TaxTMI 
TaxTMI 
2026 (9) TMI 1998
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion, Guwahati-II Commissionerate was set aside. The dispute relates to determination of the maximum packing speed of Rotary Type Single Track Horizontal FFS Machine, Sl. No. 131023840, Make - Sanko (hereinafter referred to as "the subject machine"), for the purpose of determination of duty liability under the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008, as amended (hereinafter referred to as "the Rules"). 2. The facts of the case are that the Respondent, holding Central Excise Registration No. AAACD0132HXM030, is a manufacturer of excisable goods, namely, Pan Masala falling under Tariff Subheading No. 21069020 of the Central Excise Tariff Act, 1985. The Respondent submitted an application dated 23.11.2015 along with a declaration in Form-I under Rule 6 of the Rules for operation of 01 (one) packing machine with effect from 00:05 hours on 29.11.2015 till 23:55 hours on 30.11.2015, for manufacture of "Rajnigandha Pan Masala" in 18 gram pouches having a Retail Sale Price (RSP) of Rs.50/- per pouch. The subject machine, namely, Rotary Type Single Track Horizontal FFS Machine, Sl. No. 131023840 (Make - Sanko), was specified in the said dec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hes of the same product having an RSP of Rs.50/- per pouch, the Respondent had declared the maximum speed as above 751 pouches per minute. Thus, from the records, it was noticed that the maximum speed of the machine remained at 1000 pouches per minute for the pouches weighing between 19.8 grams to 21.6 grams, which was based on the Respondent's own declarations. 3.2. In view of the above material, the Respondent was called upon to explain and establish why the maximum packing speed of the subject machine bearing no. 131023840, for packing Rajnigandha Pan Masala of 18 gram pouches having an RSP of Rs.50/- per pouch, should be accepted as "750 pouches per minute" as claimed/declared in the present Form-I. The Respondent was also directed to appear for personal hearing before the adjudicating authority on 27.11.2015 at 11:00 hours and to submit its defence, orally and/or in writing. 4. Thereafter, the Order No. 53/Capacity/ACGII/2015-16 dated 27.11.2015 came to be passed wherein the ld. adjudicating authority, after considering the Respondent's explanation and the material available on record, observed, inter alia, the following: (i) Earlier declarations of the same mac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....espondent's own declarations and the production records, it was concluded that the maximum speed applicable to the proposed manufacture of 18 gram Rajnigandha Pan Masala pouches would fall in the category of 751 pouches per minute and above. (vi) Submission regarding defective sealing and pouch formation: During personal hearing, the Respondent had submitted that there were complaints regarding ineffective sealing and improper pouch formation. The adjudicating authority, however, noted that the Respondent had not substantiated the contention and had itself admitted that no consignment of finished goods manufactured at the unit had been received back on account of customer complaints during the material period. The contention was accordingly not accepted. (vii) "Ideal speed" was not the statutory criterion: The Respondent had also contended that the ideal operating speed of the machine was below 750 pouches per minute and that the earlier declaration of 1000 pouches per minute ought not to be relied upon without considering its current and actual speed. The adjudicating authority rejected this contention, observing that neither the relevant notification nor the Rul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oner had earlier passed Order No. 02/Capacity/ACGII/2015-16 dated 16.06.2015 determining the maximum packing speed of the subject machine as 301-750 pouches per minute. Consequent thereto, similar orders had been passed by the Assistant Commissioner on 27.07.2015, 25.08.2015, 15.09.2015 and 16.10.2015, and the Respondent had discharged duty for the period from June 2015 to October 2015 in accordance with those determinations. (b) Further that Rule 6(6) of the Rules contemplated filing of a fresh declaration where subsequent changes occurred in the parameters declared and approved earlier, and that the examples specified in the said sub-rule could not be regarded as exhaustive in view of the expressions "such as" and "etc." occurring therein. On that basis, the Commissioner (Appeals) held that the earlier determination of the maximum packing speed by the Assistant Commissioner was correct. (c) That, while passing the subsequent Order dated 27.11.2015, the adjudicating authority had relied merely upon the earlier declaration furnished by the Respondent in May 2015, without undertaking any further enquiry or physical verification and without taking due note of the ea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....antiated by any documentary evidence. It is contended that though the then Assistant Commissioner, upon physical verification and technical opinion, had initially determined the speed of the machine in the 301-750 category and passed consequential orders, the succeeding adjudicating authority, while considering the Respondent's fresh declaration dated 19.11.2015, rightly examined the same in the light of the earlier declarations, the manufacturer-prescribed capacity and the installation and operational history of the machine available on record. It was submitted that the maximum packing speed is an inherent characteristic of the machine arising from its basic design and cannot, for the purpose