2021 (1) TMI 340 - AT - Central Excise

Clandestine removal - allegation of clandestine use of one extra Pouch Packing Machine for manufacture and clearance by evading excise duty - period from 01-11-2013 to 30-09-2014 - Interpretation of Compounded Levy scheme under section 3A of Central Excise Act 1944 and Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules 2010 - Determining rate of duty and Quantification of duty under Notification No. 16/2010-CE dated 27.02.2010 - seized machine found excess - Operating Machine or not - evidentiary value of statements in term of section 9D of Central Excise Act 1944 with without examining witnesses - Confiscation of PPM is sustainable when it is not manufactured and removed by M/s Hasmukh Tobacco Products - absence of seizure of goods manufactured or cleared by Assessee - penalty under section 11AC of the Central Excise Act. HELD THAT - M/s Hasmukh Tobacco Products engaged in manufacture of OM brand unmanufactured tobacco falling under CTH 24011090 of Central Excise Tariff Act 1985 with Registered Central Excise ECC No. ACSPP9687QM001. Assessee had filed their last declaration on 27-12-2012 and had declared RSP of ₹ 3/- on pouch and they were paying duty for one PPM, under section 3A of Central Excise Act, 1944 and Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010. Central Excise officers, visited factory premises of Assessee on 03.09.2014 and found one undeclared Pouch Packing Machine PPM having packing material roll on with printed RSP ₹ 4/-, which was seized. Duty in respect of seized PPM - HELD THAT - Compounded levy under section 3A is on deemed production and excise duty is leviable as notified on number of packing machines in factory of manufacturer under Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 read with section 3A (2) and (3) of the Central Excise Act, 1944. The monthly deemed production per PPM is prescribed on the basis of average speed of machines and average working hours of factory. Central Excise duty is at rates notified on the basis of Retail Sale Price (RSP) slabs on per machine, Notification No. 16/2010-CE dated 27.02.2010 refers. The number of packing machines installed in factory has been notified to be factor relevant to production of notified goods under the above Rules 2010. Duty is required to be determined on deemed production determined in accordance with the prescribed parameters, i.e. number of operating PPM in factory during month and RSP on the pouches. Rule 5 of Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 specifies quantity of notified goods deemed to have been produced by use of one operating packing machine per month and such deemed quantity varies on RSP shown by manufacturer per pouch - Rule 8 specifies that in case of any addition or installation or removal or un-installation of a packing machine in the factory during month, number of operating packing machines for month shall be taken as maximum number of pouch packing machines installed on any day during month, provided that in case of non-working of installed packing machine during month, for any reason whatsoever, same shall be deemed to be an operating pouch packing machine for the month. Rule 9 ibid provides the manner of payment of the duty and the interest. In the present case, the SCN dated 19-02-2015 has demanded total duty of ₹ 300.02 lakhs from November 2013 to September 2014, based on statements. The O-I-O dated 27-12-2019 has confirmed duty of ₹ 1,76,47,000/- from 01-04-2014 to 30-09-2014. Rest of demand of duty of totally ₹ 1,23,55,000/- has been dropped. O-I-O has given just and fair findings in O-I-O Para 54 to 57 for his conclusion that seized PPM was not operating Machine w.e.f. 01-11-2013. We upheld the same as correct view. There is no dispute about detection and seizure of extra PPM from factory of Assessee on 03-09-2014. Both the side have agreed to this fact. Therefore, it remains to be ascertained as to from which date it was brought in the factory and installed or not installed. Statements of 03-09-2014, 21-10-2014 by Hasmukhbhai Patel, and Maheshbhai Patel, shows date of receipt of seized PPM as 01-08-2014. The entire case is based on statements. Hence, critical analysis of statements would be very relevant - It is found that it is not a simple bald statement in their cross examination that seized PPM was brought in factory on 01-08-2014. These depositions in cross examination seems to be their true statements. We also find from statements recorded initially and depositions of relevant witnesses under section 9D of Central Excise Act 1944 before the learned Commissioner, it becomes amply clear that the seized PPM was brought in the factory on 01-08-2014. We have also perused relevant affidavits and relied upon pages of diaries seized from the premises of supplier of PPM. The objective of cross examination was to ascertain actual date of receipt of seized PPM in the factory of assessee and installation thereof. We have also considered all argument and submission made by Authorized Representative (AR) on behalf of the Revenue. We do not agree with contentions of AR that statement in cross examination without any documentary evidences cannot be accepted as evidence that Such depositions in cross examination are retractions and after thoughts only without having any basis to give date of receipt of PPM on 01-08-2014 - the recording of statement in inquiry is not enough but it has to be with fully conscious application of mind by adjudicating authority that statement is required to be admitted allowing opportunity of cross examination of witness. This provision could