Custom, Excise & Service Tax Tribunal
M/S Godfrey Philip India Ltd vs Commissioner Of Central Excise, ... on 9 October, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. E/967/11 & E/863/12 (Arising out of Order-in-Appeal No. 04-05/M-I/2011 dated 3.3.2011 passed by the Commissioner of Central Excise (Appeals), Mumbai-I and Order-in-Original No. 53-54/M-I/2011 dated 29.2.2012 passed by the Commissioner of Central Excise, Mumbai-I). For approval and signature: Honble Shri Anil Choudhary, Member (Judicial) Honble Shri P.K. Jain, Member (Technical) ======================================================
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy : Seen
of the order?
4. Whether order is to be circulated to the Departmental : Yes
authorities?
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M/s Godfrey Philip India Ltd.
Appellant
Vs.
Commissioner of Central Excise, Mumbai-I
Respondent
Appearance:
Shri V. Sridharan, Advocate
for Appellant
Shri S.G. Dewalwar, Addl. Commissioner (AR)
for Respondent
CORAM:
SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL)
SHRI P.K. JAIN, MEMBER (TECHNICAL)
Date of Hearing: 09.10.2014
Date of Decision: .2014
ORDER NO.
Per: Anil Choudhary
These appeals arise out of Order-in-Appeal No. 04-05/M-I/2011 dated 3.3.2011 passed by the Commissioner of Central Excise (Appeals), Mumbai-I for the period July, 2008 to Sept, 2009 and Order-in-Original No. 53-54/M-I/2011 dated 29.2.2012 passed by the Commissioner of Central Excise, Mumbai-I for the period October, 2009 to November, 2010. As the issue and facts are commons, the appeals are being taken up together for hearing and disposal for the sake of convenience.
2. The issue for determination in these appeals is whether during the period in dispute, the appellant will be liable to pay duty on Pan Masala produced by it, on test basis, under Section 3 read with Section 4 of the Central Excise Act or whether the appellant will be liable to duty under Compounded Levy Scheme (CLS) under Section 3A of the Act read with Notifications No. 29/2008, 30/2008 and 48/2008.
3. The facts in brief are that the appellant M/s Godfrey Philip India Ltd. (hereinafter referred to as appellant) were engaged in manufacturing of cigarette under Chapter Heading 2402 prior to 14.5.2007. With the view of expanding its business in the field of manufacturing and sale of Pan Masala, the appellant vide their letter dated 14.5.2006 informed the Assistant Commissioner of Central Excise that they have put a pilot plant of Pan Masala falling under Chapter heading 21069020 within its cigarette manufacturing premises and further stating that the samples so manufactured will be used for testing purpose and will be consumed within the factory premises along with some sample being sent out of the factory premises also for market research etc. Such samples would be unbranded and would not be in retail packs. The appellant further stated that they will maintain proper records of production and clearance. As the clearance will be in small lot, they proposed to issue weekly gate pass, if any, applicable on such clearances. The ground plan of existing factory premises, also showing the section of premises to be used for the test manufacture of pan masala was submitted. Pursuant to installation of the pilot plant, vide letter dated 13.7.2007, the appellant applied for incorporation of pan masala in its Central Excise Registration. The said pilot test plant was installed and working within the cigarette factory, which is under physical control of the department. Accordingly, the operation of the pan masala manufacturing facility and all clearance thereof have been under the physical control and full knowledge of the Revenue. Circular No. 854/12/2007 dated 7.9.2007 was issued by CBE&C in exercise of power under Rule 31 of the Rules, issued the instruction for assessees manufacturing pan masala, gutkha and chewing tobacco, which provided that all existing units shall file the intimation giving details of packing machines being used for filling and packing of pan masala in pouches or containers inter alia giving make and model of machine and total numbers of machines installed in factory and quantity in unit pouches per container and also further details like procedure, number of working packing machine, no. of staff, record of main inputs, etc. were requisitioned. The appellant vide its letter dated 12.9.2007 sought clarification as to applicability of the said circular. In response to which by letter dated 14.9.2007, the Revenue informed that the circular is squarely applicable to the appellant. Accordingly, the appellant filed declaration dated 28.9.2007 containing prescribed particulars with the jurisdictional Revenue authorities, although the appellant believed that the said Circular is not applicable as it was not packing pan masala with the aid of packing machine. These facts of packing of pan masala by hand and not by machine, specifically it is mentioned in the form of particulars filed on 26.11.2007. Vide invoice no. 827 dated 26.11.2007, the appellant purchased one fully automatic vertical Form Fill Seal (FFS) machine for packing pan masala into pouches with pouch making unit and conversion kit. The said FFS machine was installed in the pilot test plant area in February, 2008. According to the appellant, only for the period April, 2008, pan masala manufactured at its pilot test plant was packed both by the FFS machine as well as it was hand packed. Soon the FFS machine developed technical snag and once again from May, 2008, the pouches were hand filled, the FFS packing machine being rendered inoperative. The appellant have also drawn attention to the correspondence with the machine manufacturer M/s Pramukh Industries dated 5.5.2008 informing that the machine is not working and to depute the technical person urgently at site. By letter dated 7.5.2008, machine manufacturer M/s Pramukh Industries referring to the visit of its technician informed that the machine is not working properly due to problem in hot plate and gear box, further informed