TMI Blog2022 (9) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed in Capacity Determination Rules and notifications issued from time to time). The actual physical production becomes irrelevant in such circumstances. The sole criterion for the determination of total duty payable is the number of Packing machines installed/used and the MRP of the pouches manufactured on respective machines. It is obvious that the description Hand operated fillers or spoons or a similar manually operated device is cited in the circular as an example and not as an exhaustive list of equipment that do not qualify as Packing Machines . There can be many machines, other than those listed in circular, which may not qualify as Packing machine .It is seen that this question posed before the expert is defective. The question which needs to be answered is if the disputed machines can be called packing machines in terms of Capacity Determination Rules, 2010 or not. This question can only be answered by Revenue Officers and not by technical experts from YMCA University of Science and Technology or IIT Delhi. Such expert organization can only be used to get facts regarding the machines and its functions. In the instance case there is no dispute regarding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... packing process and therefore, if a machine only fills chewing tobacco in the preformed pouches, it is sufficient to qualify as packing machine . We find that this argument is misplaced. For packing of any goods it is necessary that it should make it suitable for safe transport, and in the case of chewing tobacco in pouches, also fit for sale in the market. Learned Counsel for the revenue has relied on the Circular No. 341/24/2010-TRU, dated 05.03.2010 to assert that only if the goods are packed with the help of hand operated fillers or spoons or a similar manually operated device and sealed with heat Sealers/band sealers/candles/hot iron and the like the same would not qualify for the compounded levy. This circular of the revenue does not say what Learned Counsel is asserting - The law is that duty on compounding basis cannot be levied on notified goods not manufactured with the aid of packing machine . The description of hand operated fillers or spoons or similar manual operated devices/sealers is just an example cited in the circular and does not necessarily cover all machines which may be outside the ambit of the term packing machine . In view of the above reliance on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of the disputed machines. The Deputy Commissioners also was aware of the facts. Admission of liability before Settlement Commission - HELD THAT:- There is no case of revenue on merits it does not matter if appellants have admitted any liability before the Settlement Commission or not. There are no merit in the impugned order either on Merit as well as on limitation - appeal allowed - decided in favor of appellant. - Excise Appeal No. 61061 of 2019 with Excise Appeal No. 61281-61287 of 2019 - FINAL ORDER NO. A/60127-60134/2022 - Dated:- 24-8-2022 - MR. RAJU, MEMBER (TECHNICAL) AND MR. AJAY SHARMA, MEMBER (JUDICIAL) Shri VivekKohli (Sr. Adv.), Shri Ashwini Sharma, Shri Anurag Mishra Mrs. Nisha Bineesh Advocates for the Appellant Shri Rajeev Gupta, Principal Commissioner, Shri Munish Kumar, Authorized Representative Shri SaurabhGoel , Special Counsel for the Respondent ORDER These appeals are filed by 1. Shree Flavour LLP 2. S K Aggarwal 3. P V Subramanian 4. Yogesh Arora 5. Sharad Chaudhary 6. Vipin Kumar Aggarwal 7. Shri Gopal Gupta 8. Manoj Gupta against demand of Central Excise Duty and imposition of penalties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r determination of Deemed Production the duty liability was determined vide notification 16/2010-CE dated 27.2.2010 2.2 In short the scheme of the compounded levy is such that for each packing machine the deemed production is determined in terms of the Capacity Determination Rules. The total deemed production of each machine is measured in terms of Capacity Determination Rules . For an assessee total duty amount is based on the number of machines installed/used in the factory and also the MRP of the pouches manufactured on such machines. Duty is levied on the number of machines installed/used. The sole criterion for the determination of total duty payable is the number of Packing machines installed/used and the MRP of the pouches manufactured on respective machines. 2.3 In the instant case the dispute relates to rate of duty applicable to certain machines used by the appellants. Based on the investigations conducted, a Show Cause Notice dated 21.07.2011 was issued to the appellants, Directors and employees of the appellants proposing a demand of Rs.250.12 Crores under Rule 19 of the Capacity Determination Rules read with Section 11A(1)of the Actalong with interest under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (which uses electricity for generating heat) to enable hot sealing or by guiding the pouch on a band sealer (which again uses electricity to generate heat) to enable sealing, and the pouch is sealed. Learned counsel argued that by the above process the pouch is manually packed. Therefore, from the above discussion and description, we can easily observe the difference between the automatic FFS machine and Manual Machines. 