Pro-rata duty under Pan Masala packing rules survives a one-time monthly retail sale price change; procedural lapse cannot defeat relief.

Under the Pan Masala Packing Machines Rules, monthly duty was held payable on a pro-rata basis where a retail sale price was permanently discontinued or commenced during the month, and a one-time change within that month satisfied that condition. The tribunal also held that the amended Rule 8 supported duty linkage to the highest retail sale price used in the month. Non-filing of the closing-stock declaration under Rule 13(5) was treated as a procedural lapse that could not defeat the substantive pro-rata duty benefit where stock records were otherwise accepted. As the duty demand was unsustainable, the penalty under Section 11AC could not survive.

---

---

Issues: (i) Whether the manufacturer was entitled to pro-rata duty under the fourth proviso to Rule 9 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 on discontinuance or commencement of retail sale prices during the month. (ii) Whether non-filing of the declaration regarding closing stock under Rule 13(5) of the said Rules could deny the benefit of pro-rata duty. (iii) Whether the penalty under Section 11AC of the Central Excise Act, 1944 could survive when the duty demand itself was unsustainable.

Issue (i): Whether the manufacturer was entitled to pro-rata duty under the fourth proviso to Rule 9 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 on discontinuance or commencement of retail sale prices during the month.

Analysis: The fourth proviso to Rule 9 permits recalculation of monthly duty on a pro-rata basis where the manufacturer permanently discontinues an existing retail sale price or commences a new retail sale price during the month. The expression "permanently" was construed to relate to the change made within that month, and not as a bar against any future reintroduction or later change in another month. Since the retail sale price changes in January 2012 and April 2012 occurred only once in the respective months, the condition of permanent discontinuance or commencement for that month stood satisfied. The amended first proviso to Rule 8 also supported the view that where different retail sale prices are used in a month, duty is linked to the highest retail sale price for that month.

Conclusion: The assessee was entitled to pro-rata duty under the fourth proviso to Rule 9.

Issue (ii): Whether non-filing of the declaration regarding closing stock under Rule 13(5) of the said Rules could deny the benefit of pro-rata duty.

Analysis: The failure to file the declaration about closing stock was held to be only a procedural lapse. The record did not show any manipulation of stock, and the department had not disputed the correctness of the stock reflected in the assessee's records. A procedural omission of this nature could not override the substantive entitlement created by the proviso to Rule 9.

Conclusion: The benefit of pro-rata duty could not be denied on account of non-filing of the Rule 13(5) declaration.

Issue (iii): Whether the penalty under Section 11AC of the Central Excise Act, 1944 could survive when the duty demand itself was unsustainable.

Analysis: Once the duty demand was found to be untenable, the foundation for penalty disappeared. In the absence of a sustainable duty liability, imposition of penalty was not warranted.

Conclusion: The penalty could not be sustained.

Final Conclusion: The duty demand was set aside, the assessee's appeal succeeded, and the Revenue's challenge to penalty failed.

Ratio Decidendi: For monthly duty under the Pan Masala Packing Machines Rules, a retail sale price change made once during the month constitutes permanent discontinuance or commencement for that month, and a procedural default such as non-filing of closing-stock declaration cannot defeat the substantive pro-rata duty benefit.

---