that the repairing charges for the hot plate would be Rs.5000/- and gear box charges will be Rs.12,000/-. In response thereto, the appellant by letter dated 15.5.2008 informed the machine manufacturer that in view of its decision not to use the FFS machine presently they have decided not to have the repair carried out immediately, as only small quantities are being manufactured. The appellant also draws attention of the Tribunal to the fact that as the production which was on test or trial basis was very low and not sufficient for the FFS machine to be operational, as it required specified quantity for packing of number of pouches for a single run. During the period from May, 2008 onwards, the appellant continued manufacturing pan masala only on test basis, which was hand packed and in support the appellant have also furnished few copies of the invoice of the labour contractor, which are for the charge for labour supply to R&D Pan Masala department on monthly basis. The appellant also mentioned that as the machine was out of order since May, 2008, the power connection was removed and machine was kept in a corner in an uninstalled condition. Pan Masala was being manufactured on test basis for undertaking market research/sampling evaluation/analysis, reports received from market research and the purpose of the said research have also been brought on record, being the proposal dated 28.3.2008 which was prepared by GFK Mode Pvt. Ltd. for the appellant. It is further stated that such pan masala prepared and packed by hand sealing machine, did not bear any brand name or any other mark/declaration or RSP whatsoever. Hand packing was done in readymade pouches, save and except accept for the month of April, 2008. None of the samples of Pan masala so manufactured and cleared were sold to any person. The appellant in conformity with Section 3 of the Central Excise set in respect of the samples of pan masala so removed, duly discharged its liability.
3.1 Vide Notification No. 29/2008-CE(NT) dated 1.7.2008, pan masala was specified as notified goods falling under the Tariff item 21069020 and 29039990 to the first schedule of the Tariff with the condition that it is manufactured with the aid of packing machine and packed in pouches, as notified goods, on which there shall be levied and collected duty of excise in accordance with the provisions of Section 3A (compounded levy). Further in the notification by way of explanation, it is provided that for the purpose of this notification packing machine includes all types of Form, Fill and Seal (FFS) machine and Profile Pouch Packing machine by whatever name called, with the vertical or horizontal single-track or multi-track or any other type of packing machine used for packing of pouches of pan masala. Another notification of even date No. 30/2008-CE (NT) was also issued under Section 3A(2) and (3) known as Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 (hereinafter referred to as Pan Masla Rules). Rule 3 of Pan Masala Rules provides that these rules shall apply to pan masala and pan masala containing tobacco, commonly known as gutkha, notified under sub-section (1) of section 3A of the Act by Notification No.29/2008-CE (N.T.), dated the 1st July, 2008. Further provisions of Rule 6 provides that a new manufacturer shall file such declaration atleast 7 days prior to commencement of commercial production of notified goods in his factory, whereas Rule 6(1) provides that an existing manufacturer of notified goods shall immediately on coming into force of these rules, and in any case not later than 10 days, declare in Form-1, the required particulars like, number and type of packing machines, number and type of machine installed in his factory, number and type of machine which the manufacturer intends to operate in his factory for production of notified goods, number and type of packing machine which are incapable to perform additional process like moulding and giving the definite shape of the pouches with a view to distinguish the brand or to prevent the counterfeiting of the goods etc., description of goods to be manufactured with the brand name etc. and retails sale price of the pouches to be manufacturing during the financial year, the plan and details of the part or section of the factory premises intended to be used by him for manufacture of notified goods among others. In Rule 2(f) of these Rules, retail sale price means retail sale price as specified by the Central Government, in Explanation 3 to the opening paragraph in the notification No.42/2008-CE, dated 1st July, 2008. Further Rule 2 of Notification No. 42/2008-CE notified in exercise the powers under Section 3A(3) of the Central Excise Act have notified the rate on the unit of production for pan masala/gutkha manufactured with the aid of packing machine and packed in pouches, as per RSP as mentioned in the table, the rate of duty specified in the corresponding entry in column 3 and 4 of the Table 1. Further in explanation 1 of this notification, it is provided that packing machine includes all types of Form, Fill and Seal (FFS) machines and Profile Pouch Making Machine, by whatever names called, whether vertical or horizontal, with or without collar, single-track or multi-track, and any other type of packing machine used for packing of pouches of notified goods. Explanation 3 of this notification provides retail sale price means the maximum price at which the specified goods in packaged form may be sold to the ultimate consumer and includes all taxes, local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards advertisement, delivery, packing, forwarding and the like and the price is the sole consideration for the sale. Clause 2 of the notification provides the number of packing machine, for the purpose of computation of the rate of excise duty specified in the opening paragraph shall be determined in terms of Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008. The three notifications mentioned above together provides for the Compounded Levy Scheme (CLS) for pan masala/gutkha.