3.2 Learned Counsel pointed out that Notification No.10/2010-CE (N.T.) dated 27.02.2010, notified following goods under Section 3A (i) unmanufactured tobacco, bearing a brand name, falling under tariff heading 2401 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); and (ii) chewing tobacco falling under tariff item 2403 99 10 of the said Tariff Act, 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 the said section 3A. He argued that there are three essential ingredients for a product to qualify as the notified/specified goods: (i) it must be Chewing Tobacco falling under the prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that the Department s contention that because the devices installed by the Noticee uses electricity hence they are packing machines, is completely baseless. Learned Counsel pointed out that Board vide File No. 341/24/2010-TRU, dated 05.03.2010, clarified that the Compound Levy Scheme covers notified goods manufactured with the aid of packing machines and packed in pouches. Further, there was no intention to levy duty on compounding basis on pouches which had not been packed with the aid of packing machines but are packed manually with the help of hand operated fillers or spoons or a similar manually operated device and sealed with heat sealers / band sealers / candles / hot iron and the like. Learned Counsel pointed out that nothing in the above clarification specifies anything about electricity. The Central Government in its clarification has specifically excluded pouches packed manually with the help of hand operated fillers or spoons or a similar manually operated device and sealed 5 with heat sealers / band sealers / candles / hot iron and the like knowing well, that the heat sealers/band sealers itself uses electricity for their operation and still have been specifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hopper by the first worker. 3. On pressing the pedal by the worker, the electricity is triggered which rotates the disc on the hopper from which tobacco is dropped in the pouch due to pneumatic pressure. The role of these 2 machines ends over here. It has no provision to perform any function like weighment or sealing/packing of pouches. Learned Counsel pointed out that the third machinewhich is the pedal and heat sealer machine is used for filling of 10 gm of Flavored Chewing Tobacco. The machine has a frame with hoppers attached on its sides. Learned Counsel pointed out that following 6 steps are to be performed before sealing the pouches 1. Pre-formed pouches are procured from external sources and are not produced in the factory. 2. These procured pre-formed pouches are manually held below the hopper by 1st worker. (There are total 4 hoppers in the said machine). 3. On pressing the pedal by the worker, the electricity is triggered which rotates the disc on the hopper from which tobacco is dropped in the pouch due to pneumatic pressure. 4. The filled pouch is passed onto 2nd worker which weighs the pouch by putting it manually on a weighing scale. 5. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atio of manual working viz-z-viz electricity used is 6: 2. Hence, in no way can above machine be said to be an automatic machine which had been brought under Compounded Levy Scheme by the Department with an intention to levy duty on deemed production. He argued that the Department has erred in arriving at a conclusion that since the machines under reference uses electricity or pneumatic pressure, so they are packing machines, without appreciating its actual working. Further the clarification issued by the Board dated 05.03.2010 does not say that to be out of the purview of Compound Levy Scheme, the machine should not be using electricity. He argued that these devices do not perform the three functions of forming, filing and packing the pouches. They perform only one of the three mandatory functions - namely, filling. They do not form the pouch - which are externally purchased. They do not weigh the quantity of the product - which is again performed on a separate device. And, they do not seal or complete the packing process - which is again performed on a separate device. Thus, while these devices under consideration are used in one of the steps in the entire process of packing, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which is dependent on the efficiency of the workers.The capacity is totally dependent on the efficiency of the individual worker in question and is nowhere near the deemed production fixed under the Compound Levy Scheme. Learned