TMI Blog2014 (9) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. 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 misdeclaration 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was required to pay duty as per the 7th proviso to Rule 9 which provided that: in case a manufacturer does not pay the duty payable by the due date, and continues to operate any packing machine, then till the time such non-payment continues, he shall be liable to pay the monthly duty based on the number of operating packing machines declared in the month for which duty was last paid by him or the total number of packing machines found available in his premises at any time thereafter, whichever is higher. 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 ₹ 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 @ ₹ 6,36,50,000/- per month in terms of the seventh proviso to Rule 9 of the Rules. 2.4 The assessee once again committed default in payment of duty for the months of June and July, 2011 for which the duty liability was reduced to ₹ 6,04,00,000/- vide order No. 5/2011 dated 01/06/2011. Since the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 (113) ELT 353 (SC). In the said case, the Supreme Court had held that demand contrary to approved classification list can only be prospective from the date of show cause notice and cannot be raised retrospectively even though the demand might be within the normal period of limitation. To overcome the said decision, Section 11A was retrospectively amended to provide for demand of duty notwithstanding any approval, acceptance of the assessment relating to rate of duty or valuation of excisable goods. However, w.e.f. 08/04/2011, vide Section 63 of the Finance Act, 2011 Section 11A was substituted and in the new Section 11A effective from 08/04/2011, there was no provision for demand of short-levy or non-levy even in a case where the duty liability was paid/discharged on the basis of any approval, acceptance or assessment and, therefore, in respect of the demands under the new Section 11A w.e.f. 08/04/2011, the principle as laid down in the Cotspun Ltd. case (supra) would apply. In the present case, inasmuch as the show cause notice has been issued in November, 2011, the same would be governed by the provisions of Section 11A effective from 08/04/2011. 3.2 The learned counsel furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther contended that the 6th and 7th proviso together constitute an integrated code and, therefore, when 6th proviso cannot be applied, the 7th proviso also cannot be applied. The word found appears only in the 6th and 7th proviso and nowhere else in these rules and, therefore, the meaning of the word found cannot be different for the 7th proviso. It is submitted that for the 7th proviso to apply, comparison has to be made on the following two aspects, namely, the number of machines declared in the month for which duty was last paid by him and total number of packing machines found available in his premises at the time and thereafter. The proviso requires a comparison of the two and taking higher of the two. If one of the two is inapplicable, the other proviso will not apply. It is further contended as per Section 3A(2) and 3A(3), the factor to be taken is the number of packing machines. Based on the number of packing machines the production is deemed. The number of packing machines is not deemed or to be deemed. Further, as per Rule 4 of the rules, the factor relevant for production of the notified goods is the number of packing machines in the factory. Based on the number of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asala packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 and in particular, the provisions of the 7th proviso in Rule 9. The said challenge also related to the 7th proviso to Rule 9 which provided for the payment of monthly duty based on number of operative packing machines declared in the month for which the duty was last paid by him or the total number of packing machines found available in his premises at that time or thereafter whichever is higher. It was contended by the appellant before the hon'ble High Court that the second part of this amended proviso contemplated making of payment within 5 days of commencement of production which is unreasonable and arbitrary. However, the hon'ble High Court of Bombay in Writ Petition No. 8533 of 2010 decided on 06/07/2012 upheld the validity of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 and held that the same are framed in accordance with the powers conferred by and to advance the object of Section 3A and are not inconsistent with it. It was particularly held that challenge to substitution of seventh proviso to Rule 9 in 2010 has to fail. Accordingly, the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have carefully considered the submissions made by both the sides. It should be appropriate at this juncture to re-visit the legal provisions. 5.1 Section 3A of the Central Excise Act, 1944 reads as follows: SECTION 3A. Power of Central Government to charge excise duty on the basis of capacity of production in respect of notified goods: (1) Notwithstanding anything contained in section 3, where the Central Government, having regard to the nature of the process of manufacture or production of excisable goods of any specified description, the extent of evasion of duty in regard to such goods or such other factors as may be relevant, is of the opinion that it is necessary to safeguard the interest of revenue, specify, by notification in the Official Gazette, such goods as notified goods and there shall be levied and collected duty of excise on such goods in accordance with the provisions of this section. (2) Where a notification is issued under sub-section (1), the Central Government may, by rules, - (a) provide the manner for determination of the annual capacity of production of the factory, in which such goods are produced, by an officer not below th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is section, the expression hundred per cent, export-oriented undertaking shall have the meaning assigned to it in section 3. 