Closure-based abatement under pan masala duty rules allows pro rata duty and does not fail merely due to prior stock clearance.

Rule 10 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 provides abatement where notified goods are not manufactured for a continuous period of 15 days or more, subject to intimation and sealing requirements. The commentary explains that, on closure of the factory soon after the rules came into force, duty may be determined proportionately for the period of actual operation. It also states that removal of goods manufactured before sealing does not, by itself, defeat abatement once manufacturing has stopped and the closure-abatement conditions have been substantially complied with.

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Issues: (i) whether the duty liability under the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 could be computed on a pro rata basis for the period after closure of the factory; (ii) whether removal of goods manufactured before sealing of the machines during the closure period disentitled the assessee from the benefit of abatement.

Issue (i): whether the duty liability under the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 could be computed on a pro rata basis for the period after closure of the factory.

Analysis: Rule 10 permits abatement where the notified goods are not manufactured for a continuous period of 15 days or more, subject to intimation and sealing requirements. The record showed closure of the factory soon after the rules came into force and the goods reflected in the register were treated as having been manufactured on the relevant date. The Tribunal found no infirmity in the finding that the rule operated prospectively from 01.07.2008 and that the duty could be proportionately determined for the period of actual operation.

Conclusion: The assessee was entitled to pro rata determination of duty on the basis accepted by the Commissioner (Appeals).

Issue (ii): whether removal of goods manufactured before sealing of the machines during the closure period disentitled the assessee from the benefit of abatement.

Analysis: The Tribunal held that the proviso to Rule 10 did not expressly exclude removal of goods already manufactured before closure. By applying the closure-abatement scheme consistently with the analogous procedural framework relied upon by the lower appellate authority, it was held that clearance of previously manufactured goods did not defeat the abatement claim once manufacturing had stopped and the machines had been sealed.

Conclusion: The removal of previously manufactured goods did not disqualify the assessee from abatement under Rule 10.

Final Conclusion: The duty reduction granted on a proportionate basis was sustained and the challenge to the abatement claim failed.

Ratio Decidendi: Under the closure-based abatement scheme, once manufacturing has ceased and the statutory sealing requirements are substantially complied with, removal of goods manufactured before closure does not by itself bar proportionate abatement of duty.

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