FFS packing machine without vital parts insufficient to prove clandestine tobacco manufacture and clearance

CESTAT Kolkata allowed the appeal in a clandestine removal case involving tobacco manufacture. The tribunal found that mere presence of an FFS packing machine in unregistered premises was insufficient to establish clandestine manufacture and clearance of chewing tobacco. Key evidence showed the machine lacked two vital parts (Disc and Suit) rendering it non-operational. The investigation failed to produce corroborating evidence such as raw material purchases, power consumption records, or transporter statements. The tribunal held that Rule 18(2) of CTPM Rules was not applicable and penalty under Section 11AC of Central Excise Act was not imposable. The demand for central excise duty, interest, and penalty was set aside.

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Issues involved:
1. Whether the evidences available on record indicate that one FFS packing machine installed in the unregistered premises was in working condition and used for manufacturing of Chewing TobaccoRs.
2. Whether evidences available indicate that Rule 18(2) of the CTPM Rules is applicable in this case to demand duty in respect of one FFS packing machine, from 08th March, 2010 onwards, as provided in the said RulesRs.
3. Whether penalty u/s 11AC of the Central Excise Act, 1944, is imposable in this caseRs.

Issue-wise comprehensive details:

(i) Whether the evidences available on record indicate that one FFS packing machine installed in the unregistered premises was in working condition and used for manufacturing of Chewing TobaccoRs.
The appellant contended that the FFS packing machine found in the unregistered premises was incomplete and non-operational as it lacked essential parts like 'Disc' and 'Suit'. The investigation did not provide evidence of finished goods, raw materials, or operational status of the machine. The mere presence of the machine was used as the basis for the demand, without corroborative evidence such as purchase of raw materials, power consumption, or buyer statements. The Tribunal concluded that the investigation failed to establish that the machine was operational and used for manufacturing Chewing Tobacco. Hence, the answer to this issue is in the negative.

(ii) Whether evidences available indicate that Rule 18(2) of the CTPM Rules is applicable in this case to demand duty in respect of one FFS packing machine, from 08th March, 2010 onwards, as provided in the said RulesRs.
Rule 18(2) of the CTPM Rules presumes that machines found in unregistered premises are operational unless proven otherwise. The appellant successfully demonstrated that the machine was non-operational due to missing parts. The Tribunal referenced the decision in Goyal Tobacco Co. Pvt Ltd. v. Commissioner of Central Excise and Service Tax, Jaipur-I, where similar circumstances led to the conclusion that mere presence of a machine does not suffice for duty demand. Therefore, Rule 18(2) is not applicable in this case, and the answer to this issue is in the negative.

(iii) Whether penalty u/s 11AC of the Central Excise Act, 1944 is imposable in this caseRs.
Penalties u/s 11AC of the Central Excise Act, 1944, are imposed when clandestine production and removal are established. As the investigation did not prove the manufacture and clandestine clearance of Chewing Tobacco, the penalty provisions are not applicable. Thus, the answer to this issue is in the negative.

Conclusion:
The Tribunal concluded that the demand of Central Excise Duty, interest, and penalty confirmed in the impugned order is not sustainable. The appeal filed by the appellant is allowed with consequential relief as per law.

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