5.1.1. In pursuance to the said section, the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 has been framed vide Notification No. 30/2008-CE (NT) dated 01/07/2008 and pan masala has been notified for the purpose of Section 3A vide Notification No.29/2008-CX (NT) dated 01/07/2008. As per the said rules, the factor relevant to production of the individual goods shall be the number of packing machines in the factory of the manufacturer. The quantity of notified goods deemed to be produced is dependent on the number of pouches per packing machine per month which in turn is dependent on the retail sale price per pouch. Thus, the quantity deemed to be produced is dependent upon the number of packing machines operating as well as the retail sale price. The manufacturer operating under the scheme has to file a declaration under Rule 6 of the Rules wherein he has to declare the number of packing machines of various types installed in the factory and intended to be operated for the production of the notified goods. The man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the month, the balance shall be refunded to the manufacturer by the 20th day of the following month: Provided also that if there is revision in the rate of duty, the monthly duty payable shall be recalculated pro-rata on the basis of the total number of days in that month and the number of days remaining in that month counting from the date of such revision and the duty liability for the month shall not be discharged unless the differential duty is paid by the 5th day of the following month and in case the amount of duty so recalculated is less than the duty paid for the month, the balance shall be refunded to the manufacturer by the 20th day of the following month: Provided also that in case it is found that a manufacturer has manufactured goods of those retail sale prices, which have not been declared by him in accordance with provisions of these rules or has manufactured goods in contravention of his declaration regarding the plan or details of the part or section of the factory premises intended to be used by him for manufacture of notified goods of different retail sale prices and the number of machines intended to be used by him in each of such part or section, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and does not flow from the provisions of Section 3A or the rules formulated thereunder. In certain situations, the rules provided for deeming the number packing machines operating. For e.g., Rule 8 says that in case of addition or installation or removal of packing machines in the factory during a month, the number of operating packing machines for the month shall be taken as the highest number of packing machines installed on any day during the month. In other words, even if the number of operating packing machines were less than the maximum number on a particular day, then for the purpose of determination of the number of operating packing machines, the maximum number of packing machines on any day should be taken as the basis for determination of the deemed production. Therefore, the argument of the appellant that there is no provision for deeming the number of machines in the said rules and the deeming applies only to the quantity of production is totally incorrect. When the quantity of production is dependent upon the number of machines as also the retail prices of the goods, it cannot be said that the deeming provision would apply only in respect of one factor of productio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal with two different situations altogether and provide for determination of duty liability in respect of those two different situations. 5.4 In Ramnarayan Ltd. vs. Assistant Commissioner of Sales Tax [AIR 1955 SC 765 p. 769] Bhagawati J. Observed as follows: It is a cardinal rule of interpretation that a proviso to a particular provision of a statute only embraces the field which is covered by the main provision. It carves out an exception to the main provision to which it has been connected as a proviso and to no other. The same view was reiterated in Abdul Jabbar Butt vs. State of J K [AIR 1957 SC 281 p. 284] wherein it was held that - it is a fundamental rule of construction that proviso must be considered in relation to the principal matter to which it stands as a proviso . 5.5 In Sundaram Pillai vs. Pattabiraman 1985 (1) SCC 591, Fazalali J. Observed that by each of the proviso may serve following different purposes: 1. Qualifying or excepting certain provisions from the main enactment; 2. it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... month of May, 2011 for determination of duty liability is in accordance with the provisions of 7th proviso and therefore, the said determination cannot be defaulted at all in view of these clear provisions of law. It is a settled position in law that the law should not be interpreted in such a way as to make the provisions redundant. 5.7 In Balavant singh vs. Jagdish Singh 2010 (262) ELT 50 (SC) the hon'ble apex Court held as follows: It must be kept in mind that whenever a law is enacted by the legislature, it is intended to be enforced in its proper perspective. It is an equally settled principle of law that the provisions of a statute, including every word, have to be given full effect, keeping the legislative intent in mind, in order to ensure that the projected object is achieved. In other words, no provisions can be treated to have been enacted purposelessly. Furthermore, it is also a well settled canon of interpretative jurisprudence that the Court should not give such an interpretation to provisions which would render the provision ineffective or odious. 