3.2 The Revenue vide letter dated 6.8.2008 intimated the appellant that w.e.f. July 1, 2008, excise duty on pan masala should be paid as per the Compounded Levy Scheme (CLS in short). In response, the appellant vide letter dated August 7, 2008 took stand and submitted that the said notifications are not applicable to products which are not by way of commercial production. The Revenue vide its next letter dated August 9, 2008 claimed that since the notifications did not make the distinction between commercial production and production for testing, therefore, the duty is payable as per the CLS. In reply, the appellant vide its letter dated August 12, 2008 addressed to the Superintendent furnished the detail reply to the effect that the relevant notifications for CLS are applied to units engaged in commercial production and did not apply in case of trial production. It is categorically mentioned that the appellant is still at the initial stage for test purpose and have set up only the temporary arrangement for manufacture of pan masala for market research and sampling requirement and is yet to begin commercial production of the product. Further it is specified that the product on test basis is manufactured for free distribution, for sampling purpose and the pouches (hand packed) neither bear brand name nor MRP, rather the product is packed in blank packs. Further stand was taken that on reading of the provision of CLS, particularly Notification No. 29/2008, it is evident that the assessee plant is covered only in the event when pan masala is manufactured with the aid of packing machine (FFS) and packed in pouches bearing MRP. As the appellant is not manufacturing with the aid of packing machine and neither packed pouches bear any MRP, the pan masala manufactured by the appellant and packing manually would not fall under the category of notified goods as specified in the Notification No. 29/08. Further, Notification No. 30/2008 provides the factors relevant to production being number of packing machines in the factory of the manufacturer and also provides the quantity deemed to be produced by use of a single packing machine per month depending on the RSP per pouch. Further, Notification No. 42/2008 provides the rates of duty that would be leviable in respect of the notified products, being pan masala. This notification further provides that the number of packing machines for the purpose of computation of rate of duty shall be determined in terms of Notification No. 30/2008. Further, it was categorically mentioned that the CLS is applicable to the units which are engaged in commercial production and such production capacity is to be determined on the declaration to be given by the manufacturer and determined by the Revenue. It was further stated that in absence of commercial production, merely being registered for manufacture of pan masala, this alone cannot determine that the appellant is to be subjected to assessment under Section 3A(CLS). The appellant further took a stand that it is still leviable to duty under Section 3 read with Section 4 of the Act and reference was also drawn to the CBE&C supplementary instructions, Chapter 11 para 3.1.1, the clearance as sample/trial etc. will be deemed to be for home consumption, whereas the notifications aforementioned providing for levy under CLS in case of commercial production of pan masala with the aid of packing machine (FFS) and the pouches so packed are labeled with the RSP/MRP being manufactured as commercial production. The Revenue authority, further vide their letter dated 25.11.2008 requested the appellant to file requisite detail as per form ER-4, 5, 6 & 7 in respect of pan masala. In response, the appellant vide letter dated 1.12.2008 stated that since the pan masala produced at its pilot test plant was solely for testing purpose and not by way of commercial production, the ER form No. 4, 5, 6 and 7 are not applicable in its case, taking the stand that aforementioned forms are applicable on commencement of commercial production only. The Revenue once again vide letter dated 1.12.2008 reiterated that the above mentioned form and notifications are applicable to assessee irrespective of their commercial viability or any other parameters. The Revenue further stated that the term commercial production has not been defined, by expression or implied means in the said notifications, are not relevant for applicability of notification. Thus, insisting once again to file the detail information in aforementioned forms. The appellant replied vide its letter dated 11.12.2008 that there is difference of opinion between and the Revenue with regard to the applicability of levy on deemed production (CLS), and as stated, it have decided not to use the packing machine during the trial production of pan masala. The appellant once again by way of detailed representation to the Commissioner, dated January, 6, 2009 took the stand that the CLS or Deemed Annual Production Scheme is not applicable in its case as pan masala was being manufactured only on test basis for market research etc. It was categorically mentioned therein that as the manufacture and marketing of pan masala is highly competitive and thus, before entry into commercial production, it is presently manufacturing in small lot for testing and trial marketing by way of knowing response and/or acceptability of it product. Further, it was categorically mentioned that such test production is not manufactured for sale and not even sold to any person. The product is sent to Review Agent nominated by the appellant for market research purpose. The small 4 gm pouches are mainly packed in blank aluminium foils. None of the packs bear sale price for the reason that they are not manufactured for sale and are manufactured for trial for the purpose of research and test. It was further categorically mentioned that when the test packing process is completed and market capacity is established of this product, the appellant will be setting up commercial production facility at Baramati (Pune) and have already acquired land for the purpose. Further, average clearance of the product by the appellant was approximately 14 kgs and out of this total weight of pan masala cleared in 4 gm pack is approximately 10 kgs. per month. Further, the details of test production for the period July to November and duty paid thereon was given. It was further stated that in the CLS deemed annual production of notified goods means : - (a) pan masala under Tariff item 21069020 or 24039990, (b) manufactured with the aid of packing machine, (c) packed in pouches, and (d) for RSP, specified in the table given under Notification No. 41/08. Further, from the plain reading of the 3 notifications for CLS, it is evident that CLS was production based annual levy, is not applicable in case of, (a) clearance of pan masala and gutakha in bulk quantities, (b) pan masala or gutakha manufactured with the aid of manual packing machine such as by hand filling and selling etc., (c) pan masala or gutakha packed in box-pack etc., (d) pan masala or gutakha packages/pouches not manufactured for sale and therefore, not bearing any RSP. Further stand was taken that the pan masala manufactured and cleared on test basis is not notified goods under the deemed annual production levy scheme/CLS and hence, duty is not payable under the notification for CLS under Section 3A. In absence of the essential elements viz., (i) commercial production, (ii) no manufacture with the aid of packing machine, (iii) none mentioning of RSP etc. Further, as no RSP is printed on the hand packed pouches, it not qualified as notified goods and is outside the purview of deemed annual production levy scheme. Further, attention was drawn to CBE&C circular No. 854/12/2007-CX dated 7.9.2007, wherein as regards the query, what will price of pan-masala which are distributed free of cost, as part of marketing strategy or gift or donation, it has been clarified that in such case as per notification, the value should be determined under Rule 4 of the Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000. The Revenue once again vide letter dated 31.1.2009 asked the appellant to furnish details of the machine and also sought clarification about status of the machine and also whether the appellant intends to continue to manufacture pan masala (notified goods) with the aid of packing machine. In reply by appellant dated February 9, 2009, it was stated that it is yet to start commercial production and undertakes to file the requisite declaration in terms of Notification No. 30/2008, at least 15 days prior to commencement of commercial production.
