1. This appeal is directed against order-in-appeal No. 39/2013 (H-I)CE dated 31.03.2013.
2. The issue involved in brief is that the appellants are manufacturer of Gutkha and pan-masala filed a refund claim for a sum of Rs. 32,25,806/- on the ground that they operated only 5 machines during the month of August, 2011 from 01.08.2011 to 15.08.2011 and the entire duty of Rs. 62,50,000/- involved on the said five machines was paid on 06.08.2011. The appellant filed an intimation with regard to stoppage of 5 machines with effect from 16.08.2011 and the Range officer Range-I, Nizamabad sealed all the 5 machines at 00.10 hrs on 16.08.2011. They were subjected to duty on the basis of the number of machines installed and operated upon under the provision of Pan Masala Packing Machines. (Capacity determination and collection of duty) Rules, 2008 (PMPM Rules). They had installed and operated upon 35 number of machines during the month of June, 2011 where the duty was determined vide speaking order dated 06.06.2011 issued in file No. V/5/01/2011-Permission. The appellant during the month of July 2011 operated all the 35 machines did not make payment of duty involved by the due date and paid the duty in instalments and duty liability was fully discharged only on 12.12.2011. An interest of Rs. 25,10,181/- was paid on 30.08.2011 which meant that the interest was not fully paid as a part of the duty was paid subsequent to August 2011.
2.1 The appellant reduced the number of machines in operation from 35 to 5. The Assistant Commissioner fixed the duty liability on 35 machines vide speaking order No. 1/2011 dated 01.08.2011. They had filed an appeal against the order with Commissioner (Appeals), Hyderabad who had dismissed the appeal vide OIA No. 50 & 51(Hyd-I) CE dated 27.03.2012. The appellant filed a Writ Petition No. 9846 of 2012 in the Hon'ble High Court of Andhra Pradesh at Hyderabad and Hon'ble Court of AP on 10.04.2012 ordered not to enforce the impugned speaking order No. 1/2011 dated 01.08.2011 for recovery of the amount demanded when the order was under stay. The five machines in respect of which a sum of Rs. 62,50,000/- was paid formed part of the 35 machines in which the impugned order was issued. The Assistant Commissioner held that the refund claim was premature in view of the stay order passed by the Hon'ble High Court of Andhra Pradesh and rejected the refund claim under provisions of Section 11B of the CEA.
3. Aggrieved by the order of the adjudicating authority, the respondent herein preferred an appeal before the 1st Appellate Authority. The 1st Appellate Authority set aside the order-in-original and allowed the appeal of the respondent herein with consequential relief, by recording that the entire order-in-original is liable to be set aside on the grounds of non-compliance to principles of natural justice. On merits it is recorded that the respondents herein had filed an application for stoppage of remaining machines with effect from 16.08.2011 and the said machines were sealed by the range officers which would indicate that there was no production from 16.08.2011 and that the proceedings of non-payment of duty for the month of July 2011 which is before the Hon'ble High Court cannot be considered even by the provisions of Rule 9 of the Pan Masala Packing Machines [Capacity Determination and Collection of Duty Rules 2008 (herein after referred to as PMPM Rules)]. Coming to such conclusion he held that refund claim filed by the appellant for the duty paid in the month of August 2011 for the production not undertaken needs to be refunded.
4. Learned A.R. after giving overall view of the issue involved submits that the 1st Appellate Authority has erred in allowing the refund by viewing the same in terms of Rule 10 of PMPM Rules which is incorrect as provisions of Rule 9 of PMPM Rules mandates that demand of the defaulted duty amount should have been paid and if the same remains unpaid, question of paying the duty on the actual working of the machines does not arise. It is his submission that in terms of 7th/8th Proviso to Rule 9 of PMPM Rules if there is a default in payment of duty in a month, the assessee is liable to pay monthly duty for the subsequent months based upon the number of operating packing machines declared in the month for which duty was last paid; In the instant case, assessee has paid duty for the month of June 2011 and defaulted in payment of duty for the month of July 2011. Hence the Assistant Commissioner demanded duty payable from 01.08.2011 onwards till the entire demand of defaulted duty for the month of July 2011 was made up. He would submit that non-payment of duty for the month of July 2011 would attract the provisions of Rule 9, 7th proviso for the month of August 2011 and respondent is required to discharge the entire duty liability.
