Abatement under packing-machine rules cannot be denied for a sealed machine with no production, though penalty may still apply for irregular clearance.

Proportionate abatement under Rule 10 of the Pan Masala Packing Machines Rules applies when notified goods are not produced for the qualifying continuous period and the packing machine remains sealed after advance intimation; on those facts, duty cannot be denied merely because monthly duty was paid or earlier goods were cleared, so the duty demand with interest for the abatement period was unsustainable. Separate penalty under Rule 27 of the Central Excise Rules may still be imposed where goods manufactured earlier are cleared during the closure period, as that amounts to a procedural lapse, so the penalty was sustained.

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Issues: (i) Whether the assessee was entitled to abatement of duty under Rule 10 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 for the period during which the packing machine remained sealed and no notified goods were produced; (ii) Whether penalty under Rule 27 of the Central Excise Rules, 2002 was sustainable for clearance of goods during the closure period.

Issue (i): Whether the assessee was entitled to abatement of duty under Rule 10 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 for the period during which the packing machine remained sealed and no notified goods were produced.

Analysis: Rule 10 grants proportionate abatement where notified goods are not produced during a continuous period of fifteen days or more, subject to advance intimation and sealing of the packing machines. The facts showed that the machine remained under seal from 16-11-2012 to 30-11-2012 and no notified goods were manufactured during that period. Once the mandatory condition of non-production for the qualifying period was satisfied, duty could not be demanded for the period of abatement merely because duty had been paid for the month or because earlier manufactured goods had been cleared.

Conclusion: The assessee was entitled to abatement, and the duty demand with interest for the abatement period was not sustainable.

Issue (ii): Whether penalty under Rule 27 of the Central Excise Rules, 2002 was sustainable for clearance of goods during the closure period.

Analysis: Although no notified goods were manufactured during the closure period, goods manufactured earlier were cleared during that time. This constituted a procedural lapse warranting penal consequence, even though it did not justify denial of abatement of duty.

Conclusion: The penalty under Rule 27 of the Central Excise Rules, 2002 was upheld.

Final Conclusion: The appeal succeeded on the duty-abatement issue and failed on the penalty issue, resulting in modification of the impugned orders by deleting the duty demand with interest while sustaining the penalty.

Ratio Decidendi: Where notified goods are not produced for a continuous qualifying period and the machine remains duly sealed after advance intimation, proportionate abatement under the relevant packing-machine rules cannot be denied on procedural grounds, though separate penal consequences may still follow for irregular clearance.

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