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2022 (9) TMI 214 - AT - Central ExciseLevy of Central Excise Duty on Compounded basis - Classification of Packing Machines used for manufacture of chewing tobacco - Pedal Filler and Heat Sealer machine - Filler machine - Filler machine - rate of duty applicable to certain machines used by the appellants - packing machine in terms of N/N. 10/2010-CE (N.T.) dated 27.02.2010 or not - suppression of facts on the part of the Appellant to evade duty so as to invoke extended period of limitation or not? - HELD THAT - The scheme of the compounded levy is such that for each packing machine the deemed production is determined in terms of the Capacity Determination Rules. The total deemed production of each machine is measured in terms of Capacity Determination Rules . For an assessee total duty amount is based on the number of machines installed/used in the factory and the MRP of the pouches manufactured on such machines. Duty is levied on the number of machines installed/used (subject to some conditions prescribed in Capacity Determination Rules and notifications issued from time to time). The actual physical production becomes irrelevant in such circumstances. The sole criterion for the determination of total duty payable is the number of Packing machines installed/used and the MRP of the pouches manufactured on respective machines. It is obvious that the description Hand operated fillers or spoons or a similar manually operated device is cited in the circular as an example and not as an exhaustive list of equipment that do not qualify as Packing Machines . There can be many machines, other than those listed in circular, which may not qualify as Packing machine .It is seen that this question posed before the expert is defective. The question which needs to be answered is if the disputed machines can be called packing machines in terms of Capacity Determination Rules, 2010 or not. This question can only be answered by Revenue Officers and not by technical experts from YMCA University of Science and Technology or IIT Delhi. Such expert organization can only be used to get facts regarding the machines and its functions. In the instance case there is no dispute regarding the process undertaken with these machines. The expert reports are useful only to the extent that they describe this process and also describe the fact that electrical energy or compressed air is used in the process of filling and sealing. In view of the description of the functioning of machine by the experts can be accepted as evidence but the opinions of experts on law points are of no use to the revenue.Moreover the appellants were refused an opportunity to cross examine these experts. While there is no significant difference on facts regarding the manner of functioning of these machines, but if revenue wished to rely of the opinion of experts the opportunity of cross should have been allowed. Pedal Filler and Heat Sealer machine - Filler machine - Filler machine - HELD THAT - It is seen that all 3 machines require significant human effort. In all the machines the pouches are obtained preformed from outside and the pouches are not made within the machine or factory.In all three machines the pouches are held manually by the operator for the purpose of filling. The machines use, either gravity or pneumatic power, to fill the approximate quantity of tobacco in the pouches. Thereafter, the weight of the tobacco in the pouches is adjusted manually by adding or removing same quality. Thereafter, the pouches are sealed either on a sealer attached to the same machine (in case of Paddle Filler and Heat Sealer) or on a separate sealing machine. The operation may require two or more persons on each machine/line. If the process undertaken on this machine can be called packing at all? - HELD THAT - Each and every machine used in the process of packing of tobacco does not qualify as a packing machine though the same is used for one of the processes involved in packing. Only the machines which fit in the definition of packing machine provided in the said notification qualify as a packing machine . In the instance case the packing is done not only with the aid of the filler machine but also with the aid of a separate sealer machine in case of 500gm and 1 kg pack. There is no doubt that sealing is also one of the processes involved in packing of goods. In the instance case the goods cannot leave the premises without sealing and cannot be bought and sold in the market without sealing. The argument of Revenue is that sealing is not an essential component of the packing process and therefore, if a machine only fills chewing tobacco in the preformed pouches, it is sufficient to qualify as packing machine . We find that this argument is misplaced. For packing of any goods it is necessary that it should make it suitable for safe transport, and in the case of chewing tobacco in pouches, also fit for sale in the market. Learned Counsel for the revenue has relied on the Circular No. 341/24/2010-TRU, dated 05.03.2010 to assert that only if the goods are packed with the help of hand operated fillers or spoons or a similar manually operated device and sealed with heat Sealers/band sealers/candles/hot iron and the like the same would not qualify for the compounded levy. This circular of the revenue does not say what Learned Counsel is asserting - The law is that duty on compounding basis cannot be levied on notified goods not manufactured with the aid of packing machine . The description of hand operated fillers or spoons or similar manual operated devices/sealers is just an example cited in the circular and does not necessarily cover all machines which may be outside the ambit of the term packing machine . In view of the above reliance on the circular to say that if these machines do not fall in the category of hand operated fillers or spoons or similar manual operated devices/sealers , the same need to be assessed on compounding basis is incorrect. All these machines operate with manual intervention. The duty rates are fixed on the basis of capacity