Masala Packing Machines (Capacity Determination and Calculation of Duty) Rules, 2008 - packing speed of machines - The petitioner Company had declared the speed at 750 pouches per minute even when speed was not relevant for duty purpose, and had subsequently changed it to 1000 pouches per minute, when packing speed of the machine was relevant, and continued to declare it as such till such time the Company started getting complaints about the packing of the pouches. Held that - Rule 6(2) of the Rules provides that when a declaration is made under Rule 6(1), the Deputy Commissioner or the Assistant Commissioner of Central Excise, as the case may be, may make such enquiry as may be necessary including physical verification and, thereafter, approve the declaration including the declaration with regard to maximum packing speed at which the machine can be operated for packing of notified goods of various retail sale prices and, consequently, determine and pass order concerning the annual capacity of production of the factory within 3(three) working days. The second proviso to Sub-rule 6(2) provides that if a manufacturer does not receive the approval in respect of his declaration within a period of 5(five) working days, the approval shall be deemed to have been granted subject to the modifications, if any, which the Deputy Commissioner or the Assistant Commissioner of Central Excise, as the case may be, may communicate later on but not later than 30(thirty) days of filing of the declaration. The approval of declaration is not automatic or routine and before the declaration is approved, the authority can make necessary enquiry including physical verification of the machine. The expression used in Sub-rule 6(2) is maximum packing speed at which each of the packing machines available in his factory can be operated for packing - While passing the aforesaid order dated 27.11.2015, it was noted that there was no good reason for physical verification of the machine to determine the maximum packing speed at which it could be operated. The aforesaid order was set aside by the Commissioner (Appeals) vide his order dated 30.08.2016 on an appeal preferred by the petitioner. It is not in dispute that the petitioner had paid excise duty based on the annual capacity production calculated on the basis that the maximum packing speed of the machine falls in the category of 301-750 pouches per minute. These findings have a direct bearing on the legality and tenability of the enquiry which is initiated solely for the reason of lowering the packing speed of the machine as the change of maximum packing speed of the machine was the central issue before the appellate authority. If it is permissible to change the parameter of maximum speed of the machine, that too, without any explanation, as held by the appellate authority, the very edifice of the enquiry has no foundation. In that context, the plea of the respondents that the issue of packing quality was not raised earlier pales into insignificance. The enquiry initiated against the petitioner company by letter dated 18.11.2015, in the facts of this case, ought not to be permitted to be continued and, therefore, the enquiry initiated in relation to packing machine ID No. 131023840 is quashed - petition allowed - decided in favor of petitioner.
Issues Involved:
1. Legality of the enquiry initiated against the petitioner company regarding the maximum packing speed of a machine. 2. Validity of the summons issued to the officials of the petitioner company. 3. Impact of the appellate authority's decision on the ongoing enquiry. 4. Allegations of fraudulent manipulation and short payment of Central Excise duty. Detailed Analysis: 1. Legality of the enquiry initiated against the petitioner company regarding the maximum packing speed of a machine: The petitioner, a company registered under the Companies Act, 1956, filed a writ petition under Article 226 of the Constitution of India, seeking the termination of an enquiry initiated by the Assistant Commissioner of Central Tax (Anti-evasion) by letter dated 18.11.2015. The petitioner argued that the enquiry into the maximum packing speed of their machine was illegal, arbitrary, and without jurisdiction. The court noted that the petitioner had declared the speed of the machine at 750 pouches per minute, which was approved by the Assistant Commissioner. However, due to technical issues, the speed was later declared as 1000 pouches per minute, which was also approved. The enquiry was initiated on the grounds of alleged fraudulent manipulation of the machine's speed, resulting in short payment of Central Excise duty. 2. Validity of the summons issued to the officials of the petitioner company: The respondents issued several summonses to the officials of the petitioner company, requiring them to appear in person and produce documents. The petitioner argued that the repeated summonses were issued to harass the officials and that the enquiry was conducted with a pre-conceived notion. The court observed that the enquiry was initiated under Section 11A of the Central Excise Act for alleged fraudulent manipulation and short payment of duty. The court noted that the summonses issued to the officials were part of the enquiry process, but the enquiry itself was based on the central issue of the machine's maximum packing speed, which had already been determined by the appellate authority. 3. Impact of the appellate authority's decision on the ongoing enquiry: The appellate authority had set aside the order dated 27.11.2015, which held that the machine's maximum packing speed was 751 pouches per minute and above. The appellate authority directed the re-determination of the production capacity after observing the formalities laid down in Rule 6(2) and Rule 6(6) of the Rules. The court noted that the appellate authority's findings had a direct bearing on the legality of the ongoing enquiry. The appellate authority had held that it was permissible to change the parameter relating to the maximum speed of the machine and that no explanation was needed for such changes. The court emphasized that the findings of the appellate authority must be followed by the departmental officers, and any contrary view would lead to administrative chaos. 4. Allegations of fraudulent manipulation and short payment of Central Excise duty: The respondents alleged that the petitioner had manipulated the machine's speed through the replacement of the CPU, resulting in a short payment of Central Excise duty amounting to ?27.06 crores. The petitioner denied these allegations, asserting that the changes in the machine's speed were genuine and had been physically verified by the departmental officers and a Chartered Engineer. The court observed that the appellate authority had already determined that changes in the machine's speed were permissible and had been duly verified. The court concluded that the ongoing enquiry, based on the same issue, had no foundation and should not be permitted to continue. Conclusion: The court quashed the enquiry initiated against the petitioner company by letter dated 18.11.2015 and directed that the amount of ?2 crores deposited by the petitioner be adjusted against future excise duty payable. The writ petition was allowed, and no costs were imposed.
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