Compounded Levy Scheme: manual insertion with band sealing does not constitute packing with the aid of a packing machine.

The compounded levy scheme applies only where goods are packed into final pouches with the aid of packing machines; intermediate manufacture of sachets by power-operated machines or subsequent sealing by continuous band sealers does not convert manually inserted sachets into goods "packed with the aid of packing machine." Interpreting Explanation 5 and relevant notifications alongside departmental clarification and prior rulings, the decisive act is final machine packing. On the facts, sachets were manually placed into pre-zipped pouches and sealed by band sealer, so the proceedings were dropped and Revenue appeals dismissed.

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Issues: Whether filter khaini pouches/sachets manufactured and then manually inserted into pre-zipped plastic pouches which are thereafter sealed using continuous band sealer machines (electric aided) fall within the compounded levy scheme under Section 3A of the Central Excise Act, 1944 and relevant Notifications (i.e., whether such pouches are "notified goods" packed "with the aid of packing machine").

Analysis: The Tribunal examined the statutory scheme under Section 3A of the Central Excise Act, 1944, the Notifications No.10/2010-C.E.(N.T.) dated 27.02.2010, No.16/2010-C.E. dated 27.02.2010 and the explanatory insertion by Notification No.19/2010-C.E. dated 13.04.2010 (Explanation 5), along with the Board's clarification F.No.341/24/2010-TRU dated 05.03.2010 and the Capacity Determination Rules, 2010. The Tribunal analysed the wording of Explanation 5 which defines "filter khaini" and the placement of the phrase "with the aid of packing machine" in the explanation, concluding that the legislative intent was to bring within the compounded levy scheme only those pouches that are packed into final pouches by packing machines. The reasoning of the Commissioner (Appeals) and the earlier Tribunal decision dated 17.06.2013 were applied: the intermediate manufacture of sachets (filter pillows) by power-operated machines does not alone make those sachets "notified goods" where the final packing into marketable pouches is done manually; the final pouch packed by machine is the activity relevant for Section 3A. The Board's letter clarifies that manually packed pouches sealed with heat/band sealers are not intended to be covered by the compounded levy scheme. The Tribunal found that in the facts of the case the sachets were placed manually into pre-zipped pre-sealed pouches and the sealing done by band sealer does not convert the manual packing into packing "with the aid of packing machine" as contemplated by the Notifications and Explanation 5.

Conclusion: The Tribunal upheld the Commissioner's order dropping the proceedings and dismissed the Revenue appeals; the Tribunal concluded that the pouches in question are not covered by the compounded levy scheme under Section 3A and related Notifications and therefore the decision is in favour of the assessee.

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