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, evidence of manufacturing activities in unregistered premises, and statements of witnesses. The Commissioner deemed the machines operational based on the rules, leading to a duty demand against the appellant. However, the Member (Judicial) disagreed, stating that the deeming fiction should not apply in this case. The Member (Technical) ordered a partial pre-deposit but the majority decision sided with the Member (Judicial), allowing the stay petition unconditionally due to lack of conclusive evidence.

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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.

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