2017 (6) TMI 1063 - AT - Central Excise

Tribunal overturns order, grants partial relief, awards consequential benefits.

M/s Durga Trading Company Versus Commissioner of Central Excise, Lucknow

The Tribunal set aside the impugned order dated 20th October, 2010, and partially set aside the order of annual capacity determination dated 17th July, ... Valuation - Annual Capacity of production - Gutkha - pan masala packing machines - scope of SCN - Held that: - the SCN is vague and contradictory. There is no allegation in the SCN that the declaration dated 10/07/2008 was found to be mis-declared or more number of packing machines were found to be in operation in contrast to the declaration. Further, as alleged in the SCN is that there was an inspection and verification in the factory on 16/07/2008 of the appellant, is also without any basis, as no such document have been brought on record, as the relied upon document - appeal allowed - decided in favor of appellant. Issues Involved:1. Validity of the Annual Capacity of Production determination.2. Legitimacy of the duty demand and interest imposed.3. Appropriateness of the show cause notice and subsequent proceedings.Issue-wise Detailed Analysis:1. Validity of the Annual Capacity of Production determination:The appellant, a manufacturer of Pan Masala/Gutkha, contested the determination of their Annual Capacity of Production as per the Pan Masala Packaging Machines (Determination of Capacity and Collection of Duty) Rules, 2008. The appellant had 48 packing machines, 4 of which were sealed before 01/07/2008. They applied for sealing 26 more machines on 02/07/2008, which were sealed by the authorities on 03/07/2008. The appellant declared operating 18 machines, but the Deputy Commissioner determined the capacity based on 48 machines. The Tribunal found the Deputy Commissioner’s order dated 17/07/2008 to be prima facie wrong and without basis, as there was no evidence of a physical verification report or show cause notice to the appellant. The Tribunal also noted that the appellant’s declaration of operating 18 machines was not found to be incorrect by the Department.2. Legitimacy of the duty demand and interest imposed:The show cause notice dated 07/08/2009 alleged that the appellant had 48 machines installed and operating on 01/07/2008, and thus demanded duty based on this number. The Commissioner, in the Order-in-Original, confirmed the demand for 44 machines amounting to Rs. 3,25,00,000/- but dropped the demand for 4 machines sealed before 01/07/2008. The Tribunal found the show cause notice to be vague and contradictory, with no basis for the alleged inspection on 16/07/2008. The sealing of 26 machines on 03/07/2008 was an admitted fact, and the Commissioner’s acceptance of the sealing of 4 machines prior to 01/07/2008 further supported the appellant’s case. The Tribunal concluded that the duty demand was not sustainable due to these anomalies and factual errors.3. Appropriateness of the show cause notice and subsequent proceedings:The Tribunal observed that the show cause notice lacked a clear allegation of mis-declaration or operation of more machines than declared. The alleged inspection and verification on 16/07/2008 were not supported by any document. The Tribunal noted that the Commissioner himself acknowledged the nascent stage of the new levy scheme and the appellant’s prompt action to inform the Department and request sealing of machines. The Tribunal found the show cause notice and the subsequent proceedings to be flawed and unsustainable.Conclusion:The Tribunal set aside the impugned order dated 20th October, 2010, and partially set aside the order of annual capacity determination dated 17th July, 2008. The appellant was entitled to consequential benefits in accordance with law.