5.8 A Larger Bench of the apex Court in the case of Union of India vs. Dharmendra Textile Proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the law the case might otherwise appear to be. 5.11 The principles of interpretation of taxing statute have been enunciated by the hon'ble apex Court also. In A.V. Fernandez vs The State of Kerala 1957 AIR SC 657 Bhagwati J stated that: in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter. 5.12. In the case before us, if we apply the principles, the 7th proviso has to be given full effect to in determination of the tax liability. 5.13. We also observe that the appellant had challenged vires of the 7th proviso to Rule 9 in Writ Petition No. 8533 of 2010 and the hon'ble High Court of Bombay held that: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant date. In the present case, the demand has been made within the normal period of limitation and, therefore, the recovery of duty under Section 11A read with Rule 9 is correct in law and cannot be faulted and, therefore, the argument of the appellant to the contrary is rejected. 6.2 The Cotspun judgment pertained to a period when self-assessment by the tax payer was not in vogue and the proper officer had to assess the duty liability based on prior approval of classification and price lists. The tax regime has undergone substantial changes since then and the present tax regime envisages self-assessment of tax liability and payment of duty accordingly. Therefore, the ratio of the Cotspun decision is no longer relevant or applicable to the self-assessment regime now in vogue. It would be a complete folly to turn the clock back and adopt a principle which the legislature itself has discarded long time back. 7. Once the duty liability is upheld, the demand for interest liability is automatic and consequential. Hence the demand of interest liability under rule 9 read with Section 11AB is sustainable in law. 8. As regards the equivalent amount of penalty imposed under Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production of notified goods shall be the number of packing machines in the factory of the manufacturer. Rule 5 provides for the quantity of pouches of a particular retail price as specified in the table, deemed to be produced by use of one operating packing machine per month. 12.1 Rule 6 provides for declaration to be filed by the manufacturer stating details in Form 1, being: - (i) Number of single track packing machines available in the factory. (ii) Number of packing machines out of (i), which are installed in his factory. (iii) Number of packing machines out of (ii), which he intends to operate in his factory for production of notified goods. (iv) Number of multiple track or multiple line packing machine, which besides packing the notified goods in pouches, perform additional processes involving moulding and giving a definite shape to such pouches. (iv)(a) Number of multiple track or multiple line packing machine, which are incapable of performing additional processes specified in (iv); (v) Number of multiple track or multiple line packing machines out of (iv) and (iv) (a), which are installed in his factory. (vi) Number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch packing machines is not feasible to remove such packing machine out of the factory premises, it shall be uninstalled and sealed by the Superintendent in such a manner that it cannot be operated. 12.6 Rule 6(6) provides that in case a manufacturer wishes to make any subsequent changes with respect to any of the parameters which has been declared by him and approved by the authority in terms of sub-rule (2), such as changes relating to addition or removal of packing machines in the factory or making alterations in any part or section of the approved premises or in the number of machines to be used in such part or section or commencing manufacture of goods of a new retail sale price or discontinuation of manufacturing of goods of existing retail sale price, etc., he shall file a fresh declaration to this effect at least 3 working days in advance to the authority, who shall approve such fresh declaration and re-determine the annual capacity of production following the procedure specified in sub-rule (2). 12.7thus, it is noticed that a detailed and exhaustive procedure has been provided for determination of the annual capacity as well as the procedure for any change in the numb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 12.12 Rule 17 provides for penalty for contravention of the Rules etc. Rule 17(1) provides that Subject to the provisions of section 11AC of the Act, if any manufacturer produces or removes notified goods in contravention of any provision of these rules, then all such goods shall be liable to confiscation, and the manufacturer shall be liable to a penalty not exceeding the duty leviable on the notified goods in respect of which aforesaid contravention has been committed. Further, Rule 17 (2) provides that if it is found that goods have been manufactured in or cleared from a unit which is not registered with the jurisdictional Central Excise Office, then the duty liability of such unit shall be determined on the basis of number of packing machines 'found available' in the premises of the unit and the retail sale price of the pouches manufactured with the aid of such packing machines and unless evidence to the contrary is provided to the satisfaction of the Central Excise Officer, such machines shall be deemed to have been in operation since the first day of April of the financial year in which unit was found to be not registered and shall be construed as operating packi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with the interest at the rate specified by the Central Government vide notification