of the statutory capacity-determination scheme, be treated as having been permanently altered merely by replacement or partial modification of one component such as the CPU. 7.1. It is the further submission of the Revenue that the alleged technical snag and synchronization problem relied upon by the Respondent were not substantiated by any contemporaneous communication or documentary evidence from the manufacturer, despite opportunity having been afforded during adjudication; significantl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5 submitted by the assessee in respect of the same machine, in the impugned order dated 27.11.2015, the adjudicating authority, who succeeded the earlier adjudicating authority, relied upon the maximum speed prescribed by manufacturer of the machine and also their earlier declarations including the installation and operation history of the machine from the available records in his office and opined that 'maximum packing speed' of the machine is a basic design of a packing machine and cannot be said to be altered by way of partial modification of the machine, for the purpose of assessment under the scheme. The Assistant Commissioner, vide order dated 27.11.2015, therefore, approved the declaration only with modification relating to maximum speed as "751 pouches per minute and above", which is under dispute. (ii) It is needless to point out that it is the maximum speed of the machine for which it was manufactured and at which it can be operated is relevant for determining the deemed production of the machine and consequent duty liability in terms of Rule 5 of the said Rules and Section 3A ibid. The maximum speed at which the machine can be operated having been mentio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and half years of operation of the machine till May 2015. Nothing unusual was noticed by the assessee during one and half years of operation of the particular machine and nothing was intimated to the department regarding the quality issue of the machine during the said period. If the CPU was genuinely defective and if it was a real problem of synchronization of internal quality checks and controls, it would have been detected at the very first instance of operation. However, suddenly after introduction of speed slab as a factor for determining the production capacity and duty, the assessee started noticing the improper sealing of pouches. It is a strange coincidence that the assessee started having problems with the machine after the introduction of speed slab as a factor for determining the capacity of production and determination of duty. On being specifically asked by the adjudicating authority during personal hearing, the appellant failed to provide any documentary evidence for complaints received from market during the relevant period. This whole exercise certainly points to the fact that the quality issue was a made up reason created by the assessee to decrease the speed of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n by them for altering the maximum speed. The assessee had already deposited an amount of Rs. 2 crores towards short payment of duty before issuance of Show Cause Notice. The Assistant Commissioner independently considered these developments and applied his mind and decided not to follow the earlier order. Further, all the 5 orders dated 16.06.2015, 27.07.2015, 25.08.2015, 15.09.2015 and 16.10.2015 were passed by the same officer who had redetermined the maximum speed of the impugned machine after physical supervision and hence he was resolute to his considered view. (vi) In his order the Commissioner (Appeal) has considered the actual packing capacity of the machine which never exceeded 750 ppm during June 2015 to October 2015. He failed to notice that the data on which he has relied is actually declared by the assessee based on their self assessment which may be relevant more to their production needs rather the maximum speed and not relevant for determination of the maximum speed of the machine. The Commissioner (Appeals) has given undue magnitude on such data which is not pertinent to assessment of maximum speed of the machine. (vii) The learned Commissioner (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e department to alter the speed of the machine before initiation of the trial run in the month of June 2015. It clearly shows that such manipulation were not permanent in nature. Similarly the claim of the appellant that the change of CPU has permanently fixed the speed of the machine below 750 pouches per minute is totally incorrect and misleading as the CPU can yet again be changed any time at their caprice even without intimating the department to enhance the speed. For the reasons above, the Adjudicating Authority did not consider necessary to go for trial run once again and determined the capacity afresh on the basis of documentary evidence of the original maximum speed after considering all possible aspects of leakage of revenue. The Commissioner (Appeals) erred in bestowing undue importance on physical verification without appreciating that the modifications made by the assessee are purely of temporary nature and can be reversed at any time as per their design. He should have relied more upon the original maximum speed of the machine declared by the manufacturer of the machine. (viii) From the points stated above it is amply clear that the order of the Assistant Com....