2025 (8) TMI 566 - AT - Central Excise

Refund of Excise Duty Allowed for Forced Non-Production Under Pan-Masala Packaging Machines Rules 2008

The CESTAT Ahmedabad held that the respondent is entitled to a refund of excise duty for the period from 18.05.2015 to 23.05.2015 during which no notified ... Refund of Excise duty - non-production of notified goods for a continuous period of less than 15 days due to sealing of all the Pan-Masala Packaging Machines - seizure and sealing of manufacturing machines - HELD THAT:- It is clear that all 27 PPMs actually did not produce any notified goods during the period from 18.05.2015 to 23.05.2015. It is also not in dispute that the respondent paid excise duty for the period of six days from 18.05.2015 to 23.05.2015. There are also no doubt that non- production of notified goods in unit-1 of the respondent was not on their account as seizure and sealing and de-sealing of the PPMs was not within the control of the respondent. The said action i.e. sealing of PPMs was taken by the DGCEI Officers. Rule 10 and Rule 16 of Pan-Masala Packaging Machines (capacity determination and collection of duty) Rules, 2008 deal with abatement in case of non-production of notified goods. Rule 10 covers a situation where a manufacturer has planned temporary closure of the unit. Here, apart from other conditions such as 3 days prior intimation to the department, the main condition is that the factory should not produce notified goods during continuous period of 15 days or more. Rule 16 of the said Rules covers the situation where manufacturer permanently ceases to work in respect of all the machines installed in the factory. It is however found that the situation in the present case is not covered under Rule 10 of the said Rules. The situation has arisen because of seizure and subsequently, sealing of PPMs by the DGCEI Officers. Thus, it is not the manufacturer who has planned/ chosen to stop manufacture of notified goods but the department has forced him to stop the production of notified goods. This Tribunal has already delivered a decision in the case of M/s. Dhariwal Industries Limited [2015 (9) TMI 514 - CESTAT AHMEDABAD] dealing with similar extra ordinary situation wherein, factory was to be closed because of a notification dated 04.02.2011 issued by the Ministry of Environment and Forest banning use of plastic pouches in packaging of Pan-Masala and Gutka with immediate effect. The operation of this notification was later shifted to 01.03.2011 by Hon’ble Supreme Court vide order dated 17.02.2011 [2011 (2) TMI 1637 - SUPREME COURT] and thereafter, production of notified goods again resumed w.e.f 17.02.2011. The factory was closed for 6 days and the Tribunal allowed refund of excise duty for the period of non-production. The respondent is entitled to refund of excise duty for the period when they could not produce notified goods due to sealing of all the PPMs by the DGCEI officers - the appeal filed by the department does not survive and therefore, the same is rejected/ disallowed. The Department’s appeal is dismissed. ISSUES: Whether refund of excise duty is permissible for a period of non-production of notified goods caused by seizure and sealing of manufacturing machines by departmental officers.Interpretation of the phrase 'permanently ceases to work in respect of all the machines installed in the factory' under Rule 16 of the Pan-Masala Packaging Machines (PMPM) Rules, 2008.Applicability of Rule 10 and Rule 16 of the PMPM Rules, 2008 regarding duty abatement for temporary or permanent cessation of production.Whether abatement or refund is available for non-production periods less than 15 continuous days.Whether non-production caused by departmental intervention can be equated with manufacturer's voluntary closure or cessation under the PMPM Rules. RULINGS / HOLDINGS: Refund of excise duty is allowable for the period when notified goods were not produced due to seizure and sealing of all pouch packaging machines by DGCEI officers, as the non-production was not attributable to the manufacturer's volition.The phrase 'permanently ceases to work in respect of all the machines installed in the factory' in Rule 16 of the PMPM Rules should be read with 'broad and comprehensive meaning' and covers situations including temporary cessation caused by external factors, not strictly limited to permanent closure or surrender of registration.Rule 10 applies only where the manufacturer plans temporary closure with continuous non-production of 15 days or more; Rule 16 applies to permanent cessation; however, neither rule contemplates situations where production is halted due to departmental seizure.Duty abatement is not available if non-production is for less than 15 continuous days as per proviso to Section 3A of the Central Excise Act, 1944 and Rule 10 of the PMPM Rules; however, this limitation does not apply where non-production results from departmental actions beyond manufacturer's control.Demanding excise duty for periods of non-production caused by seizure and sealing of machines by the department is 'not legally tenable.' RATIONALE: The Tribunal relied on statutory provisions under the Central Excise Act, 1944, specifically Section 3A and the Pan-Masala Packaging Machines (capacity determination and collection of duty) Rules, 2008 (Rules 10 and 16), which regulate duty calculation and abatement for non-production.Precedent was drawn from the Tribunal's earlier decision in a similar case involving factory closure due to a government notification banning plastic pouches, where refund was allowed despite reopening of the factory, emphasizing that reopening does not negate entitlement under Rule 16.The Tribunal distinguished cases cited by the Department, noting those involved manufacturer-initiated closures or proportionate duty calculations on commencement of production, unlike the present case where production stoppage was involuntary due to seizure.The Tribunal interpreted 'permanently ceases to work' flexibly to include extraordinary circumstances causing cessation, rejecting a narrow interpretation requiring surrender of registration or absolute permanent closure.The decision reflects a doctrinal approach that duty liability should not be imposed where production interruption is caused by government enforcement actions, ensuring fairness and preventing unjust penalization of manufacturers.