2018 (7) TMI 1045 - AT - Central Excise

Penalty u/r 26 of CER - Pan Masala/ Gutkha - It was alleged that the seals of machines were broken and the machines were used in production process - Held that - At the time of panchnama proceedings on 2nd May, 2010 on being questioned respondent Shri Awdhesh Agnihorti stated that he does not have any knowledge regarding the seal, found to be broken. It is only at the time of inspection that he also came to know that the seal of the three machines is in broken condition - It is further evident from the panchnama, which was drawn at about 17 00 hours on 2nd May, 2010 that no production was being carried on, on the said three machines. Demand cannot sustain - appeal dismissed - decided against Revenue.

Issues Involved:
1. Legality of the broken seals on the three pouch packing machines.
2. Whether the three machines were installed and engaged in manufacturing activities.
3. Applicability of Rule 7 and Rule 8 of PMPM Rules, 2008.
4. Validity of the statement recorded under Section 14 of the Central Excise Act, 1944.
5. Justification for the seizure and confiscation of the three machines.
6. Appropriateness of the penalties imposed on the respondents.

Detailed Analysis:

Legality of the Broken Seals on the Three Pouch Packing Machines:
The case arose from a surprise check conducted on 2nd May 2010, where it was found that the seals on three pouch packing machines were broken. The respondents argued that the machines were never installed and hence, no violation occurred. The Commissioner (Appeals) noted that the seals were broken but emphasized that the machines were not involved in any manufacturing activity as they were not connected to essential components like the hopper, electric motor, or heater.

Whether the Three Machines Were Installed and Engaged in Manufacturing Activities:
The Commissioner (Appeals) found that the three machines were uninstalled and not engaged in manufacturing activities. This conclusion was supported by the panchnama and photographs which showed that no production was taking place on these machines. Additionally, the stocks of raw materials and final products were in consonance with the records, indicating no irregularity.

Applicability of Rule 7 and Rule 8 of PMPM Rules, 2008:
Rule 7 stipulates the payment of Central Excise duty according to the number of operating packing machines, while Rule 8 specifies the total number of operating machines in case of any addition or deletion. The Commissioner (Appeals) found that the department failed to establish the violation of these rules as the machines were not installed, and hence, not operational for the purpose of Central Excise duty.

Validity of the Statement Recorded Under Section 14 of the Central Excise Act, 1944:
The statement of Shri Agnihotri, recorded on 2nd May 2010, was contested by the respondents as it was not recorded before a Superintendent as required under Section 14. The Commissioner (Appeals) held that the statement lacked legal sanctity and could not be used as evidence against the respondents.

Justification for the Seizure and Confiscation of the Three Machines:
The seizure was effected under Section 110 of the Customs Act, 1962. The Commissioner (Appeals) found that the seizure was unwarranted as it was based on broken seals without any evidence of manufacturing activity. The machines were confined to isolation and not involved in production, leading to the conclusion that the seizure should be vacated.

Appropriateness of the Penalties Imposed on the Respondents:
The Commissioner (Appeals) reduced the penalty on Shri Agnihotri from ?5,00,000/- to ?50,000/-, noting that the department's actions were arbitrary and irrational. The revenue's appeal argued that the reduction was unjustified given the broken seals, but the Tribunal upheld the Commissioner (Appeals)'s order, finding no fault with it.

Conclusion:
The Tribunal upheld the order of the Commissioner (Appeals), dismissing the revenue's appeals. The respondents were found not to have violated the PMPM Rules, 2008, as the three machines were uninstalled and not engaged in manufacturing activities. The penalties imposed were deemed appropriate, and the seizure of the machines was vacated. The respondents were entitled to consequential benefits in accordance with the law.

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