Installed machine requirement under pan masala duty rules defeated duty demand, confiscation and penalty where machines remained uninstalled.

Duty under the Pan Masala Packaging Machines (Capacity Determination and Collection of Duty) Rules, 2008 applies to operating or installed machines, and the deeming fiction for a non-working machine operates only where installation is established. The seized pouch packing machines were found uninstalled, sealed, and not ready for production; panchnama and photographs showed no raw material, packaging material, or manufacturing activity. Broken seals alone did not prove installation or use for manufacture. On that basis, the demand of duty, confiscation of the machines, and penalty on the authorised signatory were not sustainable, and the order in favour of the assessee was upheld.

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Issues: Whether the demand of duty, confiscation of the three pouch packing machines and penalty on the authorised signatory were sustainable when the machines were found uninstalled, no production was being carried on, and the seals were broken.

Analysis: The seized machines were not found in an installed stage and were not ready for production. The panchnama and photographs showed that no raw material or packaging material was loaded in the machines and no manufacturing activity was taking place on them. The scheme of the Pan Masala Packaging Machines (Capacity Determination and Collection of Duty) Rules, 2008 applies duty on operating or installed machines, and the deeming fiction for a non-working machine operates only where the machine is installed. The contemporaneous report of installation and sealing showed three machines as uninstalled and sealed. On that basis, the broken seals alone did not establish that the machines had been installed or used for manufacture so as to attract duty, confiscation, or penalty.

Conclusion: The demand of duty, confiscation, and penalty were not sustainable; the appeal of the revenue failed and the order in favour of the assessee was upheld.

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