under section 11AB of the Act on the outstanding amount, for the period starting with the first day after due date till the date of actual payment of the outstanding amount. (emphasis supplied) (vi) The 6th proviso deals with a circumstances involving mis-declaration with respect to retail sale price in particular and in case 'it is found' that manufacturer has manufactured goods of those retail sale prices, which have not been declared by him in accordance with provisions of these rules or has manufactured goods in contravention of his declaration regarding the plan or details of the part or section of the factory premises intended to be used by him for manufacture of notified goods of different retail sale prices and the number of machines intended to be used by him in each of such part or section, the rate of duty applicable to goods of highest retails sale price so manufactured by him shall be payable in respect of all the packing machines operated by him for the period during which such manufacturing took place. (emphasis supplied) Thus, the sixth proviso takes care of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. 13.1 It is further, noticed that the word found has been used in the 6th and the 7th proviso of Rule 9 and also in the Rule 17, which provides for penalty for contravention as aforementioned. The word found has to be given its natural meaning as the same is not defined in the Act or the Rules. The natural meaning of the word found has been noted in the various dictionaries i.e, discovered by chance or effort, what was not in knowledge got possession by chance. Thus, the adjudicating authority - Commissioner is clearly in error in holding that the appellant will be liable to pay duty on the basis of the higher number of packing machines, subsequently operational in the factory as per declaration filed. Unless there has been any mis-declaration or any other contravention 'found' on the part of the appellant, 7th proviso is not attracted only on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Machines (Capacity Determination and Collection of Duty) Rules, 2008 inasmuch as, the said rule provides for demand of duty on the basis of higher of the number of operating machines installed when the duty was last paid and the number of machines found installed when the default in duty payment was made goods and such higher number of machines should be deemed to have been installed as per the said proviso as held by the learned Member (Technical), relying on the decision of the Hon'ble apex court in the case of Ramnarayan Ltd vs Assistant Commissioner of Sales Tax (AIR 1955 SC 765; Abdul Jabbar Butt vs State of J K AIR 1957 SC 281 and Sundaram Pillai vs Pattabiraman 1985 (1) SCC 591? Or The duty is not demandable under the 7th proviso to the said Rule 9 as the provisions of the said proviso are not attracted when there is no misdeclaration on the part of the assessee, as held by the learned Member (Judicial)? 17. Facts of the case are narrated in paras 2.1 to 2.5 of the order. The issue in dispute is interpretation of proviso 7 of the Rule 9 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 (herein after referred a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant. Hence it cannot be said the Revenue found more packing machines declared in the month for which duty was last paid by the appellant. 20. Appellant also submitted that even the Hon'ble member (Technical) in his order set aside the penalty imposed under Rule 17 of the Rules read with Section 11AC of the Central Excise Act, 1944. 21. The contention is that where the declaration given about number of machines is subsequently found to be incorrect, it is not possible for the department to pinpoint and prove the date from which the additional machines were installed or the date from which the declared MRP was changed. In view of this it cannot be said as per the proviso 7 to Rule 9 that a manufacturer has to pay duty on the number of machines subsequently found by the department and presumption relate to the entire period of manufacture when the manufacturer has defaulted in payment of duty. 6th and 7th proviso to Rule 9 of the Rules together constitute an integrated code. When 6th proviso can be applied, 7th proviso also cannot be applied. The word found appears only in 6th proviso and the 7th proviso and nowhere else in the Rules. Therefore, the meaning given to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 of the Rules. The admitted facts of the case are that the appellants were in default in making payment of duty as per the order of the proper officer in pursuance the declaration filed by the appellant under Rule 6 of the Rules. The appellant filed a fresh declaration in the month of April 2011 declaring the number of packing machines intended to be used for the manufacture of pan masala. After due verification, the declaration was accepted and the annual capacity of the machine was fixed and the appellants were liable to pay duty at ₹ 6,36,50,000/- per month with effect from April 2011. As the appellants were in default the Revenue's contention is that the appellants are liable to pay duty at this rate during the period of default in view of 7th proviso to Rule 9 of the Rules. 26. The Hon'ble Supreme Court in the decision relied upon by the Revenue held that it is a fundamental rule of construction that proviso must be construed in relation to principle and matter to which it stands as proviso. 27. It is also settled law that the principle of harmonious construction also applicable in construction provisions of subordinate legislation. 28. Rule 9 of Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of packing machines used in the factory. 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 then 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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