not be done away with by the adjudicating authority, if he is inclined to take into consideration the statement recorded earlier during investigation by Investigation officers. Without examination and cross examination of person as required under Section 9D for cross examination as mandated under CEA 1944, statement recorded by Investigation Officer would not constitute relevant and admissible evidence and has to be ignored when procedure u/s 9D ibid is not followed by adjudicating authority. We hold that adjudicating authority in this case committed gross error in not placing reliance upon depositions of witnesses recorded during their cross examination which was before him in proceedings in this Show Cause Notice. We are of the view that depositions made by concerned witness before learned Commissioner in cross examination are original evidences adduced on record during the adjudication proceedings. When depositions were made by concerned witness in cross examination, learned Commissioner or revenue had not raised objection during their deposition. Therefore, such depositions before Commissioner during cross examination of witnesses have become the original evidence, which can not be objected merely on assumptions and presumptions or pointing out the unsustainable infirmities related to such depositions - It is Settled that quantification of alleged clandestine clearance on theoretical estimation of the production cannot be sustained. Depositions made in cross examination would become original and valid evidence and adjudicating authority had to rely it without any reservations. There is no duty liability outstanding except interest liability for a few days to be calculated by the Central Excise Officers for September 2014. We hold that there can not be any penalty for September 2014. However, we also make it clear that at the same time the Assessee would also not be eligible to claim any consequential benefit for amount of ₹ 36,82,000/- deposited towards duty for September 2014, which is even otherwise their duty liability and it has also to be appropriated. Imposition of Redemption Fine - HELD THAT - The Rule 18(1) ibid provides that notified goods produced or removed shall only be liable to confiscation. We agree with the contention of the Assessee that the seized PPM is brought in their factory and it has not been manufactured by Assessee or removed from factory by Assessee. Therefore, we find that seized PPM is not at all liable to confiscation under Rule 18(1) ibid. The confiscation of PPM and fine of ₹ 10,000/- deserves to be vacated and set aside. We vacate confiscation of seized PPM and set aside Redemption fine of ₹ 10,000/- imposed by the impugned order. Imposition quantification of Penalty - HELD THAT - The provisions in Central Excise Act 1944 provides that even if short payment or non-payment of excise duty detected by self or pointed out by officers, voluntary duty compliance of duty is encouraged to reduce litigation. In this case, entire duty determined and interest stand deposited. Appellant deserves leniency on penalty. Assessee on payment of duty with interest is eligible to reduced penalty @ 10 % u/s 11AC(1)(a) ibid. Assessee is eligible for closure of proceedings only on payment of duty and interest for September 2014. But, for August 2014, the penalty u/s 11AC(1)(a) shall be ten per cent of duty. Thus, for August 2014, duty of ₹ 29,56,000/- is payable with interest and penalty @ 10 %. This entire case is based on statements without clinching, corroborative independent positive evidences on record produced by the Revenue officers. Depositions by witnesses in cross-examination before Commissioner u/s 9D ibid in adjudication proceedings are original evidences and have passed test of correctness of statement given in investigation. Therefore, depositions u/s 9D ibid are original evidence and can never be considered as a retraction from statement given in investigation - Also, Assessee have given their due comments against almost all such decisions. We find that the said decisions are not related to the facts of this case and hence they are not applicable in this case. Accordingly, the Revenue s Appeal deserves to be rejected. The demand of Central Excise duty of ₹ 29,56,000/- against M/s. Hasmukh Tobacco Products, towards duty leviable for the month of August, 2014 is confirmed - M/s. Hasmukh Tobacco Products, Ahmedabad shall pay interest under Section 11AA of Central Excise Act, 1944 on the above confirmed demand of ₹ 29,56,000/- - the confiscation of seized PPM under Rule 18(1) of Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 is vacated and Redemption fine of ₹ 10,000/- also set aside - penalty @ 10 % of ₹ 29,56,000/- on M/s Hasmukh Tobacco Products, u/s 11AC(1)(a) of Central Excise Act, 1944, which will come to ₹ 2,95,600/- - penalty on Shri Hasmukhbhai Ugarchand Patel, Authorized Signatory of M/s Hasmukh Tobacco Products, Ahmedabad U/R 26 of Central Excise Rules, 2002 is seta aside - the appropriation of duty amount of ₹ 36,82,000/- with interest u/s 11AA as deposited in the month of September for September 2014 and also order appropriation of confirmed demand of Central Excise duty of ₹ 29,56,000/- with interest as per Section 11AA of CEA; 10% of Penalty on ₹ 29,56,000/- imposed on M/s. Hasmukh Tobacco Products which comes to ₹ 2,95,600/- in terms of Section 11AC(1)(e) of the said Act from the amounts which the said assessee has deposited during pendency of proceedings, is ordered - remaining demand of duty and corresponding penalty and interest over and above mentioned are set aside. Appeal allowed in part.