Counsel argued that these cannot be machines intended to be covered under the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010, as the Capacity of the machines under reference cannot be determined. It is further evident that the legislation has no intention to cover these impugned machines, which don t have any definite output or speed to fix the deemed production of the same and its duty payable thereof.In this regardLearned Counsel relied on the following decisions:- (i) The Hon ble CESTAT in case of COMMISSIONER OF CENTRAL EXCISE, UDAIPUR Vs. M/s MIRAJ PRODUCTS PVT LTD reported at 2018-TIOL-427- CESTAT-DEL has specifically held in Para 7 of the said Order- 7. We have examined the provisions of Chewing Tobacco Rules, 2010. Rule 5 of the said rules 10 which determines the quantity of production based on the capacity of the machine as well as read with the Notification number ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udy the working of the machines, but instead they gave their opinion on the legal point. It was for this reason that the Appellant sought the cross- examination of the experts, but the same wasdenied by the Department. Learned Counsel argued that the technical report calling the impugned machines as Packing Machines cannot be relied upon. 3.13 Learned Counsel argued that that the unit of the Appellant had been visited by the officials of the Department on numerous occasions right from March, 2010 till July, 2010 and the officials carried out several rounds of inspection to study the nature and working of the machines under reference. Ld counsel explained in details the correspondence between them and the department. He also gave details of the visit made by various officers 3.14 Learned Counsel argued that the Appellant was using manually operated machines, using electricity at the time of notification of Rules. That the machines in questions, were acquired in July, 2009. Learned Counsel argued that an intimation had been duly given to the Department under Rule 31 of the Central Excise Rules, 2002 vide letter, dated 22.07.2009 and 23.07.2009. This intimation was given to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that all machines including the Tin machines and the manual machines are covered under the Compound Levy Scheme (CLS), clearly shows that the department were aware of the impugned machine. Learned Counsel argued that the Appellant duly replied to the Deputy Commissioner s letter dated 8th March, 2010, informing that the impugned machines are not covered under the Compound Levy Scheme (CLS). The Appellant further vide its letter dated 15th March, 2010 duly informed the working of the machines under reference. It is submitted that on the letters of the Appellant dated 8th March 15th March of 2010, the Deputy Commissioner wrote a letter dated 17th March, 2010 to the Appellant, wherein he informed that the department has re-examined the issue and that there is no levy of duty on compounded basis on Tin Packing machine and on pouches which have not been packed with the aid of packing machine, but are packed manually with the help of hand operated fillers or similar manually operated device and sealed with heat sealers/band sealers/candles/hot iron and the like. The Deputy Commissioner never disputed the averment of the Appellant given in its letter dated 10th March, 2010 that these ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.18 Learned Counsel argued that perusal of the above chronology of communications and visits by the Department clearly shows that the Department in this case had the knowledge from the very beginning about the machines under reference, therefore, the extended period cannot be invoked by the Department and the period beyond one year from the date of Show Cause Notice is barred by limitation. The only period which falls within limitation is the starting from the 1st of July, 2010 till 24th of July, 2010. The Appellant in support of the above view places reliance on the following judgments: BaidyanathAyurvedBhavan Ltd. Vs Collector of Central Excise, Allahabad [2004 (165)E.L.T. 494 (SC)], GopalZardaUdyog vs. Commissioner of Central Excise, New Delhi [2005 (188) E.L.T. 251 (S.C.)], Collector of Central Excise vs. H.M.M. Limited [1995 (76) E.L.T. 497 (S.C.)]; Kaur Singh vs. Collector of Central Excise, New Delhi [1997 (94) E.L.T. 289 (S.C.)]; Commissioner of Central Excise vs. Tripura Containers Pvt. Ltd. [2011 (264) E.L.T. 339 (Guj.)]; Union of India vs. Rajasthan Spinning Weaving Mills [2009 (238) E.L.T. 3 (S.C.)]; Pushpam Pharmaceuticals Company vs. Coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Director) of the appellants who was present at the time of visit of the Officers, who had accepted that the three machines used for packing of notified goods were operational only with power. 