By TIOL News Service

MUMBAI, SEPT 03, 2014: THE appellant are manufacturers of Pan Masala and pack the same in pouches with the aid of packing machines and the retail sale price of the products are declared on the pouches which bear their brand names. The Central Excise duty is levied on these goods in accordance with the provisions of Section 3A of the CEA, 1944 on the basis of number of packing machines used and the MRP mentioned on the pouches.

The AC, CEX determined the monthly duty liability at Rs.69 lakhs and the same was payable by the appellant in terms of Rule 9 of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008.

As the appellant did not pay the monthly duty of Rs.69 lakhs in November, 2010 the same was adjusted in April, 2011 against the rebate claim sanctioned. Incidentally, in the month of April, 2011, the number of machines operated was increased by the assessee from 20 to 50 and vide order No. 4/2011 dated 01/04/2011 the duty liability was fixed at Rs.6,36,50,000/-. In view of the above, the department was of the view that for the month of November, 2010 to April, 2011 the assessee was required to pay duty @ Rs.6,36,50,000/- per month in terms of the seventh proviso to Rule 9 of the Rules. A default was again committed for the months of June and July, 2011 for which the duty liability was reduced to Rs.6,04,00,000/- vide order No. 5/2011 dated 01/06/2011. However, since the assessee had failed to make the payment in June and July, 2011, as per the department, they were liable to pay higher duty liability of Rs.6,36,50,000/- per month in terms of the aforesaid proviso. Accordingly, a SCN was issued demanding CE duty of Rs.28,74,00,000/-.

As the CCE, Aurangabad confirmed the demand the appellant is before the CESTAT.

Whereas the Member (Technical) was of the view that the duty demand along with interest liability is required to be upheld as proposed in the SCN & the penalty is required to be set aside, the Member (Judicial) differed with this view.

The Member (Judicial) had the following take on the 7th proviso to rule 9. He adopted the following view -

"the conditions precedent for application of 7th proviso are:-

(a) Non-payment of duty payable by the due date; and

(b) Continues operation of the packing machine, after due date; and

(c) Mis-declaration found with respect to the number of operating packing machine(s) declared to the Revenue, i.e. operation of more number of machines than declared.

12.16 7th proviso takes care of a situation where in addition to default in payment of duty by the due date, the manufacturer is found to be operating more number of machines in contravention of his declaration. In other words the 7th proviso takes care of the situation, if pursuant to determination of duty, a case of mis-declaration is found by Revenue being higher number of machines being operated, than the assessee will be liable to pay the higher as determined with respect to number of machines found operative in the factory as compared to the duty last determined and paid. There is no scope for deeming the number of packing machines.

13. That, in the admitted facts and circumstances of the appellant's case, the Revenue has not found any case of mis-declaration and/or at any point of time, the appellant operating more number of packing machines than his declaration to the Revenue. Thus, in my considered opinion, the 7th proviso of Rule 9 is not attracted for want of the conditions precedent, being mis-declaration in the total number of packing machine found to be operational by the Revenue."

Holding that the appellant is liable to pay only interest, the order confirming the duty demand was set aside and the appeal was allowed with consequential relief.

And so, the matter came to be referred to the third Member.

The Vice President of the CESTAT observed that it is a fundamental rule of construction that proviso must be construed in relation to principal and matter to which it stands as proviso and it is also settled law that the principle of harmonious construction is applicable in construction provisions of subordinate legislation.

He, therefore, observed -

"29. In the present case, if the contention of the Revenue is accepted then a person who had not filed a declaration regarding number of packing machines as required under Rule 6 of the Rules and the Revenue found that the manufacturer is using higher number of packing machines than declared and a manufacturer who declared the exact number of packing machines intended to be used by filing declaration under Rule 6 of the Rules are to be treated on the same footing. A manufacturer who was found to be declared less than the number of machines and a person who filed a declaration regarding the number of packing machines to be used cannot be treated on the same footing. The 7th proviso to Rule 9 of the Rules cannot be read in a manner to say that a manufacturer who declared the number of machines by filing necessary declaration and a manufacturer who misdeclared the number of machines are liable for same treatment.

30. In the present case, as the appellant filed declaration in April 2011 regarding change of number of packing machines and the declaration was accepted by the proper officer and fixed the monthly liability. There is no evidence on record to show that prior to filing declaration in April 2011 appellants were manufacturing goods with higher number of machines than declared. As there is no mis-declaration found by Revenue on the part of the appellant regarding number of machines used for manufacture of Pan Masala, I agree with the view taken by learned Member (Judicial) holding that the demand by invoking the proviso 7 to Rule 9 of Rules is not sustainable. The appellants are liable to pay duty with interest as per the proviso 2 to Rule 9 of Rules."

In fine, the Vice President took a view that the order is to be set aside and the appeal is to be allowed.

So, the Majority decision is that the appeal was allowed with consequential relief.

(See 2014-TIOL-1662-CESTAT-MUM)