Summary

Issues Involved:
1. Interpretation and application of the "Compounded Levy Scheme" under Section 3A of the Central Excise Act, 1944, and related rules.
2. Determination of the rate and quantification of duty under Notification No. 16/2010-CE.
3. Determination of whether the seized Pouch Packing Machine (PPM) was an "Operating Machine."
4. Ascertainment of the date from which the seized PPM was operative.
5. Evidentiary value of statements under Section 9D of the Central Excise Act, 1944.
6. Validity of confiscation of the PPM and the imposition of Redemption Fine.
7. Justification for penalties imposed on the Assessee and its authorized signatory.

Detailed Analysis:

1. Interpretation and Application of the "Compounded Levy Scheme":
The Assessee was engaged in the manufacture of tobacco and was paying duty under the Compounded Levy Scheme. The scheme is based on the number of operating packing machines and the Retail Sale Price (RSP) of the products. The duty is calculated on deemed production as per the number of operating machines in the factory during any month.

2. Determination of Rate and Quantification of Duty:
The duty was demanded based on the presence of an undeclared PPM in the factory. The rate of duty is determined according to Notification No. 16/2010-CE, which specifies the duty based on the RSP of the products. The adjudicating authority confirmed a partial demand from April 2014 to September 2014 and dropped the rest.

3. Determination of Whether the Seized PPM was an "Operating Machine":
The key issue was whether the seized PPM found on 03-09-2014 was an "Operating Machine." The Assessee claimed it was brought into the factory on 01-08-2014 and was not operational until the second week of September 2014. The adjudicating authority and Tribunal examined various statements and cross-examinations to determine the operational status of the machine.

4. Ascertainment of the Date from Which the Seized PPM was Operative:
The Tribunal found that the seized PPM was brought into the factory on 01-08-2014. The statements and cross-examinations of witnesses, including the transporter and laborers, supported this date. The Tribunal held that the duty liability could not start before 01-08-2014.

5. Evidentiary Value of Statements under Section 9D:
The Tribunal emphasized the importance of cross-examination under Section 9D of the Central Excise Act. Statements recorded during investigation must be corroborated through cross-examination to be admissible. The Tribunal found that the depositions during cross-examination were credible and supported the Assessee's claim about the date of receipt of the PPM.

6. Validity of Confiscation of the PPM and Imposition of Redemption Fine:
The Tribunal held that the confiscation of the PPM and the imposition of a Redemption Fine were not justified. The PPM was not manufactured or removed by the Assessee, and thus, Rule 18(1) of the Chewing Tobacco Rules did not apply. The confiscation and fine were set aside.

7. Justification for Penalties Imposed on the Assessee and Its Authorized Signatory:
The Tribunal found that the Assessee had no intention to evade duty and had complied with duty payments after being directed by the officers. The penalty under Section 11AC was reduced to 10% of the duty for August 2014. The penalty on the authorized signatory was set aside as there was no evidence of personal benefit.

Final Orders:
1. Appeal No. E/10340/2020: Partially allowed; duty for August 2014 confirmed with interest and reduced penalty.
2. Appeal No. E/10341/2020: Allowed; penalty on the authorized signatory set aside.
3. Appeal No. E/10352/2020: Dismissed; cross-objection by the Assessee disposed of accordingly.

Pronouncement:
The judgment was pronounced in the open court on 11.01.2021.