2004 (3) TMI 532 - AT - Central Excise

Summary

Issues:
- Duty liability on cut-tobacco used in the manufacture of oily cigarettes.

Analysis:
The appeal was filed against an order passed by the Commissioner of Central Excise, Hyderabad-III Commissionerate, concerning the duty liability on cut-tobacco used in the production of oily cigarettes. The appellants, manufacturers of cigarettes, sought permission for destruction of oily cigarettes emerging during the manufacturing process. The Commissioner allowed destruction of the oily cigarettes but directed payment of duty on the cut-tobacco used in their production. The key contention was whether the cut-tobacco was eligible for exemption under Notification No. 121/94, dated 11-8-1994, given that the oily cigarettes were not fit for human consumption. The Commissioner argued that duty was payable on the cut-tobacco since it was used in manufacturing the oily cigarettes, for which duty remission was granted.

The Advocate for the appellants argued that the cut-tobacco should be exempt from duty under Notification No. 121/94 as it was used in the production of dutiable goods, even though the oily cigarettes were unfit for human consumption. The Advocate relied on legal precedents and a Board Circular to support this argument. On the other hand, the Revenue contended that duty was still payable on the cut-tobacco since it was utilized in manufacturing the oily cigarettes, despite the duty remission on the final product.

Upon careful consideration, the Tribunal found that the cut-tobacco had indeed been used in the production of the oily cigarettes, which were later destroyed due to being unfit for human consumption. The Tribunal noted that the cut-tobacco had been put to the intended use as per Notification No. 121/94. Citing legal precedents, the Tribunal held that the exemption for cut-tobacco cannot be denied based on the fact that the oily cigarettes did not pay duty. The Tribunal emphasized that the exemption should apply when the final products are destroyed due to reasons beyond the manufacturer's control, as in this case. Therefore, the Tribunal set aside the Commissioner's order requiring duty payment on the cut-tobacco used in manufacturing the oily cigarettes, ruling in favor of the appellants.