2022 (9) TMI 214 - AT - Central Excise

Tribunal rules machines not 'packing machines,' no duty evasion found. Impugned order set aside.

The Tribunal held that the machines in question did not qualify as 'packing machines' under the applicable rules and notifications. Additionally, it was ... Packing machine - manufactured with the aid of packing machine and packed in pouches - deemed production under section 3A - Capacity Determination Rules - number of packing machines as factor - compounded levy scheme - requirement of packing with aid of packing machine - extended period of limitation - suppression, mis-declaration or fraudPacking machine - manufactured with the aid of packing machine and packed in pouches - compounded levy scheme - requirement of packing with aid of packing machine - Whether the three disputed machines qualify as 'packing machines' for levy under the Compound Levy Scheme notified under Section 3A. - HELD THAT: - The Tribunal held that the statutory definition of 'packing machine' cannot be met merely because a device is used at some stage of the packing process or is electrically/pneumatically assisted. The notification specifically lists Form, Fill and Seal (FFS) and Profile Pouch Making machines - both of which perform filling and sealing (and in FFS also forming) as an integrated process. The impugned machines only perform filling (with manual holding of pre formed pouches, manual weighment and separate sealing operations) and require significant human intervention; they do not form pouches and, in two cases, do not themselves seal the pouches. Sealing is an integral part of making a pouch fit for transport and sale, and both the listed types of machines perform sealing as an integral function. The Capacity Determination Rules and the associated deemed production tables are premised on machines capable of high continuous speeds (deemed monthly capacities) which the manually assisted fillers cannot achieve. The Board's circular examples of 'hand operated fillers or spoons' are illustrative of exclusions and do not exhaust the scope of devices outside the term 'packing machine'; nor does use of electricity per se convert a device into a packing machine. On these findings the three machines do not fit the definition of 'packing machine' used for applying the compounded levy under Section 3A. [Paras 5]The three disputed machines (Filler machine 1 kg, Filler machine 500 gms and Pedal Filler and Heat Sealer 10 gms) do not qualify as 'packing machines' under the Notification and Capacity Determination Rules and therefore are not liable to duty under the compounded levy scheme.Extended period of limitation - suppression, mis-declaration or fraud - deemed production under section 3A - Whether the extended period of limitation and penalties based on alleged suppression/mis declaration are invocable against the appellants. - HELD THAT: - The Tribunal found that the revenue's case on limitation and fraud became immaterial once it concluded that the machines did not qualify as packing machines. The record shows communications and visits in which the appellants declared their view that the disputed machines were manual and sought clarification; prior intimation under Rule 31 was given and the Department was on notice of the machines. Even if there were allegations regarding invoices or routing of machines, those do not alter the fundamental conclusion on classification and thus cannot support invocation of extended limitation or sustain penalties. Consequently the adjudicating authority's reliance on suppression/mis declaration to invoke extended period and penalties was not tenable in light of the primary finding on classification. [Paras 5]Extended period of limitation and penalties predicated on alleged suppression/mis declaration cannot be sustained where the machines do not qualify as packing machines; the impugned demand, penalties and ancillary orders cannot stand on that basis.Final Conclusion: The impugned adjudication order is set aside: the three disputed machines are not 'packing machines' within the Notification/Capacity Determination Rules for the compounded levy under Section 3A, and the extended period of limitation and penalties based on alleged suppression/mis declaration are not sustained. The appeals are allowed. Issues Involved:1. Whether the three machines in question qualify as 'packing machines' under the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010.2. Whether there was any suppression of facts by the appellant to evade duty, justifying the invocation of the extended period of limitation.Issue-Wise Detailed Analysis:1. Qualification of Machines as 'Packing Machines':The main dispute revolves around whether the three machines used by the appellants qualify as 'packing machines' under the relevant rules and notifications. The machines in question are:- Filler machine (1 Kg)- Filler machine (500 gms)- Pedal Filler and Heat Sealer machine (10 gms)The appellants argued that these machines do not qualify as 'packing machines' as defined under the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010, which include all types of Form, Fill and Seal (FFS) Machines and Profile Pouch Making Machines, and any other type of packing machine used for packing pouches of notified goods.The appellants contended that:- The machines only perform the function of filling and not sealing.- The process involves significant manual intervention, including manually holding pre-formed pouches, manually weighing and adjusting the quantity of tobacco, and manually sealing the pouches.- The machines do not operate at the high speeds required for automatic machines covered under the compounded levy scheme.The revenue argued that:- The machines are pneumatically controlled and use electricity, thus qualifying as packing machines.- The definition of packing machine is inclusive and covers any machine used for packing pouches of notified goods.- The process of sealing is not an essential component of the definition of packing machine.The Tribunal found that:- The machines require significant human effort and manual intervention.- The capacity of the machines cannot be determined as they depend on the efficiency of the workers.- The machines do not fit the definition of 'packing machines' as they do not perform the functions of forming, filling, and sealing in an integrated manner.- The machines are not of the same kind or speed as those specifically mentioned in the definition of 'packing machine.'2. Suppression of Facts and Extended Period of Limitation:The revenue alleged that the appellants had misdeclared the description and source of procurement of various machines, justifying the invocation of the extended period of limitation.The appellants argued that:- They had declared the machines under Rule 31 of the Central Excise Rules, 2002, even before the compounded levy scheme was conceptualized.- They had communicated their belief that the machines were not 'packing machines' liable to be assessed under the compounded levy scheme to the authorities.- The Deputy Commissioner had re-examined the issue and informed them that there was no levy of duty on compounded basis on the disputed machines.The Tribunal found that:- The appellants had a bona fide belief that the machines were not covered under the compounded levy scheme.- The Deputy Commissioner was aware of the facts and did not take specific action against the impugned machines.- The revenue's case does not hold on merits, making the issue of limitation secondary.Conclusion:The Tribunal concluded that the machines in question do not qualify as 'packing machines' under the relevant rules and notifications. The Tribunal also found that there was no suppression of facts by the appellants to evade duty. Consequently, the impugned order was set aside, and the appeals were allowed.