Dharampal Satyapal Ltd Vs Union of India (Gauhati High Court)
Conclusion: Mere classification under a different sub-heading by the manufacturer could not be said to be willful misstatement or “suppression of facts”. There was no deliberate intention on the part of assessee not to disclose the correct information or to evade payment of duty and as such it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to section 11A.
Held: Assessee-company had an industrial unit in the city of Guwahati in the state of Assam and was engaged in the manufacture of ‘Pan Masala’. The said item was classified under Tariff Entry 2106 90 20. It was submitted that the Central Excise Duty payable by assessee company for manufacture of its product, i.e., Pan Masala, was based upon the annual capacity of production of its factory determined in accordance to the provisions of the Rules, read with Notification No. 42/2008-CE dated 01.07.2008, which lay down the rate of duty on the basis of which the Central Excise Duty liability was to be calculated. In other words, the duty payable by assessee was to be calculated on the basis of a number of operating packing machines and the maximum packing speed of a packing machine. Assessee-company purchased packing machines from ‘Sanko Machinery Company Limited’, Japan for manufacturing pan masala (without tobacco) pouches. As per the product specification specified in the quotation of the machine, estimated speed of the machine was 900 to 1000 pouches per minute for a pouch length of 90 mm containing 18 to 22 grams of pan masala. During the pre-delivery trial run of the machine in Japan, the machine was found to have encountered some technical issues and assessee was advised by the supplier company namely ‘Sanko Machinery Company Limited’ to operate the machine at optimum speed around 750 pouches per minute and to observe the results before it could be operated at its rated speed of 900 to 1000 pouches per minute. The first declaration for the machine under the rules was filed by the petitioner on 09.01.2014 for operating the machinery with effect from 18.01.2014 for packing pan masala in 20 grams pouches. The said declaration that the maximum packing speed of the machine was 750 pouches per minute as declared by the company was duly approved by the Assistant Commissioner of Central Excise. Although the declaration of maximum packing speed of the machines was made at 1000 pouches per minute, because of operational reasons, the company found that it was not capable of efficiently running at the rate of 1000 pouches per minute. After evaluating proper checks and conducting series of tests, the company came to the conclusion that the machine was not capable of running at speeds of 1000 pouches per minute, but would run smoothly at the speed of 740-750 pouches per minute. Pursuant to the said notifications issued by the Ministry of Finance, Rule 4 of the Rules of 2008 was amended, it was provided that the factors relevant to production of notified goods should be the number of packing machines in the factory of the manufacturer and the maximum packing speed at which such packing machines could be operated for packing on notified goods of various retail sale prices. Under the said amended Rule 4, the maximum packing speed of the machine was required to be declared for the purpose of calculation of total production and determination of duty liability. Assessee continued to declare its maximum packing speed of the machine in the highest slab of ‘751’ pouches per minute and above, and was assessed to the highest rate of duty under the amended Rules of Finance Act, 2015. Assistant Commissioner of Central Excise issued a show cause notice on assessee-company calling upon it to show cause in its defence to establish that the maximum packing speed of the machine was below the 750 pouches per minute for pouch weight of 18 grms of MRP 50/- per pouch as declared by assessee company. Assessee-company was called upon to appear personally before the Assistant Commissioner of Central Excise to submit such reasons orally and/or in writing. Appellate authority allowed the appeal filed by assessee and held that the maximum speed of the machine would be the production speed of the machine and the same could be re-determined under Rule 6(2). Appellate Authority held that all declarations about the maximum speed of the machine were on record and nothing was mis- declared and the orders passed by the Assistant Commissioner of Central Excise from June, 2015 to October, 2015 had remained unchallenged and uncontested. The Commissioner, GST and Central Excise issued the demand cum show cause notice to assessee-company to show cause within 30 days as to why the Central Excise Duty amounting to Rs. 27,61,33,589/- should not be demanded and recovered under Section 11A(4) of the Central Excise Act, 1944 read with Rule 18 of the Rules, 2008 and as to why interest at the appropriate rate should not be charged and realized under Section 11AA of the Central Excise Act, 1944 read with the proviso to Rule 9 of the Rule of 2008. It was held that there was no deliberate intention on the part of assessee not to disclose the correct information or to evade payment of duty and as such it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to section 11A of the Act. This Court was therefore, of the firm opinion that where facts were known to both the parties and a collateral authority of the department namely Commissioner (Appeals) had already concluded that there was no suppression of facts and which finding had not been interfered with by any higher authority as in the instant case, it was not open for the Principal Commissioner to come to a conclusion that assessee were was guilty of “suppression of facts”. Similarly, in Den sons Pultretaknik vs. Collector of Central Excise [2003 (11) SCC 390], the Apex Court held that mere classification under a different sub-heading by the manufacturer could not be said to be willful misstatement or “suppression of facts”. An order imposing penalty for failure to carry out a statutory obligation was the result of a quasi-criminal proceeding, and penalty would not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty would not also be imposed merely because it was lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation was a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. While allowing the petition, the court set aside and quashed the impugned orders. Further directed that the amount deposited by assessee to the tune of Rs. 2 Crore was permitted to be adjusted against the future duties as may be found to be payable by assessee company.
