By TIOL News Service

MUMBAI, MAY 04, 2015: THE appellants are engaged in manufacture of pan masala bearing brand name.

During the period 11/2008 to 07/2010 the appellant were discharging duty liability in terms of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008. The appellant purchased a packing machine of model PK-90 GMPFFS machine from PKIL, Vadodara and the machinery was received in the factory of the appellant company on 01/11/08.

The appellant filed intimation as prescribed in the Rules, 2008 by declaring that the machine used is a "single track machine" and upon inspection by the jurisdictional CE officers the Dy. Commissioner conveyed his approval in respect of the newly acquired packing machine.

This machine was used by the appellant company for manufacture of 18 gm. zipper pouches of pan masala.

On 15/7/10, the Jurisdictional CE officers visited the factory and conducted verification of the impugned machine and after video graphing the working of the machine took a view that the speed is double the speed provided for the RSP of above Rs. 6/- per pouch in Rule 5 of the PMPM Rules. Upon further enquiry through the website of suppliers PKIL, Vadodara, it was noticed that this machine was described by them as Duplex machine with the speed of 180 pouches per minute while the simplex model of this machine produced upto 80 pouches per minute. According to the department, the machine appeared to be a double track machine and in terms of provisions of Rule 5 of the PMPM Rules and the Notification No. 42/08-CE it had to be treated as two machines.

Alleging that the appellant had evaded duty from November 2008 onwards by misdeclaring the machine as single track machine in form-I declaration filed by them, a demand notice of Rs.25,98,69,504/- was issued on 30/07/2010 in respect of clearances of 18 gm. pan masala pouches.

The CCE, Noida vide order dated 31/01/2012 confirmed the allegations leveled and also imposed equivalent penalty u/s 11AC, interest and also an equivalent penalty u/r 17 of the PMPM Rules and penalties on various personnel of the company.

Before the CESTAT, the appellant inter alia submitted that since in the rules no definition of the term 'multiple track' or 'multiple line' packing machine has been given, this term should be construed as it is understood in common parlance, that the machine, in question, is a single track duplex machine in the sense that only single laminate is fed into the machine alongwith zip and two pouches are produced at a time and as such it is a single track machine with higher speed; that just because the speed of production is higher - almost two times the speed of simplex model of same machine, it cannot be treated as two track machine, that in terms of Board's Circular No. 980/4/14-CX dated 24/1/14, the factor relevant for production on the basis of which the excise duty is leviable has been notified as the number of packing machines in the factory of the manufacturer and the deemed production per operating machine per month, as prescribed in Rule 5 of PMPM Rules;that the excise duty cannot be re-determined based on the speed of the packing machine or the actual production thereof; that the machine had been inspected & the Jurisdictional Deputy Commissioner had accepted the declaration filed by the appellant in form I in terms of Rule 6 of the PMPM Rules, that once the declaration has been accepted vide order No. 6/08 dated19/11/08, without reviewing this order the matter cannot be reopened and the duty cannot be demanded on the basis that the machine, in question, is a two track machine.

The AR reiterated the findings of the adjudicating authority and also emphasised that since admittedly the speed of production of the machine, in question, is almost twice the machine of the simplex model, the same has to be treated as two track machine and the duty has to be charged accordingly.

The Bench elaborated the legal basis for imposition of compounded levy in respect of Pan Masala and the mechanism & factors involved for determining the CE duty in terms of the PMPM Rules &notification 42/2008-CE and inter alia observed -

++ The per month per machine deemed production for various RSP slabs has been specified keeping in view the average speed of the machine and the average number of working hours in a day and average number of working days in a month. Having specified the deemed production per machine per month for the pouches of different RSP slabs, the assessment of duty has not been left to the assessing officers.

++ The duty per machine per month payable by an assessee has been specified under Notification No. 42/08-CE for different RSP slabs and for this purpose in case of multiple line/multiple track machine, where the multiple track are not for performing additional processes involving moulding or giving definite shape to pouches with a view to distinguish the brand or to prevent the counterfeiting of the goods, each track is to be treated as one single machine.

++ The Board vide Circular No. 980/4/14-CX dated 24/1/14 has clarified that in the cases where the actual production of the machine because of some manufacturer operating the machine at the highest possible speed is more than the deemed production, no differential duty is to be charged.

++ In the present case there is no dispute that it is a duplex machine in the sense that while only one laminate roll is fed into the machine with zip, two pouches are cut at a time and, therefore, the speed of production of this machine is about two times the packing speed of simplex model of such machine.

++ In a multi-track machine, there is more than one parallel path traced by the pouches as they are formed and later filled and all the pouches in the same track follow the same path. The multiple track/multiple line machines operate with multiple rolls of laminate and the purpose of operating a multi line/multi track machine is to consolidate space and economise on electronic processors and machine operators.

++ As per the technical literature of the supplier, the machine, in question, is a duplex machine and as such there is only one track along which the pouches are formed and are later filled. The only innovation in this machine that on the same line or track at a time, two pouches are cut and filled as a result of which two pouches are formed, filled and sealed resulting in much higher speed of production of pouches.

++ This is clear from the report dated 15/10/10 of IIT Professor Shri S. Sanghi of Applied Mechanical Department and Professor Shri S. Mukherjee of Mechanical Engineering Department of IIT, Delhi. This report also clearly classifies the machine, in question, as a single track duplex machine. In our view there is absolutely no basis for the Commissioner's finding that it is a multiple track machine. Just because the speed of this machine is much higher than the normal machines, it cannot be treated as a multiple track machine.

++ Since the PMPM Rules or Notification No. 42/08-CE do not define the term - 'multiple track' or "multiple line" machines, these terms are to be construed in the sense in which the same are understood in trade parlance and accordingly the multiple track or multiple line machines are those in which there are more than one paths traced by the pouches as they are formed and later filled and all the pouches in the same track follow the same path. This feature is not there in the machine, in question, which is duplex model of 'PK-90 GMP' machine, as against its Simplex model.

++ When the PMPM Rules do not distinguish between the simplex FFS machine and the duplex FFS machines, though there is considerable difference between their speeds, and there is no provision that duplex is to be treated as two machines, Rule 5 of PMPM Rules and the Notification No. 42/08-CE cannot be interpreted to treat such a machine as two machines. It is well settled law that a casus omissus cannot be provided by the Courts or the Tribunals.

The Bench also observed that vide Notification No. 5/2015-CE (NT) dated 01/3/15, the PMPM Rules were amended to take into account the maximum packing speed and simultaneously Notification No. 42/08-CE was also amended by notification 6/2015-CE to provide for different rates of duty per machine per month for different RSP slabs and at different maximum operating speeds of the machines. Nonetheless the Bench viewed that these provisions cannot be given retrospective effect, as these are not retrospective amendments.

Holding that the order confirming the CE duty demand of Rs.25,98,69,504/-& imposing penalties and interest is not sustainable, the same was set aside and the appeals were allowed with consequential relief.

(See 2015-TIOL-786-CESTAT-DEL)