2015 (6) TMI 336 - AT - Central Excise

Dispute over Packing Machines' Status and Deeming Fiction: Commissioner vs. Member Rulings

The case involved issues regarding the condition and operational status of packing machines, applicability of deeming fiction under specific rules, ... Waiver of pre deposit - Clandestine manufacture of goods - Reliability of statements without corroborated evidence - Working condition of machine - Difference of opinion - Majority order - Held that:- For determining the duty liability, what is relevant is as to whether or not, not there was manufacture or clearance of Laxmi brand unmanufactured tobacco pouches in the premises of M/s. Rajesh Tobacco Co. and for demanding duty, it is not relevant as to whether the machines found in the premises were in working condition or not or were in use or not. For demand of duty from M/s. Goyal Tobacco Co. Pvt. Ltd. based on these three machines found in the premises of M/s. Rajesh Tobacco Co., what has to be seen is as to whether there was clear evidence of manufacture or clearance of Laxmi brand unmanufactured tobacco pouches at/from those premises. - Though other persons have not retracted their statements, their cross-examination was not allowed though the same had been requested. In my prima facie view, the statement of Shri Rajesh Goyal which had been retracted by him cannot be used for confirming duty demand against the appellant company unless that statement is corroborated by some other evidence. As regards the fact that at the time of search of premises of M/s. Rajesh Tobacco Co., a tempo brought by Shri Babu Lal Meena had brought lime tube and packing rolls, this fact, in my view, cannot be the evidence of manufacture of Laxmi brand unmanufactured tobacco pouches at the premises of M/s. Rajesh Tobacco Co. as it is very much possible that those premises may have been used for storage of these raw materials and merely the unloading of the Laxmi brand packing rolls and lime tubes at those premises cannot lead to inference that these raw materials were going to be used for manufacture of Laxmi brand unmanufactured tobacco pouches at those very premises. At the time of search, no attempt has been made by the Investigating officer to get the machines found in the premise of M/s. Rajesh Tobacco Co. examined by an expert to ascertain as to whether the same were in working condition. Though the fact as to whether the machines were in working condition or not, at that time, is not a factor relevant for demand of duty, this is an important fact to ascertain as to whether the statements of Shri Rajesh Goyal and his employees are true or not. Though one machine had been found connected to a power point and its bulb was glowing, it is also on record that there was no motor or fan belt in the machine and a number of other parts were either missing or in damaged condition and, as such, it could not be operated. No inquiry has been made either with Shri Rajesh Goyal or its employees - Production Manager or Production Assistant as to how the machines found in the premises of M/s. Rajesh Tobacco Co. were being operated. The bland statements of these persons simply stating that these machines were being operated, without giving any details as to how the same were being operated in view of the condition in which the same had been found and without opportunity having been given to the appellant to cross-examine them on these points, the statements are of no evidentiary value. When there is no evidence to infer that manufacture of Laxmi brand unmanufactured tobacco pouches was going on in the premises of M/s. Rajesh Tobacco Co., the provisions of Rule 18(2), and explanation to Rule 19 cannot be invoked and by treating the machines found in the premises of M/s. Rajesh Tobacco Co. as operating machines, duty liability cannot be fasten on to the appellant company. The appellant, thus, have strong prima facie case in their favour. - Decided in favour of assessee. Issues Involved:1. Condition and operational status of the packing machines.2. Applicability of the deeming fiction under the Chewing Tobacco and Unmanufactured Tobacco Packing Machine (Capacity Determination and Collection of Duty) Rules, 2010.3. Evidence of manufacturing activities in the unregistered premises.4. Statements and cross-examination of witnesses.Detailed Analysis:1. Condition and Operational Status of the Packing Machines:The central excise officers discovered three packing machines at the premises of M/s. Rajesh Tobacco Co. during their visit on 18-1-2011. The appellants argued that these machines were obsolete, scrapped, and non-operational. They requested the department to have these machines examined by an engineer or expert to verify their condition. The Commissioner, however, observed that the panchnama dated 18-1-2011 did not provide details about the condition of the machines. He noted that one machine was plugged into an electric socket, indicating potential operability, despite missing parts. The Commissioner concluded that the machines could be made operational with minimal effort, suggesting they were not entirely out of order.2. Applicability of the Deeming Fiction:The Commissioner invoked the deeming fiction under the Chewing Tobacco and Unmanufactured Tobacco Packing Machine (Capacity Determination and Collection of Duty) Rules, 2010. According to these rules, goods are deemed manufactured or produced with the aid of a packing machine if they are cleared from a factory where a packing machine is installed, regardless of its operational status. The Commissioner held that the machines should be considered operational for the relevant financial years, thereby confirming the duty demand against the appellant.3. Evidence of Manufacturing Activities in the Unregistered Premises:The premises where the machines were found were neither registered nor adjacent to the factory engaged in manufacturing the final products. The appellants contended that the low electricity consumption during the relevant period indicated that the machines were not in use. The Commissioner, however, relied on the deeming fiction to confirm the demand, despite the premises being unregistered and the machines allegedly non-operational.4. Statements and Cross-Examination of Witnesses:The statements of Shri Rajesh Goyal and other employees indicated that manufacturing activities were conducted using the machines found in the unregistered premises. However, the cross-examination of these witnesses was not allowed, which is crucial for validating their statements. The statements were retracted by Shri Rajesh Goyal, and the appellants argued that without cross-examination, these statements should not be considered reliable evidence.Separate Judgments Delivered by Judges:Member (Judicial):The Member (Judicial) found that the premises where the machines were discovered were neither registered nor adjacent to the factory. The deeming fiction under the rules should not apply to machines found in non-working condition and in unregistered premises. The Member (Judicial) allowed the stay petitions unconditionally, emphasizing that the appellant had a good prima facie case.Member (Technical):The Member (Technical) disagreed, stating that the machines were found in the premises managed by the appellant and were capable of manufacturing pouches. The statements of the Director and other key personnel indicated manufacturing activities. The Member (Technical) ordered a partial pre-deposit of Rs. One crore, asserting that the balance of convenience favored the Revenue.Majority Decision:The third Member (Technical) agreed with the Member (Judicial), emphasizing that the statements of the employees could not be relied upon without cross-examination. The evidence did not conclusively prove that manufacturing activities were conducted in the unregistered premises. The majority order allowed the stay petition unconditionally.