2013 (1) TMI 250 - AT - Central Excise

Compounded levy scheme - Whether the revenue with the aid of Rule 9 of PMPM Rules, 2008 framed u/s 3A CEA, 1944 can levy and charge excise duty for the period before the commencement of production in the unit - Pan Masala Packing Machines (Capacity Determination & Collection of Duty) Rules, 2008 Assessee manufactures Gutkha - Under Chapter 2403 - Rule 9 of PMPM Rules, 2008 - Excise duty on the basis of capacity of production Held that - Section 3 of the Excise Act is the main charging section which provides that there shall be levied and collected excise duty on excisable goods which are produced or manufactured in India. From this, it is evident that excise duty is an incidence of tax on production or manufactured of the goods. It is difficult to sustain the plea that the appellant assessee can be charged excise duty for the period during which his unit had not even commenced the production Following the decision in case of GODWIN STEELS (P) LTD. (2010 (5) TMI 322 - PUNJAB & HARYANA HIGH COURT) that it was wholly unjust for the department to recover the duty for the whole month, during which, its factory had not commenced production. When the factory of the petitioner was not in production, then obvious, it is not liable to pay the duty during the period of non-production Therefore the impugned order confirming demand for first three days of May 2009 when the production had not even commenced cannot be sustained. In favour of assessee

Summary

Issues:
- Interpretation of Rule 9 of Pan Masala Packing Machines (Capacity Determination & Collection of Duty) Rules, 2008
- Applicability of excise duty before commencement of production in a new unit

Analysis:
1. The appeal before the Appellate Tribunal CESTAT, New Delhi challenged the order-in-appeal dismissing the appellant's appeal against the duty demand confirmed by the Commissioner (Appeals), Delhi-I. The appellant, a new unit, had paid excise duty under the compounded levy scheme for a specific period.

2. The appellant, a company manufacturing Gutkha, applied for central excise registration and commenced production on 4-5-2009 after filing the required declaration under the Pan Masala Packing Machines (PMPM) Rules, 2008. The Department contended that the appellant should pay duty for the entire month of May as per Rule 9 of the PMPM Rules, issuing a show cause notice for duty demand and proposing a penalty.

3. The jurisdictional Assistant Commissioner confirmed the duty demand under Section 11A(1) of the Central Excise Act, 1944, based on Rule 9 and 18 of the PMPM Rules, but did not impose a penalty. The appellant's appeal against this order was dismissed by the Commissioner (Appeals), leading to the current appeal.

4. The main issue revolved around whether the Department could levy excise duty before the commencement of production in the unit, as per Rule 9 of the PMPM Rules, 2008. The Tribunal analyzed the relevant provisions of the Central Excise Act, emphasizing that excise duty is linked to the production of goods. Section 3A empowers the Central Government to charge duty based on production capacity but does not authorize charging duty before production begins.

5. The Tribunal referred to a judgment of the Punjab & Haryana High Court regarding a similar issue in a steel manufacturing unit, stating that duty cannot be charged for a period when the factory is not in production. Drawing from this precedent, the Tribunal concluded that the duty demand for the period before production commencement was unjustified.

6. Consequently, the Tribunal accepted the appeal, setting aside the impugned order confirming the duty demand. The decision highlighted the fundamental principle that excise duty is a tax on production, and charging duty before production initiation is not permissible under the law.