4.3 Learned Counsel for revenue argued that Investigations were carried out to ascertain the correctness of the contents of the declaration given by the appellants in respect of the 16 FFS machines in Form 1 in terms of Rule 6 of the Capacity Determination Rules and also in respect of two machines (stated to be manually operated in letter dated 15.3.2010) and one machine which remained undeclared and in statement dated 24.7.2010 claimed to be manually operated. These 3 machines were found to be operated with aid of electricity and/or pneumatically with a electrically powered compressor connected. 4.4 Learned Counsel for revenue argued that during the investigation, it was revealed that out of the 16 FFS machines, declaration in respect of 14 machines as regards their manufacturer were found to be incorrect. It was revealed that the purported manufacturers were in fact dealers of scrap who had been contacted by the employees of the appellants, to issue invoices only i.e. only paper tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td and M/s Industrial Tapes Packers, New Delhi,Statement of Sh. P.V. Subramaniam, Manager (Purchase) of the appellants. Learned Counsel for revenue argued that the entire manipulations were got carried out by the employees namely Sh. P.V. Subramaniam, Manager (Purchase), Sh. Yogesh Arora, G.M. Purchase and ShriKapil Sharmaof the appellant at the instance of the Directors. 4.6 Learned Counsel for the Revenue also pointed out thattechnical opinion was also taken from 02 renowned Govt. Institutes in respect of the three machines as to whether the same were manually operated machines or not. One from YMCA University of Science Technology, Faridabad and second from IIT New Delhi. In in the said reports the expert observed that the three machines could not be equated to manual packing and neither could they be termed as hand operated fillers or spoons or similar like manually operated device. 4.7 Learned Counsel for revenue found it pertinent to mention that consequent to issuance of SCN to the appellants, they went before the Settlement Commission in respect of part of the demand i.e in respect of the machine used for packing pouches of 10gms, therein admitting their duty li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods in question would qualify as notified goods and would be liable to duty under Section 3A of the Act. 4.11 Learned Counsel for revenue pointed out that clarification was sought by the trade from the Board office and a clarification was issued by the Board vide F.No.341/24/2010-TRU dated 5.3.2010 in Para (3) of the said clarification reads as follows:- (3) Requests have also been received to clarify whether manual packing of pouches of notified goods and their further sealing with the help of heat sealing /hand sealers / candles/ hot iron would come within the purview of compounded levy scheme or not. THE SCHEME COVERS THE SAID NOTIFIED GOODS, MANUFACTURED WITH THE AID OF PACKING MACHINES. However, there is no intention to levy duty on compounding basis on pouches which have not been packed with the aid of packing machines but are packed with the help of hand operated fillers or spoons or a similar manually operated devices and sealed with heat sealers/band sealers/candles/hot iron and the like . These would be leviable to duty in terms of Section 3 of the Central Excise Act, 1944. It is also clarified that the manufacturer would also be allowed to keep packing material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plain terms of the exemption it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority. If such intention can be gathered from the construction of the words of the notification or by necessary implication therefrom, the matter is different but that is not the case here. 4.15 Learned Counsel for revenue pointed out that the definition of packing machine in the notification reads .. and any other type of packing machine used for packing of pouches of notified goods is flanked by the specific type of packing machine i.e. Form, Fill and Seal 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. He contested the claim of the appellants that only a machine which performs all the functions i.e. Forming of Pouch, Filling of Pouch and Sealing of Pouch or Profile Pouch Making should qualify as ‗ any other type of packing machine used for packing of pouches of notified goods .Ld Counsel for revenue pointed out that the definition of a packing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are not there. 4.17 Learned Counsel for revenue argued that under Rule 6 of the Capacity Determination Rules, a manufacturer had to file a declaration as regards the maximum packing speed at which it can be operated. The appellants substantiated their claim citing examples of the Union Budget of 2015 and 2016, the table of deemed production given in the Rules was amended to incorporate slabs with machines with various speeds.Ld Counsel for revenue argued that the contention of the appellant itself clarifies that in 2015 2016 there were incorporation of different slabs of duty based upon the speed of the machines. Learned Counsel for revenue argued that it is Pertinent to note here that during the impugned period the duty was based solely on MRP of the Notified goods and the number of machines installed , whether operational or not.Relevant Rule 4 5 of Capacity Determination Rules are reproduced below: 4. Factor relevant to production. - The factor relevant to the production of notified good shall be the number of packing machines in the factory of the manufacturer. 