2024 (3) TMI 792 - AT - Central Excise

Remission of Central Excise Duty - Rule 21 of Central Excise Rules, 2002 - interpretation placed by the Commissioner on second proviso to rule 8 of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008, tenable or not - unjust enrichment. Whether the claim made by appellant for remission of duty as per Rule 21 of Central Excise Rules, 2002 maintainable? - HELD THAT - From perusal of Rule 21 of the Central Excise Rules, 2002 reproduced earlier (in the impugned order), it is quite evident that the said rule provides for remission of duty in respect of the finished goods lost or destroyed prior to clearance of the same from the factory of production. The wording of the rule is very clear and unambiguous. It is not the case of the appellant that any goods which were to be cleared on payment of duty subsequently have been destroyed in fire. But it is the case of appellant that on account of this fire accident that occurred in their factory they were unable to produce the goods during this period and hence there was loss of production capacity. Rule 21 do not provide for such a situation. Admittedly appellant has was operating under the Compounded Levy Scheme as provided by the section 3A of the Central Excise Act, 1944 read with Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008. It has been held by Hon ble Supreme court in the case of M/S HANS STEEL ROLLING MILL VERSUS COMMNR. OF CENTRAL EXCISE, CHANDIGARH 2011 (3) TMI 2 - SUPREME COURT that the scheme of Compounded levy scheme is totally a different and self contained scheme. Importing the provisions of any other scheme of taxation would only lead to catastrophic results. Whether the interpretation placed by the Commissioner on second proviso to rule 8 of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008, tenable? - HELD THAT - Rule 10 provides for the abatement of duty for the period of closure for whatsoever reason. In fact as per the submission of the appellant the unit was non operational for five days. Hence the benefit of abatement could not have been allowed. Section 3A (3) itself provides for the closure of the unit for fifteen days or more for allowing the abatement on proportionate basis. Any closure which is less than fifteen days is not recognized as closure by the statue, for the reason as stated in Sub Section (1) of Section 3A of the Central Excise Act, 1944 these goods are evasion prone. The submissions made by the appellant relying on various case laws with regards to the legal fiction etc., cannot carry forward the case of the appellant in view of the statutory provisions as per the Central Excise Act, 1944 and the Rules - It is not found that Rule 21 of the Central Excise Rules, 2002 to be not applicable to the present case we are not pronouncing on various decision relied upon by the Appellant with regards to natural cause or unavoidable accident. Whether by rejecting the claim for remission the department is unjustly enriched? - HELD THAT - Reliance has been placed by the Appellant on the decision of Hon ble Supreme Court in the case of Kanhaiya Lal Mukund Lal Saraf, to argue that the revenue cannot be unjustly enriched at the expense of assessee. Howver we note that the said decision has been held to be not a good law by a nine judges bench of Hon ble Supreme Court in the case of MAFATLAL INDUSTRIES LTD. VERSUS UNION OF INDIA 1996 (12) TMI 50 - SUPREME COURT - Thus argument of unjust enrichment of the state has been considered and rejected by the Hon ble Supreme Court as per the above stated decision. The case of THE SALES TAX OFFICER, BANARAS AND OTHERS VERSUS KANHAIYA LAL MAKUND LAL SARAF AND OTHERS 1958 (9) TMI 57 - SUPREME COURT has been held to be not stating the correct position in law hence reliance placed by the counsel of appellant on this decision, is totally misplaced. The decision of Hon ble Orissa High Court placing reliance on the said decision of Hon ble Apex Court cannot also be pressed, because the said decision has been rendered before the decision of the decision in case of Mafatlal Industries, and has been held to be wrongly decided. There are no merits in this appeal - appeal dismissed.

Summary

Issues Involved:
1. Remission of duty under Rule 21 of Central Excise Rules, 2002.
2. Interpretation of the second proviso to Rule 8 of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008.
3. Unjust enrichment of the department by rejecting the remission claim.

Summary:

1. Remission of Duty under Rule 21 of Central Excise Rules, 2002:
The appellant, engaged in the manufacture and clearance of Pan Masala and Gutkha, faced a fire accident on 13.01.2011, leading to a closure of production for five days. They sought remission of Central Excise Duty amounting to Rs. 2,07,09,677/- under Rule 21 of Central Excise Rules, 2002, citing loss of production capacity. The Commissioner denied the remission, stating that Rule 21 applies only to finished goods lost or destroyed before clearance, not to loss of production capacity. The Tribunal upheld this view, noting that the compounded levy scheme under Section 3A of the Central Excise Act, 1944, is a self-contained scheme, and importing provisions from other schemes would lead to catastrophic results.

2. Interpretation of the Second Proviso to Rule 8 of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008:
The appellant argued that the second proviso to Rule 8, which deems non-working machines as operating for duty calculation, should not apply as their machines were sealed due to the fire. The Tribunal noted that Rule 10 of the 2008 Rules provides for abatement only if the factory is non-operational for a continuous period of fifteen days or more. Since the appellant's factory was closed for only five days, the abatement was not applicable. The Tribunal emphasized that the legal fiction in the second proviso to Rule 8 must be read in conjunction with Section 3A(3) and Rule 10, which do not recognize closures of less than fifteen days for abatement purposes.

3. Unjust Enrichment of the Department by Rejecting the Remission Claim:
The appellant contended that rejecting the remission claim would unjustly enrich the department. The Tribunal referred to the Supreme Court's decision in Mafatlal Industries, which overruled the earlier Kanhaiya Lal case, stating that the state retaining taxes collected without authority is not unjust enrichment if the taxpayer has passed on the burden to others. The Tribunal concluded that the appellant's argument of unjust enrichment was without merit.

Conclusion:
The Tribunal dismissed the appeal, affirming that the remission claim under Rule 21 was not maintainable, the interpretation of the second proviso to Rule 8 was correct, and the department was not unjustly enriched by rejecting the remission claim.