3.3 Thereafter the Revenue issued show-cause notice requiring the appellant to pay excise duty in accordance with the CLS. As per the show-cause notice, duty was demanded under the CLS for the period 1.7.2008 to 31.1.2009, whereas the calculation as contained in Annexure-II of the show-cause notice, it computes duty of Rs.26 lakhs payable per month and after giving credit for duty paid under Section 3, the differential duty of Rs.1,55,91,121/- was demanded on the allegation that the appellant have contravened the provisions of the Excise Act and Rules made thereunder particularly, (a) the appellant have failed to determine, or comply with the procedure laid down, as envisaged in Notification No. 29/2008 read with Notification No. 30/2008 and 42/2008, whereby the calculation of excise duty under the CLS have been introduced from 1.7.2008, and (b) the appellant has failed to determine and pay the appropriate Central Excise duty applicable to pan masala as required under the provisions of Act and Rules and the Notifications made thereunder and accordingly, the appellant was asked to show cause as to why the duty be not demanded under the CLS in respect of pan masala manufactured and cleared and the goods should not be held liable for confiscation under Rule 17(1) of Notification No. 30/2008 read with the Pan Masala Rules and as to why duty of Rs.1,55,91,121/- should not be demanded and recovered on pan masala manufactured and cleared during the period July, 08 to Jan, 09 under the CLS under Section 3A read with Section 11A(1) of the Central Excise Act, and as to why not interest be demanded and why not penalty be imposed under the provisions of Rule 17 of Notification No. 30/2008 for contravention of the said provisions. Further 3 more show-cause notices dated 2.8.2010, 1.11.2010 & 23.2.2011 were issued for the subsequent period January, 2009 to Nov, 2010.
4. The learned Counsel for the appellant submits that they submitted detailed reply to the above show cause notice vide letter dated 31.10.2009, thereby demanding the impugned show cause notice be dropped. The brief grounds taken in its reply are as under: -
a. That the impugned show cause notice is based on incorrect understanding of facts and therefore bad in law.
b. That the Compounded Levy Scheme is not applicable on the samples of pan masala produced and cleared by the Appellant from its pilot test plant since the Compounded Levy Scheme is applicable only if the manufacturer engages in or undertakes commercial production of pan masala on or after the effective date (i.e., July 1, 2008).
c. That the Compounded Levy Scheme is not applicable on the samples of pan masala produced and cleared by the Appellant from its pilot test plant since the Compounded Levy Scheme is applicable only to the pan masala manufactured with the aid of automatic packing machine(s) (FFS) and packed in pouches.
d. That the Compounded Levy Scheme is not applicable on the samples of pan masala produced and cleared by Appellant from its pilot test plant since the Compounded Levy Scheme is applicable only in case the pouches of pan masala are in a retail pack bearing retail sales prices and other statutory declarations required as per the law in force for sale to ultimate consumers.
e. That Section 3A and the relevant notifications and rules pertaining to the Compounded Levy Scheme ought to be read in the context of the object and scope of the provisions of Section 3A of the Excise Act as well as the excise legislation as a whole. Excise duty liability is to be therefore restricted to duty payable on actual quantity manufactured.
f. That Pan masala produced in the pilot test plant is not marketable and hence does not qualify as notified goods attracting the levy of excise duty under the Compounded Levy Scheme.
g. That abatement of entire duty demanded under the show cause notice should be allowed to the Appellant in accordance with Section 3A(3) of the Excise Act.
h. That without prejudice to our above averments, imposition of excise duty as per the Pan Masala Rules in the present facts and circumstances would result in retrospective operation of the legislation. Such a construction of the legislation is against established principles of taxation and has to be disregarded.
i. That since no excise duty is payable by the Appellant, no interest under the Pan Masala Rules read with Section 11 AB of the Excise Act is leviable.
j. Confiscation cannot be initiated and penalty should be imposed on the Appellant under Rule 17 of the Pan Masala Rules in the present case.
