Duty demand upheld despite no misdeclaration; penalty set aside. Dissent: 7th proviso applies only with misdeclaration.

The majority decision upheld the duty demand based on the higher number of machines found in April 2011 under the 7th proviso to Rule 9, despite the absence of misdeclaration, but set aside the penalty due to lack of fraudulent intent. The dissenting opinion argued that the 7th proviso should only apply in cases of misdeclaration, advocating for liability limited to interest on delayed duty payment. The appeal was allowed with relief, confirming duty liability under the 7th proviso and rejecting the penalty, emphasizing strict adherence to tax laws.

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Issues Involved:
1. Interpretation and application of the 7th proviso to Rule 9 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008.
2. Determination of duty liability in case of default in payment of duty.
3. Imposition of interest and penalty.

Issue-wise Detailed Analysis:

1. Interpretation and Application of the 7th Proviso to Rule 9:
The central issue revolves around the interpretation of the 7th proviso to Rule 9, which deals with situations where a manufacturer defaults in paying the duty by the due date and continues to operate packing machines. The proviso states:
"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."

The appellant argued that the 7th proviso should only apply if there was a misdeclaration of the number of machines. They contended that the word "found" implies a discovery of more machines than declared, which did not happen in their case as they had declared all machines.

The Revenue, however, maintained that the proviso applies regardless of whether there was a misdeclaration, focusing on the higher number of machines found available at any time after the default.

2. Determination of Duty Liability in Case of Default:
The appellant defaulted on duty payments for several months. The Revenue recalculated the duty based on the higher number of machines declared in April 2011, which was 50 machines, leading to a significantly higher duty liability. The appellant argued that this recalculation was not justified as there was no misdeclaration of machines.

The Tribunal examined whether the 7th proviso should be read in conjunction with the 6th proviso, which deals with misdeclaration of retail sale prices. It concluded that the 7th proviso is an independent provision that applies to defaults in duty payment, requiring the higher number of machines to be considered for duty calculation.

3. Imposition of Interest and Penalty:
Interest on the unpaid duty was deemed automatic and consequential once the duty liability was confirmed. However, the imposition of an equivalent penalty under Rule 17 read with Section 11AC was contested. The Tribunal found no evidence of fraud, collusion, or willful misstatement by the appellant, which are prerequisites for such a penalty. Consequently, the penalty was set aside.

Separate Judgments Delivered:
- Majority Decision: The majority held that the 7th proviso to Rule 9 applies independently of any misdeclaration. Therefore, the duty demand based on the higher number of machines found in April 2011 was upheld, but the penalty was set aside due to the absence of fraudulent intent.
- Dissenting Opinion: One member disagreed, arguing that the 7th proviso should only apply in cases of misdeclaration. Since there was no misdeclaration, the appellant should only be liable for interest on the delayed duty payment, not the recalculated higher duty.

Conclusion:
The appeal was allowed with consequential relief, confirming the duty liability based on the 7th proviso but setting aside the penalty. The Tribunal emphasized a strict interpretation of the taxing statute, ensuring that the legislative intent and clear language of the law are upheld.

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