5. Quantity deemed to be produced. - The quantity of notified goods, having retail sale price as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uly examined and discussed in the present proceeding. 4.22 Learned Counsel for revenue contested the appellant s argument that the Adjudicating Authority erred in ignoring the visits made by the Central Excise Officers on 07.03.2010, 22.03.2010, 07.04.2010, 21.05.2010 and 12.07.2010 for conducting physical verification for sealing/removal of FFS machines. Learned Counsel for revenue pointed out that the above visits were at the instance of the appellant either for sealing/removal of specific FFS machines which was done by the deputed/jurisdictional officers and the same cannot be termed as physical verification.Ld Counsel for revenue pointed out that there is no evidence adduced that any other officer or officers of preventive/anti-evasions cell visited the premises of the appellant and these machines were also inspected or checked at any point of time. Moreover, it is pertinent to mention here that third machine was never even mentioned in any of the communication (therefore remained undisclosed), whereas other two machines were always stated to be manual machines to be used in case of emergency. The verification of the machines in question was carried out only on 24.07.2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was further changed to Pedal Operated filler .Thus, even the machine that had been claimed to have been intimated to the department had in-fact been mis- declared with the intention to evade payment of duty. Another machine was accepted to be fabricated one by Sh. Manoj Gupta, Director of the appellants in his statement dated 24.07.2010, on being confronted with the statement of the purported manufacturer who stated it to be actually a frame with four hoppers with no attachments thereto. iii. One machine that was used to pack 500gms of Chewing Tobacco was never ever intimated to the department(the same was not even mentioned while explaining the working of other 2 machines on 22.5.2010).Even the working of other 2 machines was also mis-declared and there was wilful misstatement on part of the appellant in order to evade payment of duty under the Compounded levy scheme as the machines were always presented as manual fillers, whereas the same were admittedly pneumatically/compressor controlled and were running with the aid of power. 4.25 Learned counsel for revenue argued that not only the appellant had mis-declared the description of the machines and the use of electricit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correctness of the ratio in Sun Export Corporation, Bombay v. Collector of Customs, Bombay, (1997) 6 SCC 564 [hereinafter referred as `Sun Export Case' for brevity], namely the question is - What is the interpretative rule to be applied while interpreting a tax exemption provision/notification when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax to be applied? 4.29 Learned counsel for revenue pointed out that in the present case also the notification needs to be strictly interpreted and the definition of packing machine as contained in the notification if interpreted strictly would cover the machines being used by the appellants and since the appellants had mis- declared/not declared the packing machines, therefore the same amounts to fraud and it is also the settled position of law that fraud vitiated everything. Hence, extended period has rightly been upheld by the adjudicating authority.Ld counsel for revenue relied on the following decisions:- CCE Vs HMM Ltd -1995(76) ELT 497 (SC) Kaur Singh Vs CCE -1997(94) ELT 289 (SC) CCE Vs Tripura Containers -2011(264) ELT 339 (Guj) UOI Vs Rajasth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity or the number of machines installed based on their capacity of production. The duty in Compound Levy is charged on the number of machines installed. The duty charged on each machine is based, inter alia, on the deemed production of such machine. The Central Government is empowered by virtue of Section 3A of the Central Excise Act 1944 (CEA) to levy duty on the Deemed Production where ever it considers it necessary in the interest of revenue. Section 3A of the CEA reads as under: 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he notified goods shall be deemed to be the duty of excise leviable on such goods under the [Fourth Schedule], read with any notification for the time being in force. Explanation 2. - For the purposes of this section, the expression hundred per cent. export-oriented undertaking shall have the meaning assigned to it in section 3.] [ Explanation 3 . - For the purposes of sub-sections (2) and (3), the word factor includes factors .] The said section 3A empowers the Government to notify the goods on which the Central Excise Levy will made on the basis of Deemed Production. 