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the sub-rule 6 of Rule 6 speaks about the change in the parameters relating to production plan including that of approved premises only but not the basic parameter of a machine which is in-built. However, for obvious reason the maximum packing speed changes only with change in weight of the pouch. So, any other change in parameter which is not mentioned within "such as" and "etc." should be in relation with the production plan for the period under declaration and not to the basic design of a packing machine. (x) The learned Commissioner (Appeals) failed to appreciate the amendment made vide Notification dated 05/2015 in the Pan Masala Packing Machine (Capacity Determination & Collection of Duty) Rules, 2008. The amendment is necessarily related to the maximum packing speed being the underlying factor for determining the duty payable. There is no dispute that the maximum speed of the machine was of 1000 pouches and that the determination of duty on the reduced/modified/ actual packing speed thus clearly renders the provisions of the 2008 Rules (supra) as amended by the Notification dated 05/2015 redundant. The sole legislative intention to levy duty on the pan-masala pouch....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uant to the said determination. No production, clearance or duty liability ever arose thereunder. Even if the Department succeeds (which is denied), no demand can flow from the impugned determination. On this short ground alone, the appeal deserves dismissal. Speed determination orders for the operating period attained finality (i) The maximum packing speed was determined as "301-750 pouches per minute" by the jurisdictional Assistant Commissioner vide appealable Order No. 02/Capacity/ACG11/2015-16 dated 16.06.2015 passed under Rule 6(2) read with Rule 6(6), after enquiry. a physical trial run on 16.06.2015 in the presence of departmental officers, and the certificate of a Government registered Chartered Engineer engaged by the department itself (certified speed 730 5 PPM for both 18 gm and 10 gm pouches), Four further orders dated 27.07.2015, 25.08.2015, 15.09.2015 and 16.10.2015 followed on the same basis and the duty for June - October 2015 was assessed and paid accordingly. None of these five orders was challenged by the Department and thus, all attained finality. (ii) The impugned OIO dated 27.11.2015 is a mere change of opinion by a successor Assist....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0.2024, has already acted upon the impugned OLA (v) For the operating period June October 2015, the Department made a second attempt to re- determine the speed retrospectively vide SCN C. No. IV(06)58/Hqrs. AE-1/2015/110 dated 27.06.2020, culminating in OlO No. 05/Pr.Commr./CE/GHY/2021-22 dated 24.03.2022 (Principal Commissioner, Guwahati) confirming duty of Rs. 27.61.33.589/-under Section 11A(10) read with Rule 18, with interest, equal penalty, appropriation of Rs. 2 crore deposited during investigation, and equal penalties on three officials, on allegations of suppression. (vi) The Hon'ble Gauhati High Court vide judgment dated 21.10.2024 in W.P.(C) No. 3864/2022 with W.P.(C) Nos. 5195, 5200 & 5399 of 2022 [ENCLOSED], set aside the said OIO in its entirety, directing adjustment of the Rs. 2 crore deposit against future duties. Placing express reliance on the OIA dated 30.08.2016 impugned herein, the Hon'ble Court held: a) That the Commissioner (Appeals) findings that the five speed orders attained finality and the OIO dated 27.11.2015 rested on presumption without any enquiry are findings of fact of a higher quasi-judicial authority binding on the adjudi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Number of pouches per operating packing machine per month SI. No. Retail Sale Price (per pouch) Upto 300 pouches per minute 301 to 750 pouches per minute 751 pouches per minute and above (1) (2) (3) (4) (5) 1 Up to Re 1.00 6864000 11232000 24960000 2 From Rs. 1.01 to Rs. 1.50 6864000 11232000 24960000 3 From 1.51 to Rs. 2.00 6520800 10670400 23712000 4 From 2.01 to Rs. 3.00 6520800 10670400 23712000 5 From 3.01 to Rs. 4.00 6314880 10333440 22963200 6 From 4.01 to Rs. 5.00 6314880 10333440 22963200 7 From Rs. 5.01 to Rs. 6.00 6314880 10333440 22963200 8 Above Rs. 6.00 6177600 10108800 22464000 11.2. The rate of duty per packing machine per month is calculated as per Notification No. 42/2008 dated 01.07.2008, as amended, vide Notification No. 06/2015 dated 01.03.2015. As per the said Notification, the rate of duty is to be calculated as under: - Rate of duty per packing machine per month (Rs. In lakh) SI. No. Retail Sale Price (per pouch) Upto 300 pouches per minu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng of notified goods of various retail sale price and determine and pass order concerning the annual capacity of production of the factory within three working days in accordance with the provisions of these rules." [Emphasis supplied] 12. We find from the records that the respondent had declared the maximum packing speed of the machine as "1048 pouches per minute" during May, 2015, for packing of Rajnigandha Pan Masala pouches of different weights ranging from 19.8 grams to 21.6 grams. Therefore, considering the actual capacity of production, the maximum packing speed of the machine was declared as 1000 pouches per minute i.e., "751 pouches per minute and above". 12.1. However, in the month of June, 2015, in view of the Notification No. 6/2015 dated 01.03.2015, the respondent suddenly took the plea that since the packing done by the machine was defective, they made certain changes in the CPU which reduced the speed to below 750 pouches per minute; and even got the approved maximum speed below 750 pouches per minute after physical verification and expert opinion. 12.2. As per the said Rules, only changes that can be made are in relation to addition or removal of packing....