2004 (6) TMI 542 - AT - Central Excise

Cigarettes - Exemption - Partial exemption on cigarettes, duty on cut-tobacco - Set off procedure - Notification No. 69/94-C.E.

Issues Involved:

1. Legality of the demand under Section 11A of the Central Excise Act.
2. Validity of the set-off credit taken on cut tobacco used in the manufacture of cigarettes.
3. Applicability of the proviso to Notification No. 355/86 as amended by Notification No. 69/94.
4. Compliance with the conditions of the exemption notification.
5. Bar of limitation for the demand raised.
6. Imposition of penalty under Central Excise Rules.

Detailed Analysis:

1. Legality of the Demand under Section 11A of the Central Excise Act:

The appellants contended that the demand under Section 11A confirmed by the Commissioner is not correct in law as Section 11A of the Central Excise Act was not invocable. Section 11A is a recovery mechanism for duty of excise in cases of non-levy, non-payment, short-levy, short payment, or erroneous refund. The appellants argued that the demand for alleged wrong availment of set-off credit under the said notification is unsustainable under Section 11A, as laid down by the Supreme Court in the case of Smithkline Beecham [2003 (151) E.L.T. 5 (S.C.)].

2. Validity of the Set-off Credit Taken on Cut Tobacco:

The appellants were availing the benefit of Notification No. 355/86, dated 28-6-1986 as amended, which allowed set-off of duty paid on cut tobacco used in the manufacture of cigarettes exported under bond. The appellants argued that the set-off of duty during the said period was availed in the manner prescribed by the Board's Circular and the permission granted by the Jurisdictional authorities. They maintained that the set-off credit was correctly availed and utilized.

3. Applicability of the Proviso to Notification No. 355/86 as Amended by Notification No. 69/94:

The appellants contended that the proviso to the notification was being misinterpreted by the Department. They argued that the notification nowhere mentions that credit will be available only after exportation or that proof of export has to be furnished before the benefit can be availed. They also pointed out that Rule 13 of the Central Excise Rules allows goods to be exported under bond without payment of duty, and if the conditions of the bond are not fulfilled, the duty not paid at the time of clearance is demanded.

4. Compliance with the Conditions of the Exemption Notification:

The appellants argued that they had complied with the conditions of the exemption notification and the Board's Circular. They maintained that they had followed the procedure prescribed by the Department and the permission granted to them. They also pointed out that the Central Board of Excise and Customs had clarified that set-off of duty can be permitted on the quantity of cut tobacco issued for manufacture of cigarettes, irrespective of whether some of it is contained in the waste.

5. Bar of Limitation for the Demand Raised:

The appellants argued that the demand confirmed in the impugned order is barred by limitation. The show cause notice was issued beyond the prescribed period of six months as contained in Section 11A(1) of the said Act. They contended that the extended period of limitation as contained in the Proviso to Section 11A(1) of the Act cannot be invoked as all relevant documents were within the knowledge of the Department.

6. Imposition of Penalty under Central Excise Rules:

The appellants contended that there is no question of imposing a penalty under Rule 9(2), 209, or 173Q as the condition precedent for imposition of any penalty had not been satisfied. They argued that the order of the Commissioner is illegal and without jurisdiction, and therefore, no penalty can be imposed on that ground.

Conclusion:

The Tribunal found that the appellants had complied with the conditions of the exemption notification and the Board's Circular. The demand of Rs. 80,59,021/- was found to be unsustainable as the appellants had correctly availed and utilized the set-off credit. The Tribunal also found that the demand was barred by limitation and that the imposition of penalty was not justified. The order of the Commissioner was set aside.

← Previous Next →