2018 (7) TMI 1278 - AT - Central Excise

Clandestine manufacture and removal - Pan Masala - appellant was neither registered with the Central Excise Department nor was paying any duty on the clearance of Pan Masala - Interpretation of statute - Rule 17(2) of CER - Held that - As per the rule, if the manufacturer is found to be indulging in manufacturing activities without registration on the day of their visit, it has to be deemed as if such manufacturing activity was taking place right from the first day of April of that Financial Year in which unit was found to be not registered - Admittedly in the present case the unit was found to be not registered on 10/04/2011. As such by strict application of the said rule, the duty liability would arise against the appellant with effect from first day of April, 2011 and not first day of April, 2010. There is exception in the said rule itself to the effect that unless evidence to the contrary is provided to the satisfaction of the Central Excise Officers. This shows that if an assessee is otherwise is in a position to establish actual date of stock of manufacture, the deeming provisions would not apply. It, thus, simplicitor leads us to hold that if the evidence is available on record to show the actual period during which production and clearance of Pan Masala had taken place, duty would be confirmed from that date only - Deeming provision is applicable in those cases where there no evidence of start of production is available. In the present case, the Commissioner has accepted that the appellant was indulging in manufacture and clandestine clearance of Pan Masala since January, 2011. There is also evidence on record to show that there was agreement between the appellant and their brand owner, Shri Sunil Kumar Agarwal, Director of M/s Astha Fragrance Pvt. Ltd. which was executed with effect from 01/10/2010 and the present premises in which the machines were found to be installed were taken on rent by the appellant from January, 2011 as per the statement of the owner of premises. As such, it is clear that the appellant was manufacturing the said goods in rented premises with effect from January, 2011 - the duty liability is legally to be confirmed against the appellant from January, 2011. Penalty - Held that - The appellant was admittedly indulging in clandestine activity for manufacture of Pan Masala and as such are liable to penalty of identical amount - matter remanded back to the Original Adjudicating Authority for quantification of exact amount of duty liability against the M/s Taj Products for the period of actual manufacture of the goods and for imposition of penalty. Penalty on Shri Sunil Kumar Agarwal - Held that - There is no evidence on record to suggest that the said activity was in the knowledge of Shri Sunil Kumar Agarwal. In such a situation, the owner of the brand name cannot be, held liable to penalty - penalty set aside. Appeal allowed in part.

Summary

Issues:
1. Duty liability period for clandestine manufacture of Pan Masala
2. Interpretation of Rule 17(2) of Pan Masala Packing Machines Rules, 2008
3. Penalty imposition on the manufacturer and brand owner

Issue 1: Duty liability period for clandestine manufacture of Pan Masala:
The case involved the confirmation of a demand of ?2,40,50,000 against the proprietor of M/s Taj Products for illegal manufacturing and clearance of Pan Masala. The appellant contended that duty liability should start from January 2011, not April 2010, as they had evidence of operations from January 2011. The Tribunal upheld the duty liability from January 2011 based on the evidence presented, despite the deeming provision in Rule 17(2) of the Pan Masala Packing Machines Rules, 2008.

Issue 2: Interpretation of Rule 17(2) of Pan Masala Packing Machines Rules, 2008:
The Tribunal analyzed Rule 17(2) which states that duty liability arises from the first day of April of the Financial Year if a unit is found operating without registration. However, an exception allows for evidence to counter this deeming provision. In this case, evidence showed the actual manufacturing period starting from January 2011, leading to the confirmation of duty liability from that date, not April 2010.

Issue 3: Penalty imposition on the manufacturer and brand owner:
The Tribunal found the appellant liable for penalty due to clandestine manufacturing activities. The penalty was set aside for the brand owner as there was no evidence of their involvement in or knowledge of the illegal activities. The matter was remanded for quantification of the duty liability against M/s Taj Products and for the imposition of penalty based on the actual manufacturing period.

In conclusion, the Tribunal upheld the duty liability from January 2011, set aside the penalty on the brand owner, and remanded the case for further proceedings regarding the exact duty amount and penalty imposition on the manufacturer.