2022 (4) TMI 252 - AT - Central Excise

Clandestine Removal - cigarettes removed for testing within the factory - demand for the period from March 1973 to February 1983 - extended period of limitation - HELD THAT - For the period from March 1983 to June 1985, it is found that the cigarettes were cleared on the basis of adjusted sale price as per Notification No. 36/83-CE dated 1.3.1983 and thereafter for the period March 1987 upto February 1987 as per Notification No. 201/85-CE dated 2.9.1985 again on adjusted sale price . The manner in which duties are to be levied and realised as per the said notification leaves no scope for any provisional assessments of the cigarettes cleared. The contention of the Appellant is agreed upon that the clearances of cigarettes during this period were on final assessment basis only - in respect of the entire period from July 1985 to December 1990 there was no scope of any provisional assessment in effecting clearance of cigarettes removed. All clearances during this period was on final assessment basis. In the instant case at all material times cigarettes were under physical control system. All samples were drawn during the manufacturing process and moved to the laboratory situated within the premises of the bonded factory of ITC which is under the physical control of the Central Excise authorities since May 1979. The movement of cigarette samples to the laboratory inside the factory was undertaken as a part of regular process of the manufacturing cigarettes and there is no material disclosed that there was attempt on the part of the appellant to conceal such movement or concealment of any material fact with regard to the removal of samples of cigarettes. Extended period of limitation - HELD THAT - The demand of duty in respect of cigarettes cleared for testing purposes for the period March 1, 1983 to December 27, 1990 is sustainable only in respect of normal period of 6 months as contained in Section 11A(1) of the Central Excise Act, 1944 during the material period. The extended period of limitation contained in the Proviso to Section 11A(1) of the Act is inapplicable. Consequently, the demands beyond the period of 6 months from the respective dates of issuance of the SCNs in respect of cigarettes cleared during this period are barred by limitation and hence cannot be sustained. The instant appeal is allowed by way of remand to the Adjudicating Authority, to be decided after taking into account the observations and findings and upon extending an opportunity of personal hearing to the Appellant.

Summary

Issues Involved:
1. Provisional Assessment and Finalization
2. Limitation Period for Demand
3. Excisability of Cigarette Samples
4. Penalty Imposition

Detailed Analysis:

1. Provisional Assessment and Finalization:
The Appellant contended that the assessments for the period March 1973 to February 1983 were provisional and had not been finalized, making the demand premature. The Tribunal agreed, noting that the finalization of provisional assessments was still pending as per its order dated May 12, 2016. Therefore, the demand for this period was deemed premature and unsustainable, in line with the Supreme Court's ruling in CCE Vs. ITC Ltd., 2006 (203) ELT 532 (SC).

2. Limitation Period for Demand:
The Appellant argued that the demands for various periods were barred by the limitation period specified under Section 11A(1) of the Central Excise Act, 1944. Specifically:
- For the period March 1983 to June 1985, the demand was issued beyond the maximum period of five years.
- For the period July 1985 to February 1987, the demand was also issued beyond the permissible period.
- For the period March 1987 to December 1990, the Tribunal found that the clearances were on final assessment basis with no scope for provisional assessment, making the extended period of limitation inapplicable.

The Tribunal held that the demands beyond the normal period of six months were barred by limitation and could not be sustained.

3. Excisability of Cigarette Samples:
The Tribunal had previously held that cigarette samples removed for testing within the factory were excisable, allowing the Department to recover duty on all clearances, including those meant for testing. This was affirmed by the Supreme Court in ITC Ltd. Vs. Collector of Central Excise, 2003 (151) ELT 246 (SC). However, the Tribunal noted that the Appellant had cleared cigarettes on the basis of Maximum Retail Price during certain periods, leaving no scope for provisional assessments. The Tribunal concluded that the demand for the period from March 1983 to December 1990 was sustainable only for the normal period of six months.

4. Penalty Imposition:
The Appellant argued that the penalty imposed was illegal and invalid. The Tribunal agreed, citing the Supreme Court's decision in Commissioner of Central Excise Vs. Grasim Industries Ltd., 2005 (183) ELT 123 (SC), which held that no penalty should be imposed where the interpretation of the law by the Appellant was plausible. The Tribunal set aside the penalty imposed on the Appellant.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter to the Adjudicating Authority for re-adjudication, taking into account the observations and findings made. The Adjudicating Authority was directed to determine the demand for the normal period of six months and finalize the provisional assessments for the period from March 1973 to February 1983. The penalty imposed was also set aside.