9911796707
TMI Blog2015 (10) TMI 1921X X X X Extracts X X X X X X X X Extracts X X X X ..... f the provisions of sub-rule (2) of rule 6 of the Pan Masala Rules, inasmuch as, the Annual Production Capacity of the petitioner’s factory has been determined without following the procedure as provided under those rules. In case the duty paid by the petitioners for the months of March 2015 to June 2015 was short-paid, the respondent authorities were required to resort to the provisions of section 11A of the Central Excise Act and without following the procedure as prescribed thereunder, could not have sought to recover the differential rate of duty by the impugned communications. In fact, the impugned communications do not refer to any provision of law under which the same have been issued. Whereas the subject under which the impugned communications have been issued is fixation of Annual Production Capacity of the Pouch Packing Machines, by the impugned communications, the petitioner has been called upon to pay the differential duty with interest for the months of March 2015 to June 2015. Evidently, therefore, the impugned communications suffer from various infirmities, inasmuch as, the same are in breach of the principles of natural justice as no opportunity of hearing has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment has made Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 (hereinafter referred to as the Pan Masala Rules ), laying down the procedure and related matters for determination of Annual Production Capacity in respect of a factory manufacturing Pan Masala and also matters relating to calculation of duty, abatement from payment of duty, etc. It is the case of the petitioner that it has been complying with the said rules and has been filing declarations from July, 2008 onwards, inasmuch as, the scheme of payment of duty under section 3A of the Act, popularly known as Compounded Levy Scheme has been brought into operation for Pan Masala with effect from 01.07.2008. On 01.03.2015, the Central Government has issued Notification No.5/2015-CE (NT), thereby substituting rule 4 of the Pan Masala Rules as regards the factor relevant to production. In addition to the factor of the number of packing machines in the factory of the manufacturer, the maximum packing speed at which such packing machines could be operated for packing of notified goods of various retail sale prices has been added in rule 4 with effect from 01.03.2015. In view of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes could be operated and accordingly, the petitioners requested the manufacturer M/s Uflex Ltd. for such details, and the said manufacturer has confirmed that the maximum packing speed of the machines supplied by them was 700 pouches per minute. The specimen certificates issued by the manufacturer have been produced on the record of the petition. 5. Thereafter, the Assistant/Deputy Commissioner of Central Excise assessed the compounded levy liability of the petitioner Company in accordance with the amount specified under column 4 of the said table under rule 5 of the Pan Masala Rules, that is, at the rates specified under the second slab thereunder. It is the case of the petitioner that it had, accordingly, discharged the excise duty liability in accordance with the rates specified under the second slab of rule 5 of the Pan Masala Rules. For the subsequent months of April and May, 2015 also, the petitioner Company has declared all the details in Form-1 and discharged the duty liability in accordance with the second slab for the said period. 6. On 18th May, 2015, a group of officers of the DGCEI, Delhi (the fourth respondent herein) visited the petitioner s factory and conduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operated at all the factories of the petitioner Company in March 2015, April 2015, May 2015 and June 2015 was fixed in the third slab and consequently, the petitioner Company was also requested to pay differential duty along with interest. By virtue of such communication, the third respondent had also directed the Range Superintendent to recover the differential duty for all the above months under the Compounded Levy Scheme. It appears that simultaneously, the third respondent also allowed the petitioner Company to close three factories/units, namely, Unit-7, Unit-8 and Unit-10 and the Pouch Packing Machines being operated in these units were also allowed to be uninstalled and sealed. However, the petitioner was told that the duty payment would be according to the Annual Production Capacity fixed vide letter dated 30.6.2015. In respect of the Units No.1 and 9 which the petitioner intended to operate in July 2015, the third respondent issued two separate letters, both dated 30.06.2015, thereby permitting to operate specific number of Pouch Packing Machines as stated in the letters, but also directing to make duty payment according to Annual Production Capacity fixed vide letters dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued that the petitioners have not been given any opportunity of hearing before revising the assessment of duty and also the rate of duty payable by the petitioner Company and therefore, there is gross violation of the principles of natural justice in directing the petitioner Company to commence payment of excise duty under the third slab under rule 5 of the Pan Masala Rules. 9.1 The learned counsel further submitted that the special scheme of the Pan Masala Rules lays down for deemed approval to the declaration filed by the manufacturer, and there is a specific prohibition under the scheme for modifying such deemed approval beyond a period of thirty days of filing the declaration. In the present case, there has been no specific communication from the third respondent rejecting or modifying any of the declarations filed by the petitioner Company, and therefore, declarations for the months of April 2015 to June 2015 stood approved by virtue of the fiction created under the second proviso to rule 6(2) of the Pan Masala Rules. It was submitted that the third respondent, therefore, has no power or authority to modify such approved declarations because the scheme provides for communic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany from March 2015 onwards have been accepted and assessed by the office of the third respondent herein without any objection. Therefore, if it is the case of the respondents that there was any short payment of excise duty during this period, then notice under section 11A of the Act has to be served upon the petitioner and an opportunity of hearing has to be afforded, as contemplated under the said statutory provision before confirming any demand of duty. It was, accordingly, urged that the Annual Production Capacity of the Pouch Packing Machines installed in the factory of the petitioner Company could not have been revised by the respondents without following the due procedure as provided under the Pan Masala Rules and, therefore, the respondents are required to be directed to carry out proper physical verification for the purpose of determination of the Annual Production Capacity of the petitioner s Pouch Packing Machines if they desire to revise the Annual Production Capacity of the petitioner s Pouch Packing Machines. 