2017 (7) TMI 476 - AT - Central Excise

Confiscation - 8 bags of Ronak brand Gutkha containing 94,200 pouches of MRP ₹ 1 seized at the time of inspection - redemption fine - penalty - Rule 17 of Pan Masala Packing Machine (capacity determination & collection of duty) Rules, 2008 - Section 11A read with Section 3A of the Central Excise Act, 1944 - jurisdiction - Held that - The order is wholly without jurisdiction being under Section 11 A of the Act in view of the ruling of Hon ble Supreme Court in the case of Hans Steel Rerolling Mills 2011 (3) TMI 2 - SUPREME COURT OF INDIA , where it was held that Importing of elements of one scheme of tax administration to a different scheme of tax administration would be wholly inappropriate as it would disturb the smooth functioning of that unique scheme. The time limit prescribed for one scheme could be completely unwarranted for another scheme and time limit prescribed under Section 11A of the Act is no exception. There is no redetermination and or challenge by Revenue to the orders determining duty payable under Rule 6 of the Pan Masala Packaging Rules, 2008. The confiscation of the gutkha available in the factory is also wrong as such finished products were found inside the factory and there is no allegation that the same were being attempted to be removed in a clandestine way. Further from the photographs which are relied upon by the Revenue it is evident that the machines have been kept in a small place and placed very close to each other, there being hardly any space to operate and/or space for workers to operate the said machines. It appears like, in a tightly packed elevator people are doing aerobics, as per allegation in the Show Cause Notice. Further from examination of the so called invoices of the machine manufacturer which have been relied upon in the show cause notice, we find that the format of the said invoices is very different from the earlier invoices issued a few months back for purchase of packing machine, Supari cutting machine etc., from the same manufacturer/supplier - Further as stated by the said manufacturer- Lalit Kumar Singh, who has stated that he has sold the subsequent seven machines on credit, but has not produced any evidence of delivery of such machines on credit nor any credible evidence in the form of any acknowledgment from the authorized person of M/s Wizard Fragrances that they have received those machines on credit. It is very unlikely that any manufacturer will deliver machines on credit without retaining proper evidences for the same. Duty imposed along with confiscation & penalty being unsustainable - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether there were eight pouch packing machines installed and operated in the factory premises of M/s Wizard Fragrances on the date of the visit by DGCEI officers on 22nd August 2008.
2. Whether the compounded levy scheme under the Pan Masala Packing Machine (Capacity Determination & Collection of Duty) Rules, 2008 is a separate scheme from the normal duty collection under Section 11A of the Central Excise Act, 1944.
3. Whether the penalty on M/s Vinayak Ultra Flex Private Limited under Rule 26 of the Central Excise Rules, 2002 was justified.

Issue-wise Detailed Analysis:

1. Installation and Operation of Pouch Packing Machines:
The core issue was whether M/s Wizard Fragrances had eight pouch packing machines installed and operating on 22nd August 2008, as alleged by the DGCEI. The appellant declared only one machine under the compounded levy scheme. The DGCEI claimed that during their visit, they found eight machines and drew a Panchnama to that effect. However, the appellant argued that the additional seven machines were forcibly brought in by the DGCEI officers and were not originally part of their factory setup. This claim was supported by the Vigilance Department's investigation, which indicated that the additional machines were brought by the DGCEI officers. The Commissioner’s order was based on the statements of employees and the physical setup of the factory, which suggested the possibility of running eight machines. However, the Tribunal found the Commissioner’s findings factually incorrect and unsupported by credible evidence, thus ruling in favor of the appellant.

2. Compounded Levy Scheme:
The appellant argued that the compounded levy scheme under the Pan Masala Packing Machine (Capacity Determination & Collection of Duty) Rules, 2008 is a complete code in itself, excluding the normal adjudication process under Section 11A of the Central Excise Act, 1944. This argument was supported by the Supreme Court ruling in the case of Hans Steel Rolling Mill, which established that the compounded levy scheme is a separate scheme and not subject to the general provisions of the Act. The Tribunal agreed with this view, stating that the impugned order under Section 11A was without jurisdiction and thus unsustainable.

3. Penalty on M/s Vinayak Ultra Flex Private Limited:
The Commissioner imposed a penalty on M/s Vinayak Ultra Flex Private Limited under Rule 26 of the Central Excise Rules, 2002, alleging that they facilitated M/s Wizard Fragrances in receiving unaccounted packing materials. The Tribunal found no adverse material on record against M/s Vinayak Ultra Flex Private Limited and noted that the allegations were vague. Consequently, the penalty imposed on them was set aside.

Conclusion:
The Tribunal found the Commissioner’s order unsustainable on multiple grounds, including jurisdictional issues under Section 11A, factual inaccuracies regarding the capability of running eight machines, and the lack of credible evidence supporting the DGCEI’s claims. The appeals by both M/s Wizard Fragrances and M/s Vinayak Ultra Flex Private Limited were allowed, and the penalties and duty demands were set aside. The Tribunal also noted that the impugned order was vitiated under Section 9D of the Act, as none of the Revenue’s witnesses were examined during the adjudication proceedings. The appellants were entitled to consequential relief, including refunds of amounts deposited during the investigation and the appeal process.