Annual capacity under Pan Masala Rules excludes sealed, non-functioning machines from production capacity computation.

Annual capacity of production under the Pan Masala Rules, 2008 must be fixed by reference to machines actually operating for manufacture, not machines that are sealed and non-functional during the relevant period. Where the sealing of the machines is undisputed, the fact that they could theoretically be moved or reused is insufficient, because use would first require breaking the seal with departmental consent and permission. On that basis, sealed machines were excluded from the capacity computation, and the Revenue's appeals were rejected.

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Issues: Whether the annual capacity of production, for the purpose of duty liability under the Pan Masala Rules, 2008, could be fixed by taking into account machines that had been sealed by the department and were not functioning during the relevant period.

Analysis: The lower authorities found that the capacity determination mechanism under the Pan Masala Rules is directed to operating machines which are functioning for manufacture, and not to machines that are sealed and not working. The sealing of the machines was not disputed. The Revenue's stand that the sealed machines could still be considered because they had wheels and could be removed from the factory was treated as a matter of assumption, since use of such machines would first require breaking the seal with the Revenue's consent and permission.

Conclusion: The sealed machines could not be included for fixation of annual capacity of production, and the Revenue's appeals were rejected.

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