2018 (12) TMI 160 - AT - Central Excise

Clandestine manufacture and removal - Gutka - applicability of Rule 18 of Pan Masala Packing Machines (Capacity Determination and Collection of duty) Rules, 2008 - entire demand is based on the invocation of explanation to Rule 18A with Rule 17 (2) of said Rule, 2008 - two undeclared FFS machines found installed in some part of the same premises. Held that - The premises which were rented out to the manufacturer-appellant were not the premises where two pouch packing machines were found by the officers - the two pouch packing machines were found in the premises rented out to M/s Gaurav Enterprises and M/s Anandeshwer Enterprises. Further, revenue could not establish any evidence to establish manufacture of Gutkha by the appellant and could not establish clearance of the same and therefore, invoking Sub-rule 2 of Rule 17 of said Rules, 2008 for fastening liability on the manufacturer-appellant from 1st July, 2008 is not tenable in law. It is provided in explanation to Rule 18 of the said Rule, 2008 that the goods shall be held to be manufactured with the aid of packing machines if they are cleared from the factory where the pouch packing machine are found installed - the said provisions are not invokable in the present case, because revenue could not establish beyond doubt that the premises which was under the control of the manufacturer-appellant through rent agreement were the premises in which two pouch packing machines were found. Demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Central Excise duty liability on two pouch packing machines.
2. Alleged undeclared machines installed by the manufacturer.
3. Liability of the manufacturer for duty payment.
4. Denial of cross-examination and reliability of statements.
5. Premises ownership and possession of the machines.
6. Applicability of Rule 17 of Pan Masala Packing Machines Rules, 2008.
7. Appeal against the Order-in-Original.

Central Excise Duty Liability on Two Pouch Packing Machines:
The case involved a demand for Central Excise duty of ?4 crores from the manufacturer-appellant for the period from 1st July, 2008 to October, 2009, based on the presence of two undeclared FFS machines on their premises. The revenue contended that duty liability per machine per month was to be fixed at ?12.5 lakhs. The manufacturer-appellant argued that they had intimated the use of hand-operated packing machines and that the FFS machines found did not belong to them.

Alleged Undeclared Machines Installed by the Manufacturer:
The investigation revealed that two FFS machines were found in the premises rented out to other entities, M/s Gaurav Enterprises and M/s Anandeshwer Enterprises, not the manufacturer-appellant. The revenue failed to establish evidence of Gutkha manufacture or clearance by the appellant, casting doubt on the liability imposed under Rule 17 of the Rules, 2008.

Liability of the Manufacturer for Duty Payment:
The manufacturer-appellant denied ownership of the premises where the machines were found, presenting evidence that the premises were rented out to other entities. The Commissioner confirmed the duty demand with penalties, but the Tribunal found that the premises with the machines did not belong to the manufacturer, rendering the demand unsustainable.

Denial of Cross-Examination and Reliability of Statements:
The manufacturer-appellant challenged the reliability of statements due to the denial of cross-examination. The Tribunal considered this argument, emphasizing the need for reliable evidence to establish liability under the Rules, 2008.

Premises Ownership and Possession of the Machines:
Affidavits from the landlord and other occupants confirmed that the premises with the FFS machines were rented to M/s Gaurav Enterprises and M/s Anandeshwer Enterprises, not the manufacturer-appellant. This supported the appellant's claim that the duty liability was unjustly imposed.

Applicability of Rule 17 of Pan Masala Packing Machines Rules, 2008:
The Tribunal analyzed the provisions of Rule 17 and the explanation to Rule 18 of the Rules, 2008. It concluded that the revenue failed to prove that the machines were in the manufacturer's controlled premises, making the invocation of the rules untenable in this case.

Appeal Against the Order-in-Original:
The Tribunal set aside the Order-in-Original, ruling in favor of the appellants. It found that the demand for duty was not sustainable due to the lack of evidence linking the manufacturer to the undeclared machines. The appellants were granted consequential relief as per the law.

This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, and the Tribunal's decision based on the evidence and legal provisions involved in the case.