5.2 The product manufactured by the appellants was notified under Section 3A of the Central Excise Act, 1944. In terms of Section 3A of the Central Excise Act, 1944 ( Act ) vide Notification No.10/2010-CE (N.T.) dated 27.02.2010, following were declared as the notified goods In exercise of the powers conferred by sub-section 1 of Section 3A of the Central Excise Act 1944, the Central Government hereby specifies i. Unmanufactured Tobacco ; and ii. Chewing tobacco falling under item 2403 99 10 of the said Tariff Act, Manufactured with the aid of packing machine and packed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 7. Above Rs.6.00 17,97,120 16,97,280 Explanation. - For the purposes of this rule, if there are multiple track or multiple line packing machines, one such track or line shall be deemed to be one individual packing machine for the purposes of calculation of the number of pouches per operating packing machine per month. The said table was revised from time to time to incorporate factors like inclusion of lime pouch or filter haini in addition to the MRP of the product manufactured. For example vide notification 11/2010 CE (NT) dated 27.2.2010 following table was introduced TABLE Sl. No. Retail sale price (per pouch) Capacity of production per packing machine per month for chewing tobacco (including Filter Khaini), unmanufactured tobacco and jarda scented tobacco (number of pouches) Without lime tube/lime pouch With lime tube/lime pouch Filter Khaini (1) (2) (3) (4) 5 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.00 1173120 1123200 - 19 From Rs. 45.01 to Rs. 50.00 1123200 1073280 - 20 Rs. 50.01 and above 1797120 1697280 - By and large the deemed production is lower for higher MRP products. It essentially means that the capacity of production of larger (more expensive) pouches will be less than the capacity of smaller (cheaper) pouches. Though in real practice it may not away be so. It is therefore apparent that an estimate of deemed production is made on the basis of approximation and duty is levied on basis of such approximate Deemed Production. 5.4 After determination of Deemed Production the duty liability was determined vide notification 16/2010-CE dated 27.2.2010 as follows - TABLE-1 S. No. Retail sale price (per pouch) Rate of duty per packing machine per month (Rs. in lakh) Unmanufactured Tobacco Chewing tobacco Pouche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he determination of total duty payable is the number of Packing machines installed/used and the MRP of the pouches manufactured on respective machines. 5.6 In this regard it seen that even if the actual physical production is higher than the deemed production the duty is levied only on the deemed production determined by Capacity Determination Rules . In this regard the circular of CBEC No. 980/4/2014-CX., dated 24-1-2014 is relevant. It prescribes as follows Representations have been received from trade and industry that the field formations are following divergent practice of assessment with respect to compounded levy scheme applicable for various tobacco products. Certain field formations have also sought clarification on the excise duty leviable under the said compounded levy scheme. 2. Under the compounded levy scheme, excise duty is chargeable with respect to deemed production based on the number of packing machines in the factory of the manufacturer. The issue raised is whether excise duty can be re-determined based on the speed of the packing machine and actual production thereof, which may be higher than the deemed production. 3. Presently, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 11A(1) of the Act along with interest under Section 11AB of the Act, besides proposing penalty under Section 11AC of the Act read with Rule 18 of the Capacity Determination Rules and Rule 25 of the Central Excise Rules, 2002. SCN also proposed confiscation of three machines and the goods seized valued at Rs.2.31 Cr. Besides, penalty under Rule 26 of the Rules read with Rule 19 of the Capacity Determination Rules, was also proposed on Sh. Manoj Gupta, Director, Sh.Sharad Chaudhary, Director, Shri. Vipin Kumar Aggarwal, Director, Sh. S.K. Aggarwal, Director, Shri ShriGopal Gupta, Chairman of Copal Corporation Ltd. and Gopal Group of Companies, Sh. Yogesh Arora, General Manager (Purchase) and Sh. P.V. Subramaniam, Manager (Purchase). 