4.1 Meanwhile, the Revenue Authorities issued another show cause notice No. V-Adj.(Misc.)30-4/2010 dated 28.1.2010 inter-alia, requiring the Appellant to pay excise duty of Rs.1,85,17,729 along with applicable interest and penalty for the subsequent period January, 2009 to September, 2009 on the facts and allegations similar to the one taken in the earlier show cause notice as aforesaid. The Appellant replied to the above show cause notice vide its letter dated 10.6.2010.
4.2 However, by its common Order-in-Original no. 04-05/MI/2011 dated 3.3.2011, the Commissioner of Central Excise, Mumbai-I confirmed demands issued under the aforesaid Show cause notices (i.e., for Rs. 1,55,91,121/- + Rs. 1,85,17,729/-) under the provisions of Notification No. 42/2008-CE dated July 1, 2008 read with Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 along with recovery of interest under Section 11AB of the Central Excise Act, 1944. He also imposed penalty of Rs.1,00,00,000/- under Rule 17(1) of the aforesaid rules.
5. The adjudicating authority has recorded the following findings: -
(i) The appellant have failed to file intimation giving the details of packing machine, though the packing machine was installed as required in para 2.1 of the instructions contained in Circular No. 852/12/2007-CX dated 7.9.2007. Further, the appellant have contravened the provisions of Notification No. 29/2008 read with 30/2008, wherein it was required to file the declaration under Rule 6 of the Pan Masala (Capacity Determination & Collection of Duty) Rules, 2008, within 10 days of coming into force of the said Rules.
(ii) It is undisputed that one packing machine was installed, and after introduction of the CLS Scheme, the appellant vide its letter dated 1.12.2008 stated that it had been installed, being machine of pan masala for packing samples and accordingly, pan masala so packed was notified goods in terms of Notification No. 42/08 and accordingly, the appellant was liable to comply with the Rules laid down under Notification No. 30/08. The appellant have erred in its stand that in absence of commencement of commercial production, it is not liable to pay duty on deemed production basis.
(iii) The appellant was not a new manufacturer, who was engaged in manufacture of pan masala well before 1.7.2008 when pan masala was specified as notified goods under Section 3A.
(iv) Accordingly, being a new manufacturer, the appellant was required to file declaration under Rule 6(1) of Notification No. 30/08 in form 1 within 10 days of the said rules coming into force and have accordingly contravened the provisions. After rescinding of Notification No. 38/07 vide notification 44/08 dated 16.7.2008 no other option was available w.e.f. 1.7.2008 to the manufacturer of pan masala. Hence, procedure prescribed under Notification No. 30 of 2008 were required to be followed.
5.1 As regards the stand of the appellant that production based levy is applicable only when the manufacturer is undertaking commercial production and would not be applicable in hand-filled pouches is misplaced as the CLS particularly Rule 6 of Notification No. 30/2008 provides for furnishing information in Form-1, as regards number of machines, RSP etc. and the appellant was engaged in manufacture of pan masala before 1.7.2008 when the Rules and Scheme came into force and the packing machine was already available/installed in its factory as per record. Accordingly, the appellant was required to take steps by filing declaration in Form-1 and accordingly the option to file declaration 15 days prior to commencement of commercial production was not available to it.
5.2 As regards the contention that the pouches were hand-filed and sealed as the only packing machine had developed technical snag, the same was required to be declared in the declaration by filing under Rule 6 of Notification No. 30/2008, which was not filed. Further, the explanation to the said rules reads as under: -
Unless otherwise specified in these rules, for the purposes of these rules, the goods shall be deemed to have been manufactured or produced with the aid of packing machine, if they are cleared from a factory where a packing machine is installed, irrespective of whether it is in use or not, or is in working condition or not. 5.3 It was further observed that the explanation clarifies that the goods shall be deemed to be manufactured with the aid of packing machine irrespective of whether it is in use or not, or is in working condition or not. In absence of appropriate declaration and the packing machine being actually installed in the factory, the duty leviable on deemed production is payable under the CLS.
5.4 As regards the contention that in absence of RSP, the CLS was not applicable, as in such case neither the deemed production capacity nor the rate of duty can be determined, the Commissioner observed that tariff value of pan masala in retail package have been fixed vide Notification No. 3/2006-CE with regard to retail pouches where sale price is not printed on retail pack and also where retail price printed on the retail pack. Further Rule 12 of Pan Masala (CD&C) Rules provides for determination of RSP where the manufacturer removed the notified goods, when RSP has not been declared. Further, the quantity deemed to be produced is to be determined by the Dy. Commissioner or Assistant Commissioner as per Rule 6(2) of Pan Masala (CD&CD) Rules on the basis of declaration filed by the manufacturer. As no declaration has been filed by the appellant though required, the annual capacity of production could not be determined in the facts and circumstances, is not tenable.