9.3 In support of his submissions, the learned counsel placed reliance upon the decision of the Supreme Court in the case of Assistant Collector of Central E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increased further by feeding a secondary password which was not known to them and that they had expressed their inability to reveal the secondary password by saying that they did not know the same. It was submitted that since the company officials could not provide secondary password for changing the speed of said Pouch Packing Machines, in order to ascertain the maximum speed of every Pouch Packing Machine, the officers decided to use the information displayed on various motors fitted in the Pouch Packing Machine by applying the formula mentioned in the said panchnama. It was submitted that therefore, the investigation carried out by the DGCEI authority reveals that the petitioners are engaged in evasion of central excise duty by mis-declaration of production capacity of their Pouch Packing Machines. 10.1 Referring to the affidavit-in-reply filed on behalf of the respondents, it was pointed out that by a letter dated 19.06.2015, the DGCEI authority informed the respondent No.2 that as per the inquiries conducted with a major supplier of Pouch Packing Machines to the petitioners and the supplier of automation technology/software, a formula to ascertain the maximum speed of Pouch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te procedure if necessary, and that the petitioner is not entitled to invoke writ jurisdiction, which was premature. 11 This court has considered the submissions advanced by the learned counsel for the respective parties and has perused the record of the case as well as the decisions cited by the learned counsel for the respective parties. 12 At the outset, since an objection has been raised to the very maintainability of the present petition on the ground that there being an alternative statutory remedy available to the petitioners, the same may be dealt with at the first instance. 12.1 From the submissions advanced by the learned counsel for the petitioners, it is evident that the impugned communications are challenged on the ground of breach of principles of natural justice as well as lack of jurisdiction, on the ground that the differential duty is sought to be recovered without following the due procedure of law in accordance with section 11A of the Central Excise Act; as well as on the ground that the impugned communications have been issued at the instance of the DGCEI authorities without the respondents following the due procedure in accordance with law. 12.2 It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch such packing machines can be operated for packing of notified goods of various retail sale prices. Rule 5 of the Pan Masala Rules makes provision for quantity deemed to be produced and provides for three slabs for the number of pouches per operating packing machine per month. The first slab is comprised of packing machines having the capacity of producing upto 400 pouches per minute; the second slab is comprised of packing machines having the capacity of producing 301 to 750 pouches per minute; and the third slab is comprised of packing machines having the capacity of producing 751 pouches per minute and above. Rule 6 of the Pan Masala Rules provides for declaration to be filed by the manufacturer. Sub-rule (1) thereof provides that a manufacturer of notified goods shall, immediately on coming into force of those rules, and, in any case, not later than ten days, declare, in Form 1 the details enumerated thereunder. Sub-rule (2) thereof provides that on receipt of the declaration referred to in sub-rule (1), the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, shall, after making such inquiry as may be necessary including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... team officers, the speed of each of the machines was found to be in the range falling under the second slab. Subsequent to such visit, the Deputy Commissioner of Central Excise, Division IV, Ahmedabad-II, by a communication dated 26.03.2015, informed the petitioner as regards duty which the petitioner was liable to pay in respect of its Pouch Packing Machines. A perusal of the notification No.4/2008-CE dated 01.07.2008 as amended from time to time, reveals that the said duty rates relate to the second slab provided under the table below rule 5 of the Rules. Therefore, pursuant to the physical verification of the Pouch Packing Machines at the petitioner s factory as contemplated under sub-rule (2) of rule 6 of the Pan Masala Rules, the Annual Production Capacity thereof came to be determined under the second slab by the concerned officer of the Central Excise Department. Subsequently, for the months of April 2015 and May 2015, Form-1 filed by the petitioner came to be accepted, which amounts to a deemed approval under the proviso to sub-rule (2) of rule 6 of the Pan Masala Rules. 16 Subsequently, pursuant to the search carried out by the DGCEI authorities on the premises of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocedure as provided under those rules. 19 Another notable aspect of the matter is that the petitioner has been directed to pay the differential duty in relation to the months of March to June 2015 in respect of which, Form-1 submitted by the petitioners had already been accepted and the duty had already been paid. 20 At this juncture, reference may be made to the provisions of section 11A of the Central Excise Act, 1944, which provides for Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded and provides that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, for any reason, other than the reason of fraud or collusion or any willful misstatement or suppression of facts or contravention of any of the provisions of the Act or of the rules made thereunder with intent to evade payment of duty, the Central Excise Officer shall, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show ..... 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