5.8 Thus the fundamental question which needs to be answered is if the following machines 1. Filler machine (1 Kg) 2. Filler machine (500 gms) 3. Pedal Filler and Heat Sealer machine (10 gms) are Packing machines . The rule 2(d) of the Capacity Determination Rules described the packing machine as follows 2(d) packing machine includes all types of Form, Fill and Seal (FFS) Machines and Profile Pouch Making Machines, by whateve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r appellants as follows:- 1. Pre-formed pouches are procured from external sources and are not produced in the factory. 2. These procured pre-formed pouches are held below the hopper by the first worker. 3. On pressing the pedal by the worker, the electricity is triggered which rotates the disc on the hopper from which tobacco is dropped in the pouch due to pneumatic pressure. 5.10 These two machines do not perform weighment or sealing. Those functions are performed on separate machines, operated by different workers. 5.11 We find that the questionnaire sent by the Revenue to the experts was as follows:- It is seen that the first question of the questionnaire asks the expert from IIT if the machines examined are Packing machines . The definition of the packing machine is the subject matter of the entire dispute and the said question has to be answered by the authorities and not technical experts. It is seen that the scope of question No. 3 of the aforesaid questionnaire is very narrow. The Revenue is seeking the expert s opinion on if the said machines are covered under the description Hand operated fillers or spoons or a similar manually operated device ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion posed before the expert is defective. The question which needs to be answered is if the disputed machines can be called packing machines in terms of Capacity Determination Rules, 2010 or not. This question can only be answered by Revenue Officers and not by technical experts fromYMCA University of Science and Technology or IIT Delhi. Such expert organization can only be used to get facts regarding the machines and its functions. In the instance case there is no dispute regarding the process undertaken with these machines. The expert reports are useful only to the extent that they describe this process and also describe the fact that electrical energy or compressed air is used in the process of filling and sealing.In view of above the description of the functioning of machine by the experts can be accepted as evidence but the opinions of experts on law points are of no use to the revenue.Moreover the appellants were refused an opportunity to cross examine these experts. While there is no significant difference on facts regarding the manner of functioning of these machines, but if revenue wished to rely of the opinion of experts the opportunity of cross should have been allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken on this machine can be called packing at all. It has been argued that the said machines are merely fillers which fill tobacco in the pouches and thereafter the said pouch containing tobacco is passed to a different machine for the purpose of sealing. Revenue has argued that the sealing is not an essential requirement for packing. It was argued that the Notification No. 10/2010-CE (N.T) dated 27.02.2010 notified chewing tobacco manufactured with the aid of a packing machine and packed in pouches as notified goods. Learned Counsel for revenue argued that it was not necessary that the entire process of packing should happen on one machine. We do not find force in this argument of revenue for the reason that the same Notification No. 10/2010- CE (N.T) also defines the terms packing machine . Thus, each and every machine used in the process of packing of tobacco does not qualify as a packing machine though the same is used for one of the processes involved in packing. Only the machines which fit in the definition of packing machine provided in the said notification qualify as a packing machine . In the instance case the packing is done not only with the aid of the filler mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n while clarifying the exclusion of hand operated fillers/spoons or a similar manually operated device the use of sealer has been excluded meaning thereby that the process of sealing is not linking the definition of packing but is one of the process for packing of Chewing tobacco in pouches. Thus even revenue and Board recognizes sealing as one of the processes for packing. That implies that packing is not complete without sealing. 