of machines to manufacture the pouches. The capacity of the machines was originally prescribed in table form in thenotification 11/2010 CE (NT) dated 27.2.2010. It is seen from the tables reproduced in para 5.9 above that the lowest number of pouches manufactured per month prescribed in this notification is 17,97,120, and duty has been fixed on that basis. That quantity works out to manufacturing capacity of 41 pouches per minute nonstop 24 hrs a day seven days a week - It is apparent that these machines are not of the same kind or speed that are specifically mentioned in the definition of Packing Machine . This is another reason to reject the revenue allegations. Time limitation - HELD THAT - In the instant case, it is found that the revenue has strongly relied on the apparent misdeclaration in the description or source of procurement of various machines. Revenue has sought to invoke extended period of limitation on the grounds that the appellants had mis-declared the names of machines or obtained machines from dubious sources. Even if it is assumed that the allegations are correct, for the reasons that it is found that the machines found in their premises do not qualify as Packing Machine such allegations, even if true, become irrelevant. It is apparent that the appellants believed that they are not liable to be assessed under Compounded levy in respect of such machines and their behaviour is according to that belief.Revenue has admitted that in letter dated 25.05.2010 the appellants again gave note on the working two machines which was earlier also informed vide their letter dated 15.03.2010 but this time they mentioned about the use of electricity in both the machines and also described the machines as manual filling and manual sealing device for zipper pouch - No specific action was taken by Deputy Commissioners against the impugned machines by way of demanding duty under Compound Levy Scheme (CLS) or otherwise.It appears that the appellants had a bonafide belief that they are not covered under compounded levy scheme in respect of the disputed machines. The Deputy Commissioners also was aware of the facts. Admission of liability before Settlement Commission - HELD THAT - There is no case of revenue on merits it does not matter if appellants have admitted any liability before the Settlement Commission or not. There are no merit in the impugned order either on Merit as well as on limitation - appeal allowed - decided in favor of appellant.
Issues Involved:
1. Whether the three machines in question qualify as "packing machines" under the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010. 2. Whether there was any suppression of facts by the appellant to evade duty, justifying the invocation of the extended period of limitation. Issue-Wise Detailed Analysis: 1. Qualification of Machines as "Packing Machines": The main dispute revolves around whether the three machines used by the appellants qualify as "packing machines" under the relevant rules and notifications. The machines in question are: - Filler machine (1 Kg) - Filler machine (500 gms) - Pedal Filler and Heat Sealer machine (10 gms) The appellants argued that these machines do not qualify as "packing machines" as defined under the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010, which include all types of Form, Fill and Seal (FFS) Machines and Profile Pouch Making Machines, and any other type of packing machine used for packing pouches of notified goods. The appellants contended that: - The machines only perform the function of filling and not sealing. - The process involves significant manual intervention, including manually holding pre-formed pouches, manually weighing and adjusting the quantity of tobacco, and manually sealing the pouches. - The machines do not operate at the high speeds required for automatic machines covered under the compounded levy scheme. The revenue argued that: - The machines are pneumatically controlled and use electricity, thus qualifying as packing machines. - The definition of packing machine is inclusive and covers any machine used for packing pouches of notified goods. - The process of sealing is not an essential component of the definition of packing machine. The Tribunal found that: - The machines require significant human effort and manual intervention. - The capacity of the machines cannot be determined as they depend on the efficiency of the workers. - The machines do not fit the definition of "packing machines" as they do not perform the functions of forming, filling, and sealing in an integrated manner. - The machines are not of the same kind or speed as those specifically mentioned in the definition of "packing machine." 2. Suppression of Facts and Extended Period of Limitation: The revenue alleged that the appellants had misdeclared the description and source of procurement of various machines, justifying the invocation of the extended period of limitation. The appellants argued that: - They had declared the machines under Rule 31 of the Central Excise Rules, 2002, even before the compounded levy scheme was conceptualized. - They had communicated their belief that the machines were not "packing machines" liable to be assessed under the compounded levy scheme to the authorities. - The Deputy Commissioner had re-examined the issue and informed them that there was no levy of duty on compounded basis on the disputed machines. The Tribunal found that: - The appellants had a bona fide belief that the machines were not covered under the compounded levy scheme. - The Deputy Commissioner was aware of the facts and did not take specific action against the impugned machines. - The revenue's case does not hold on merits, making the issue of limitation secondary. Conclusion: The Tribunal concluded that the machines in question do not qualify as "packing machines" under the relevant rules and notifications. The Tribunal also found that there was no suppression of facts by the appellants to evade duty. Consequently, the impugned order was set aside, and the appeals were allowed.
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