5. Learned counsel would draw my attention to the findings of the 1st Appellate Authority and also to Rule 9. It is his submission that Rule 9 is a standalone Rule and the proviso referred to by the A.R. is in respect of the default made for the particular month and not for the earlier months. He would then further submit that Rule 10 is again a Rule which provides for abatement of the duty paid in a situation wherein in no manufacturing activity takes place. He reads the provisions of Rule 10 of PMPM Rules. He would submit that in a similar situation, Hon'ble High Court of Delhi in the case of Commissioner of Central Excise Delhi v. Shakti Fragrances Pvt. Ltd. [2015 (324)ELT 390 (Del)] has specifically stated that when there is no manufacturing, the question of demanding any duty for the period when no production has taken place does not arise. Provisions of Rule 10 has been analysed by the Hon'ble High Court and held in favour of the assessee therein. He would also submit that similar issue came up before the Tribunal in the case of Pan Parag India Ltd. v. CCE, Bangalore [2016(344) ELT 497 (Tri-Bang)] and it was held that Rule 9 of the PMPM Rules are stand alone and in respect of the demand for the particular month, and cannot be applicable for invoking Rule 10 of PMPM Rules.
6. On a careful consideration of the submissions made, it is noticed that there is no dispute as to the facts of the case in as much the respondent in this case had discharged the duty liability under the PMPM Rules for the month of August 2011 submitting that they are going to undertake manufacturing activity by utilising five machines only; they stopped complete production of the same from 16th August till the end of August. The sealing of all machines and the subsequent sealing of 5 machines is not disputed by the department.
7. It is very clear from the provisions of PMPM Rules that Rule 10 specifically provides for abatement of duty paid by an assessee when the machines are not functioning. In the instant case, the appellant has discharged the entire duty liability for the month of August 2011 by calculating the liability based upon the functioning of five machines which were also subsequently closed from 16th August 2011. In my considered view, the abatement that is provided under Rule 10 will be applicable to the appellant herein and Revenue is mandated to refund the said amount which has been collected in excess by them from the respondent. The case of the Revenue in the grounds of appeal that 7th Proviso to Rule 9 will apply is totally an incorrect argument as Rule 9 talks about liability on an assessee for the discharge of duty on production of a particular month. In my view if an assessee stopped production entirely after defaulting the duty liability in a particular month, can it be said that as per Proviso 7 of Rule 9, the assessee is required to discharge the entire duty even if there is no production. The answer would be no, as liability to pay duty is on the production of the said goods under PMPM Rules. Be that as it may, I find strong force in the contentions raised by the learned counsel for the respondent that the judgement of the Hon'ble High Court of Delhi in the case of Shakti Fragrances Pvt. Ltd. would apply in its full force. I respectfully reproduce the ratio as in paragraphs 11, 12, 13.
"11. In the present case, the appellant had pressed into service Rule 10 of the PMPM Rules requires the duty calculated on a proportional basis to be abated in case the factory does not produce the notified goods during any continuous period of 15 days in a month. Rule 10 further requires the intimation to that effect to be given to the authorities at least three working days prior to the commencement of the period of closure. Rule 9 requires the monthly duty payable to the authorities to be paid by the fifth day of the same month. There is nothing in Rule 9 to suggest that the failure to pay the duty payable on all the machines upfront by the 5th day of a month would disentitle the assessee to claim pro rata abatement of duty. The requirement under Rule 10 of giving intimation three days prior to the closure has been complied with by the assessee.
12. On a collective reading of Rules 9 and 10 of the PMPM Rules, the Court is of the view that the failure to make the payment of duty on fifth day of every month cannot result in depriving the assessee of the pro rata abatement of duty which he is in any way entitled to since admittedly in the present case there has been a closure of the factory from 14th to 31st August, 2012 and an abatement order has also been passed on 28th August, 2012. However, the assessee would be liable to pay the interest for the period of late deposit of duty.
13. Consequently, the impugned order of the CESTAT does not call for interference. No substantial question of law arises therefrom."
8. It can be seen that the Hon'ble High Co
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urt of Delhi has categorically stated that differential duty, if any, can be demanded from an assessee only if there is production of the goods under PMPM Rules, if applied to the case in hand it would mean that there cannot be any demand of duty from the respondent for the period from 16.08.2011 to 31.08.2011 and having paid the entire duty for the month of August in advance, the respondent is eligible for the refund of the duty paid in excess. 9. I also find that the Revenue has not contested the findings of the 1st Appellate Authority that the entire order-in-original is liable to be set aside only on the ground that it violates the principles of natural justice, as the adjudicating authority has rejected the refund claim without issuing any show-cause notice. This finding of the 1st Appellate Authority having not being contested by the Revenue, on this ground also the impugned order is sustainable. In view of the foregoing, I hold that the impugned order is correct and legal and does not suffer from any infirmity. The impugned order is upheld and the appeal is rejected.