5.14 Learned Counsel for the revenue has relied on the Circular No. 341/24/2010-TRU, dated 05.03.2010 to assert that only if the goods are packed with the help of hand operated fillers or spoons or a similar manually operated device and sealed with heat Sealers/band sealers/candles/hot iron and the like the same would not qualify for the compounded levy. This circular of the revenue does not say what Learned Counsel is asserting. The circular says that there is no intention to levy duty on compounding basis on pouches which have not been packed with the aid of a packing machines . It goes ahead to if pouched are packed with state that hand operated fillers or spoons or a similar manually operated device and sealed with heat Sealers/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding it under the dispenser, correcting the weight, putting it in sealing machine and then sealing the same. It is apparent that these machines are not of the same kind or speed that are specifically mentioned in the definition of Packing Machine . This is another reason to reject the revenue allegations. 5.17 Another argument of the appellants is that theForm 1 needs to be filed by the assesses in terms of Rule 6 of the Capacity Determination Rules 2010. This form, inter alia, requires he manufacturer to declare the capacity of the machines. The appellants have argued that capacity of automatic machines can be determined but if the machines require such high level of human intervention there is no way to determine the capacity of the machine. It will all depend on the efficiency of the workers. The argument being that the scheme envisages to cover only the automatic machines which operate at high speeds and those which do not require human element. We find significant force in this argument too. 5.18 The appellants have relied on following decisions which support their arguments. COMMISSIONER OF CENTRAL EXCISE, UDAIPUR Vs. M/s MIRAJ PRODUCTS PVT LTD reported at 2018-TIOL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t misdeclaration in the description or source of procurement of various machines. Revenue has sought to invoke extended period of limitation on the grounds that the appellants had mis-declared the names of machines or obtained machines from dubious sources. Even if we assume the allegations to be correct, for the reasons that we found that the machines found in their premises do not qualify as Packing Machine such allegations, even if true, become irrelevant. 5.20 Revenue has alleged that the appellants had not filed the required declaration under the rules. The appellants have taken us through following communicationsbetween Department Appellant before and after the introduction of Compounded Levy Scheme: Sr. No DATE PARTICULARS 1. 22.07.2009 23.07.2009 Copy of the intimation, filed by the Appellant with the Department in terms of Rule 31 of the Central Excise Rules, declaring the machines to be procured in their unit. 2. 02.03.2010 Appellant addressed a detailed letter to Deputy Commissioner, Central Excise, wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which as per them were covered under CT Rules, 2010. Certificate of Sealing issued. Sealing and de-sealing register was also maintained under the signatures of the Department officer. There also, only 16 FFS machines were entered. 2 17.03.2010 Second Visit of Dept. The Department, after the visit to the premises for physical verification, informs the Appellant that on re-examination that there is no levy of duty on compounding basis on Tin packing machines and on pouches which have not been packed with the aid of packing machines but are packed manually with the help of hand operated fillers or similar manually operated device and sealed with heat sealers/band sealers/candles/hot iron and the like. 13 3 22.03.2010 Third Visit of Deptt. The Commissioner, Additional Commissioner, Superintendent and Inspector of Central Excise visits the premises of the Appellant. 4 5.4.2010 7.4.2010 On the request of the Appellant dated 05.04.2010 to shift 4 FFS machines to its other unit, the said machines were removed under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hines) but it was argued that the appellants never intimated the department about its installation. It is apparent that the appellants believed that they are not liable to be assessed under Compounded levy in respect of such machines and their behaviour is according to that belief.Revenue has admitted that in letter dated 25.05.2010 the appellantsagain gave note on the working two machines which was earlier also informed vide their letter dated 15.03.2010 but this time they mentioned about the use of electricity in both the machines and also described the machines as manual filling and manual sealing device for zipper pouch . 5.22 Revenue has also not denied that the appellants had declared these machines under Rule 31 of the Central Excise Rules, 2002 vide letter, dated 22.07.2009 and 23.07.2009 in terms of Circular No. 854/12/2007 dated 07.09.2007 even before the Compound Levy Scheme was conceptualized. Appellants have argued that the they were using manually operated machines, using electricity at the time of notification of Capacity Determination Rules.That the machines in questions, were acquired in July, 2009. Learned Counsel argued that an intimation had been duly given ..... X X X X Extracts X X X X X X X X Extracts X X X X
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