2022 (12) TMI 1141 - AT - Central Excise

Non-payment of Central Excise Duty on new packing machines added during the relevant month - non-payment on the ground that the number of old packing machine have been replaced with equal number machines and the total number of installed packing machines remained unchanged during the said relevant months - contravention of statutory provisions of Rule 6(4),7,8,9 and 13 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 - HELD THAT - As regard the demand of Rs. 1,20,12,500/- we find that the case of the department is that provisions of Rule 8 nowhere provide the pro-rata payment of duty on the basis of date of installation of new Machines. As per department Appellant was required to pay duty for the whole month. The Learned Commissioner in impugned order also held that the Appellant was not entitled for the abetment of duty in case of non-production of the notified goods as provided in Rule 10. It should be appropriate at this juncture to re-visit the legal provisions. In the present matter undisputedly appellant had followed the procedure, as the appellant filed declaration regarding change of number of packing machines and the declaration was accepted by the proper officer after due verification, the declaration was accepted and the annual capacity of the machine was fixed by the competent jurisdictional officers and the appellant accordingly paid the duty. The same is also clear from the following correspondences. There is no misdeclaration found by Revenue on the part of appellant regarding number of machines used for manufacture of notified goods. In such circumstance demands of duty over and above the duty determined by the Jurisdictional officer legally not correct. It is clear the duty is payable on the number of installed machines which are deemed to be operating machines. In the present matter the number of installed machines in the month remained the same before and after replacement of the machines. Therefore, the demand confirmed by the Learned Commissioner in instant case is legally not correct. In the present matter Revenue cannot demand duty unless the orders of determination of production capacity based duty has been reviewed. In the present case, it is seen that the Appellant after following the proper procedure paid the duty assessed by the Jurisdictional Deputy Commissioner fixing annual capacity of production after the replacement of packing machines, however no action was taken by the department to modify these orders by filing review application or appeal. On this ground also demand is prima facie not sustainable. Appeal allowed.

Issues Involved:
1. Timeliness of the Order
2. Determination of Annual Capacity of Production
3. Duty Demand on Replacement of Packing Machines
4. Duty Demand on Addition of Machines in the Middle of the Month
5. Duty Demand on Use of Same Machines for Different Products
6. Pro-rata Payment of Duty
7. Abatement of Duty for Non-Production Periods

Detailed Analysis:

1. Timeliness of the Order:
The appellant argued that the impugned order was passed 12 years after the issuance of the show cause notice, which was not within a reasonable time. They cited several judicial precedents to support their contention that the delay itself should be grounds for setting aside the order.

2. Determination of Annual Capacity of Production:
The appellant contended that the annual capacity of production is determined by the Deputy Commissioner under Rule 6(3) of the PMPM Rules. This determination, once made, was not challenged by the department and thus became final. The capacity determination orders were passed under Section 3A of the Central Excise Act and were appealable under Section 35 of the same Act. The appellant paid duty based on these orders, and any challenge to these orders should have been made through an appeal, not through a show cause notice.

3. Duty Demand on Replacement of Packing Machines:
The appellant argued that the duty demand of Rs. 5,25,00,000/- on machines installed as replacements was illegal. They followed the procedure prescribed in Rule 13 of the PMPM Rules for the addition and removal of machines. The number of installed machines remained the same before and after the replacement, hence no additional duty was payable. The Commissioner's demand was not legally correct as the total number of operating machines did not change.

4. Duty Demand on Addition of Machines in the Middle of the Month:
The appellant contended that the demand of Rs. 98,37,500/- for machines added in the middle of the month was unsustainable. They followed Rule 6(6) and paid the duty on a pro-rata basis as directed by the Deputy Commissioner. The revised capacity determination order did not revise the annual capacity from the beginning of the month, and the duty was paid accordingly.

5. Duty Demand on Use of Same Machines for Different Products:
The appellant argued that the demand of Rs. 21,75,000/- for using the same machines for Pan Masala and Gutkha in the same month was illegal. They paid duty on a pro-rata basis as per the capacity determination order, which had become final. There was no addition of machines or manufacture of goods with a new MRP, making Rule 8 inapplicable.

6. Pro-rata Payment of Duty:
The department contended that Rule 8 did not provide for pro-rata payment of duty based on the date of installation of new machines and that duty should be paid for the whole month. However, the tribunal found that Section 3A of the Central Excise Act and the PMPM Rules allowed for pro-rata determination of annual capacity and duty. The appellant followed the procedure, and the declarations were accepted by the proper officer, making the demand for additional duty legally incorrect.

7. Abatement of Duty for Non-Production Periods:
The appellant was entitled to abatement under Rule 10 of the PMPM Rules for periods when goods were not produced for 15 days or more. The Commissioner denied abatement, but the tribunal found that no duty could be demanded for periods when goods were not produced. This was supported by the judgment in CCE, Jaipur-II v. Jupiter Industries, which held that no duty is leviable for periods when a machine has not been operated.

Conclusion:
The tribunal set aside the impugned order, finding that the appellant followed the prescribed procedures and paid the duty as determined by the jurisdictional officers. The demands for additional duty were not legally sustainable, and the appeal was allowed with consequential relief.

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