1991 (4) TMI 247 - AT - Central Excise

Issues Involved:
1. Refund of duties paid on damaged cigarettes.
2. Compliance with Rule 97(1) clauses (vi) and (ix).

Detailed Analysis:

Issue 1: Refund of Duties Paid on Damaged Cigarettes

The appellants, manufacturers of cigarettes, sought refunds for duties paid on cigarettes that were returned due to damage. These cigarettes were reprocessed and cleared again on payment of duty. The appellants filed 25 refund claims under Rule 97, which were rejected by the Assistant Collector and subsequently by the Collector (Appeals).

Grounds for Rejection by Assistant Collector:
1. Market Value of Damaged Goods: The Assistant Collector held that the damaged cigarettes had no market value, making the refunds untenable under clause (vi) of Rule 97(1). The communication from DC (Audit) suggesting a deemed market value was not binding and could not be relied upon.
2. Defective Storage: The defects occurred due to storage at the buyers' premises, not in the custody of the manufacturer, failing to meet clause (ix) of Rule 97(1).
3. Reprocessing Definition: The process of retrieving only tobacco and discarding other materials did not fit the definition of "remaking" under Rule 97.

Collector (Appeals) Decision:
The appeal was dismissed solely on the ground that the market value should be the actual market value, not the ex-duty value plus duty, as claimed by the appellants.

Appellants' Arguments:
1. Reprocessing Permissibility: Rule 97 does not specify the nature of reprocessing or remaking. Previous cases allowed similar processes.
2. Storage at Buyers' Premises: Law does not preclude deterioration occurring at buyers' premises. The goods, if returned within the specified period, should be eligible for refunds.
3. Adequate Documentation: The appellants provided D-3 declarations and other documents verifying the returned goods.
4. Market Value: The appellants argued that the credit notes issued to the buyers should be considered the market value.

Department's Arguments:
1. Exclusion from Rule 97: Cigarettes were later excluded from Rule 97, indicating that such processes were not intended to be covered.
2. Non-Mandatory Refunds: The rule states that the Collector "may" grant refunds, not "shall," implying discretion.
3. Market Value Definition: The market value should be the actual market value of the damaged goods, not a deemed value.
4. Non-Marketable Goods: Damaged cigarettes are not marketed, hence no market value exists.

Issue 2: Compliance with Rule 97(1) Clauses (vi) and (ix)

Clause (vi) of Rule 97(1):
The clause requires that the value of the goods at the time of their return should not be less than the duty originally paid. The explanation emphasizes that "value" means the market value of the excisable goods, not the ex-duty value.

Analysis:
1. Market Value Determination: The Assistant Collector must form an opinion on the market value. The appellants failed to provide a tangible and acceptable basis for this determination. The guidelines from DC (Audit), which suggested a deemed market value, were found to be flawed and not a sound basis for forming an opinion.
2. Credit Notes as Market Value: The argument that credit notes should be considered the market value was not accepted. The goods were taken back from wholesalers, and the credit notes were seen as reimbursement, not a transactive value.

Clause (ix) of Rule 97(1):
This clause requires the manufacturer to prove that the defect or deterioration resulted from defective manufacture, storage, or an accident in transit, and that the goods have not been used except for trial purposes.

Analysis:
1. Storage Definition: The Assistant Collector held that "storage" referred to storage in the custody of the manufacturer. The appellants argued that storage at buyers' premises should also be covered, provided the goods are returned intact and within the specified period.
2. Interpretation of Storage: The tribunal found that restricting "storage" to the manufacturer's custody would conflict with other conditions in the rule. The term "storage" should also cover storage at buyers' premises if the goods are returned intact and can be identified with duty payment documents.

Conclusion:
The appeals were rejected on the ground that the appellants failed to provide an acceptable basis for determining the market value of the damaged cigarettes. The tribunal held that the term "storage" in Rule 97(1)(ix) could include storage at buyers' premises, but the lack of a tangible basis for market value determination was decisive in rejecting the refund claims.

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