2002 (9) TMI 667 - AT - Central Excise

Summary

Issues Involved:
1. Incorrect accounting of cut tobacco in waste cigarettes.
2. Eligibility for exemption under Notification No. 356/86.
3. Allegations of non-accountal and clandestine removal of cut tobacco.
4. Application of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977.
5. Reconciliation of cut tobacco usage and accountal.

Detailed Analysis:

1. Incorrect Accounting of Cut Tobacco in Waste Cigarettes:
The Revenue alleged that M/s. ITC Ltd. included the weight of paper in waste cigarettes while accounting for cut tobacco, leading to incorrect accountal. The Tribunal noted that the accountal process involves Appendices C, D, and E, which trace the issue, returns, and rejections of cut tobacco. The assessee argued that the arithmetic sum of accounted and allegedly unaccounted cut tobacco must equal the total issued cut tobacco, which was verified through detailed statements. The Tribunal found no merit in the Revenue's claim as the reconciliation showed no unaccounted cut tobacco.

2. Eligibility for Exemption under Notification No. 356/86:
The Revenue contended that the benefit of Notification No. 356/86, which allows a reduced duty rate for cut tobacco used in cigarette manufacture, was not applicable as the cut tobacco was not satisfactorily accounted for. The Tribunal, relying on previous judgments, held that the term "for use in manufacture" includes intended use and not just actual use. The assessee demonstrated that all cut tobacco was used or accounted for, thus qualifying for the exemption.

3. Allegations of Non-Accountal and Clandestine Removal of Cut Tobacco:
The Commissioner initially found no evidence of clandestine removal or non-accountal of cut tobacco. The Tribunal agreed, noting that the onus was on the Department to prove such allegations, which it failed to do. The Tribunal emphasized that the Department's case was based on hypothesis rather than concrete evidence.

4. Application of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977:
The Commissioner applied a permissible error margin of 9% as per the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, to the variation in cut tobacco usage. The Tribunal found this application misplaced, stating that these rules do not govern the input-output ratio for excise purposes. However, the Tribunal noted that variance in cut tobacco consumption is an accepted phenomenon in cigarette manufacturing and found no significant discrepancies.

5. Reconciliation of Cut Tobacco Usage and Accountal:
The Tribunal reviewed the reconciliation statements provided by the assessee, which tracked and accounted for cut tobacco from issue to final product. The statements showed no unaccounted cut tobacco, and the overall excess consumption was within permissible limits. The Tribunal found the reconciliation satisfactory and dismissed the Revenue's claims of faulty accountal.

Conclusion:
The Tribunal rejected the Revenue's appeal, finding no merit in the allegations of incorrect accounting, non-accountal, or misuse of cut tobacco. The Tribunal upheld the Commissioner's findings that the assessee satisfactorily accounted for all cut tobacco and was eligible for the exemption under Notification No. 356/86. The appeal was dismissed, and the Tribunal found no reason to demand additional duty or impose penalties.