2019 (1) TMI 1097 - AT - Central Excise

Valuation - Assessment of duty on un-manufactured tobacco - valuation based on capacity based production - deployment of machinery - Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 - Held that - No evidence has been produced for us to entertain a conclusion that trade parlance has a connotation which could be adopted for determination. The focus on portions of the show cause notice in the impugned orders, as well as the submission of Learned Special Counsel, would make it appear that a technical opinion from experts in engineering seem to be the only source of enlightenment. That, however, would not be in consonance with the principles that govern levy and collection of tax - also, though the number of pouches produced from machine did increase substantially, the circumstances specified in rule 6(1) for determination does not appear to apply. Providing for multiplication of capacity when multiple track/multiple line machines are deployed, implies the acknowledgement of simultaneous emergence of the pouches. That does not appear to be so. The absence of parallel processing of pouches inclines us to discard the contention of Learned Special Counsel for Revenue that the machines installed by the assessee are multiple track/multiple line . Despite the elimination of lead time in collecting the unmanufactured tobacco for each pouch, it is yet only one pouch that can be filled at any single point in time. That is a clear articulation of the intent. The lure of revenue maximization that may have motivated the initiation of proceedings cannot support the stated intent. In the absence of any evidence that the higher capacity was not merely a consequence of enhancing efficiency of existing machines, the grounds of appeal cannot sustain - appeal dismissed - decided against Revenue.

Issues Involved:
1. Assessment of duty on 'un-manufactured tobacco' under the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010.
2. Determination of production capacity based on the number of packing machines.
3. Interpretation of 'multiple track/multiple line' machines.
4. Reliance on technical opinions and previous legal precedents.

Detailed Analysis:

1. Assessment of Duty on 'Un-manufactured Tobacco':
The dispute arises from the assessment of duty on 'un-manufactured tobacco' produced by M/s New Kamath Tobacco Co Pvt Ltd following the introduction of the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010, notified under section 3A of Central Excise Act, 1944, effective from 8th March 2010. The Commissioner of Central Excise, Thane-II, initially dropped the demands for the periods from 8th March 2010 to 31st December 2014 and from January 2015 to September 2015. The first appellate authority set aside the original authority's order determining the production capacity for duty calculation.

2. Determination of Production Capacity:
The central excise authorities discovered that M/s New Kamath Tobacco Co Pvt Ltd had deployed new machines capable of producing significantly more than normal. The machines were replaced and expanded, leading to a demand for differential duty based on the technical opinion that each filling station should be considered as a separate line. However, the adjudicating and appellate authorities relied on opinions from the Indian Institute of Technology and other experts, as well as a physical verification report, to drop further proceedings. They also referred to the Tribunal's decision in Dharampal Satyapal Ltd v. Commissioner of Central Excise, Noida, upheld by the Hon’ble High Court of Allahabad, and a circular from the Central Board of Excise and Customs.

3. Interpretation of 'Multiple Track/Multiple Line' Machines:
The central issue was whether the machines installed by the assessee should be considered 'multiple track/multiple line' machines. The Rules did not provide a definition for 'multi track/multi line' or 'single track/single line' machines. The Revenue argued that the number of volumetric cups should determine the number of lines. The assessee contended that each machine contained only one filling station. The Tribunal concluded that the absence of parallel processing of pouches indicated that the machines were not 'multiple track/multiple line' and that only one pouch could be filled at any single point in time.

4. Reliance on Technical Opinions and Previous Legal Precedents:
The Tribunal noted that the Rules did not clarify the intent behind distinguishing 'single track/single line' and 'multiple track/multiple line' machines. The Tribunal discarded the various technical opinions presented, emphasizing that the comprehension of the taxing provision should be clear to a person with a normal reasonable mind. The Tribunal also relied on the circular from the Central Board of Excise and Customs, which clarified that duty should be determined based on the number of packing machines and not on actual production. The Tribunal upheld the reliance on the decision in Dharampal Satyapal Ltd, where the process of speeding up production by adjusting a single line was not approved as a determinant of doubling production capacity.

Conclusion:
The Tribunal found no merit in the appeals of Revenue and dismissed them, along with the miscellaneous application and cross-objection. The judgment emphasized that the duty should be based on deemed production with respect to the number of packing machines and not on actual production. The Tribunal's decision was pronounced in court on 17/01/2019.

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