5.5 As regards the contention that Section 3A read with notifications therein, are to be looked in the context of the object and scope of the provisions of Section 3A and excise liability is to be restricted to duty payable on actual quantity manufactured, the learned Commissioner refers to the provisions of Section 3A, and emphasizes that the section starts with the words notwithstanding anything contained in Section 3 .., which make it clear that once the goods are notified under Section 3A, the question of payment of Central Excise duty on actual manufacture basis would not be in conformity with the provisions of Section 3A. As the appellant did not file declaration, jurisdictional excise authority was not in a position to make enquiry and pass any order on capacity determination of production in terms of Rule 6(2) of Pan Masala (CD&CD) Rules and also that now duty can be paid in appellants case under Section 3A(3) as objection can be allowed only if the manufacture fulfills conditions as prescribed. In the absence of any declaration filed under Rule 6(1) read with Rule 10 to the effect that the packing machine has not been used to produce pan masala, since May, 2008, as such abatement is not leviable. It was further held that the appellant have failed to comply with the procedure for annual production levy in terms of the 3 notifications for CLS from date 1.7.2008 and further failed to pay the duty on deemed production basis and have accordingly contravened the provisions of Notification and Rule made thereunder, rendered such goods liable to confiscation and also liable to penalty and accordingly, the proposed demand was confirmed along with interest and penalty under Rule 17(1) of the Pan Masala (CD&CD) Rules, 2008.
5.6 It was further held that the appellant was not a new manufacturer, but was already engaged in manufacture of pan masala as on 1.7.2008, the date when the CLS scheme was implemented vide notifications and accordingly it was mandatory for the appellant to file declaration for determination of capacity and collection of duty within 10 days of the coming to the force of the CLS scheme. It was further held that second option to file the appropriate declaration for capacity determination and duty determination, by filing the same within 15 days prior to date of commercial production, was not available to the appellant and accordingly, the proposed duty was confirmed along with levy of interest and penalty of Rs.1 crore under Rule 17(1) of the Pan Masala (CD&CD) Rules.
6. Being aggrieved the appellant is in appeal before this Tribunal and urges that the impugned order is based on incorrect understanding of facts and law. In the facts and circumstances and from the various letters written to the Revenue during May, 2007 to May, 2008, it is evident that the appellant had set up only a pilot test plant for manufacturing of samples of pan masala for the purpose of testing, sampling and market research on payment of duty by valueing the goods @ 110% of the cost of production, as per rules and the duty was paid according to tariff rate. The said product by way of sample was unbranded, not packaged in retail packs and meant for testing/consumption/sampling purpose within the factory and same part of it was only cleared outside the factory for the purpose of market research/test. Proper details were maintained and also declaration under the monthly ER-1 return required under Rule 9 of Central Excise Rules. In response to letter of Revenue seeking the details in compliance of Circular dated 7.9.2007, the appellant had taken a stand that it is not engaged in the commercial production nor having any packing machine and accordingly, the said Circular No. 812/12/07-CX was not applicable. The appellant had purchased the FFS machine in November, 2007 which was installed sometime in February, 2008 and thereafter utilized for production from April, 2008. However, again in the beginning of May, 2008, the packing machine developed technical snag and rendered inoperative. After obtaining the estimate for repairing from the machine manufacturer, who had suggested to change the gear-box etc., the appellant decided not to undertake the repairs immediately as the machine was not required there being production in very small quantity for testing purpose only and such product manufactured on test purpose was filled manually in readymade pouches sealed by hand. This is also supported by the invoice available on record for hiring manpower for purpose of filling and sealing the pouches by hand.
6.1 Further contention of the appellant is that under Notification No. 29/2008 in which pan masala have been notified for levy of duty on basis of production capacity under Section 3A(1), it is provided that the notification is applicable for manufacture of pan masala with the aid of packing machine and packed in pouches as notified goods. Further, explanation under clause (2) of the notification, packing machine includes all types of Form, Fill and Seal (FFS) machine and profile pouch making machine, by whatever name called, single track of multi track or any other type of packing machine used for packing pouches of notified goods. Further, notification no. 42/2008 dated 1.7.2008 provides for rate of duty on basis of production capacity in case of pan masala/gutakha manufactured with the aid of packing machine and packed in pouches having retail sale price as specified, the rates of duty as specified in corresponding entry of the table (1) given in the notification. Further, packing machine have been similarly defined in this notification in explanation (1) and RSP defined in explanation (3) as the maximum price at which the specified goods in packed form may be sold to the ultimate consumer, which is inclusive of all taxes, freight/transport, commission etc. and the price is the sole consideration for the same. Further, clause (2) of this notification provides that number of packing machines for the purpose of computation of rate of duty specified in opening paragraph shall be determined in terms of Pan Masala (CD&CD) Rules, 2008 i.e. Notification No. 30/2008 dated 1.7.2008. Thus, the pre-requisites or the conditions precedent for applicability of the CLS in the aforesaid notification are: -
(i) manufacture with the aid of packing machine (FFS)/Profile Pouch packing machine,
(ii) packed in pouches
(iii) such pouches having RSP.
(emphasis supplied) 6.2 It is further contended by the appellant that on the record date i.e. 1.7.2008 when the scheme was implemented, it was neither manufacturing pan masala with the aid of packing machine nor was packing the pouches with the aid of packing machine and nor the pouches (hand filled and sealed) manufactured by it on test basis bore any RSP or MRP. Thus, all the three pre-conditions were absent, the Notification No. 29/2008 providing for levy on deemed production basis on pan masala as well as Notification No. 42/2008 providing for rate of duty were not attracted and not applicable to the appellant. It is further contended that under Notification No. 30/2008, Pan Masala (CD&CD) Rules, 2009, manufacturer means, the person engaged in commercial production, with the aid of packing machine as provided under Notification No. 29/2008 read with Notification No. 42/2008. Rule 6 of Notification No. 30/2008 specifically provides that a new manufacturer shall furnish such declaration atleast 7 days prior to the commencement of commercial production of pan masala in his factory and in case of a manufacturer of notified goods, immediately on coming into force of the Rules, furnish the declaration not later than 10 days in Form-1 specifying the number of packing machine(s) available and the number of packing machine intended to be operated in the factory and particularly the RSP of the pouches to be manufactured during the financial year as well as the plan and details of the part or section of the factory premises intended to be used by it for manufacture of notified goods. Further, Rule 4 of this notification provides the factor relevant to production of notified goods shall be number of packing machines in the factory of the manufacturer and under Rule 5 quantity deemed to be produced of the notified goods will be determined with respect to RSP per pouch as given in the table under Rule 5. Thus, the additional condition precedent obtaining from Notification No. 30/2008 are: -
(i) RSP fixed or printed on the pouches as clarified in explanation (3) of the opening para in Notification No. 42/2008.
(ii) the manufacturer should be engaged in commercial production with the aid of packing machine as defined,
(iii) such production should be on commercial basis.
(emphasis supplied) 6.3 The appellant contends that the additional conditions for attraction of the scheme, being the manufacture by way of commercial production is not attracted as it was manufacturing without the aid of packing machine, only on test basis and hand packed pouches were not labeled with the RSP/MRP and accordingly, the CLS as implemented vide aforementioned 3 notifications is not attracted and no liability should have been determined.
6.4 The appellant relies on the various correspondence with the Revenue, which are on record after 1.7.2008, wherein it have repeatedly taken the stand that as it is neither engaged in the commercial production not manufacturing the pan masala with the aid of packing machine, hence the scheme is not attracted. The fact of not being engaged in commercial production have not been found to be untrue by the Revenue and is an admitted fact. The Revenue has erred in holding that the CLS is applicable to the appellant irrespective of the fact whether it is engaged in the commercial production or test production without the aid of packing machine, as the packing machine is available in its factory premises.
6.5 The appellant had also clarified that although the packing machine was available in his factory, the same is not in use, the same is lying out of order and it does not intend to start production with the said packing machine in its letter dated 11.12.2008. This letter was written to clarify that the packing machine is not intended to be used, as the Revenue had been insisting that the CLS scheme is applicable to the appellant w.e.f.1.7.2008. The appellant strongly contends that in view of the absence of conditions precedent, the levy under CLS is not applicable during the period under consideration. The appellant further contends that under intimation to the Revenue, it set up its commercial manufacturing unit for pan masala at Baramati (Dist. Pune) for which it was registered and the facility for production with the aid of packing machine was installed. The installation and testing of the machine was done under the intimation to the Revenue in Sept. 2009 and after conducting further trials/test production in October, 2009, details were filed by the appellant in the prescribed Form 1 as per Rule 6 of Notification No. 30/2008 and capacity as well as duty was determined vide order dated 28.10.2009, which was again amended and increased on amendment application vide order dated 18.12.2009. It is pertinent to take notice of the fact that for the period during which the facility at Baramati manufactured pan masala with the aid of packing machine on test basis before commencement of commercial production, was not subjected to duty. This is in contrast of the stand taken by the Revenue in respect of the manufacture on test basis, without the aid of packing machine, at its Andheri factory, which is subject matter of this appeal.
6.6 The appellant further relies on the Order-in-Appeal No. GZB-EXCUS-000-APP-06-14-15 dated 21.4.2014 passed by the Commissioner (Appeals) at Ghaziabad in appellants own case in respect of the manufacturing facility set up at Ghaziabad, wherein vide Order-in-Original duty was demanded on the test production period. The learned Commissioner (Appeals) taking notice of the pre-conditions for applicability of the same, more particularly that the scheme is applicable only where the manufacturer engaged in production or undertakes commercial production, on or after the effective date, with the aid of packing machine, is only liable under the scheme. The learned Commissioner (Appeals) was pleased to hold that for the period of test run, for testing the various parameters etc., prior to commencement of the commercial production, where the pouches manufactured on test basis did not bear RSP and such test was done with prior information and in presence of the jurisdictional officer, no duty under the provisions of Notification No. 29/2008 is attracted. The appellant also relies on the ruling of the Hon'ble Supreme Court in the case of Tata Sky Ltd. Vs. State of Madhya Pradesh 2013 (4) SCC 656, wherein the Court was considering the liability of Entertainment Tax in case of Satellite Television/DTH services wherein the charging section provided for levy of entertainment tax on every proprietor of an entertainment by Video Cassette Recorder in respect of every payment for admission of the entertainment to pay to the State Government at the duty prescribed under Section 4 of the said Act provided for method of levy that service is otherwise provided in this Act and entertainment by VCR except when the ticket stand with the impressed/embossed and/or adhesive stamp issued by the State Government of nominal value equal to the duty payable under Section 3. The Hon'ble Supreme Court found that the DTH is not covered by the provisions of Section 3 read with Section 2(a), (b) and (d) of the Act and the issue stands further settled with reference to the mechanism of question of the charge as provided under Section 4 as in the case of DTH, there is no element of admitting a person to any entertainment (there being no such premises) and accordingly, it was held that the duty/tax is beyond the charge created by the taxing statute.
6.7 The appellant also relies on the ruling of this Tribunal in the case of Commissioner of Central Excise vs. Tej Ram Dharam Paul 2013 (297) ELT 125 (T), wherein, order dated 17.6.2013, the assessee was engaged in manufacture of Chewing Tobacco and Filter Khaini and the Central Government vide Notification No. 10/2010-CE(NT) issued under Section 3A(1) of the Act specified (i) unmanufactured tobacco bearing a brand name falling under tariff heading 2401 of the First Schedule to the Central Excise Tariff Act, 1985, and (ii) chewing tobacco falling under tariff item 2403 9910 of the said Tariff Act, manufactured with the aid of packing machine and packed in pouches, on which there shall be levied and collected duty of excise in accordance with the provisions of the said Section 3A. The appellant was engaged in manufacture of filter khaini which consisted of two steps, first step to pack tobacco in filter paper to make filter pillows which are just like tea bags and do not carry any brand name or MRP and in second step, 8 12 filter pillows get collected in a conveyor and another machine which packs them into sachets having brand name or MRP. Further after implementation of the CLS, they were making only filter pillows manually with the help of hand packing machines, this Tribunal held that in the facts and circumstances the pouches so manufactured not carrying any brand name, MRP and manufacturers name, cannot be held as notified goods in terms of Notification No. 10/2010 for the purpose of levy of duty under CLS. Further, repacking of such filtered pillows 8 to 10 in number filled manually into pre-sealed ply sachets from three sides, sealed after repacking with heat sealers/candles/hot iron, such sealed plastic sachets are also not notified goods. Filter pillow packing machine used for manufacture of said manually filled marketable sachets cannot be taken into consideration for determining annual capacity production and accordingly, the duty discharged in terms of Section 3 is correct and not leviable under Section 3A as claimed by the Revenue.
6.8 The appellant further stated that in view of the admitted facts, the interpretation of the Revenue as to the applicability of CLS under the 3 Notifications dated 1.7.2008 is misplaced and accordingly, the impugned order is fit to be set aside.
7. The learned AR appearing for the Revenue relies on the impugned order and further states that in view of the packing machine being available in the premises of the appellant as on 1.7.2008, it is irrelevant that the appellant was engaged in production of pan masala on test basis and it has been rightly held that the appellant is liable to pay duty under CLS w.e.f. 1.7.2008.
8. Having considered the rival contentions, we find that there are three conditions specified in the 3 Notifications for applicability of the CLS, which are as under: -
(i) manufacture with the aid of packing machine (FFS)/Profile Pouch packing machine,
(ii) packed in pouches
(iii) such pouches having RSP.
We find that none of the aforementioned pre-conditions are fulfilled in the case of the appellant. Further, we find that it is not a case of the Revenue that the appellant was clandestinely found to be operating the packing machine and/or removing the goods so manufactured in contraventions of the aforementioned notifications read with the Act and the Rules. Further, specific provision has been made under Notification No. 30/2008 Pan Masala (CD&CD) Rules under proviso no. 6 and 7 of Rule 9 wherein if the manufacturer is found to be manufacturing the notified goods with the aid of packing machine and not paying duty, providing for the manner of determination of duty in respect of clandestine manufacture and/or clearance. Further, we find that Rule 11 of this notification specifically provides that every manufacturer shall declare the RSP of the notified goods on all the packages of such goods. In case of failure of declaration the RSP, Rule 12 of the said Rules providing for determination of RSP in case of non declaration of RSP etc. In absence of there being any manufacture of notified goods as provided under the 3 notifications comprising the CLS, we hold that the said scheme is not attracted in case of the appellant during the period under consideration and the Commissioner has clearly erred in holding contrary to the provisions of the scheme read with Act and Rules as noticed herein above.
9. Thus, the impugned order is set aside and the appeals are allowed in favour of the appellant with consequential relief, if any.
(Pronounced in Court on .)
(P.K. Jain) (Anil Choudhary)
Member (Technical) Member (Judicial)
Sinha
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