1992 (9) TMI 202 - AT - Central Excise

Summary

Issues Involved:
1. Excisability of loose cigarettes used for testing purposes.
2. Applicability of Rule 93 of the Central Excise Rules.
3. Invocation of longer limitation period under Section 11A.
4. Imposition of penalty on the appellants.

Issue-wise Detailed Analysis:

1. Excisability of Loose Cigarettes Used for Testing Purposes:
The appellants argued that loose cigarettes used for testing purposes do not reach the stage of excisability as they are not marketable in their loose form. They cited Rule 93 of the Central Excise Rules and Section 2(f)(ia) of the Central Excises & Salt Act, 1944, to support their claim that cigarettes are only excisable when packed in the prescribed manner. The Department contended that the cigarettes become excisable once they are rolled, as they are capable of being marketed. The Tribunal, considering the Supreme Court's decision in Bhor Industries Ltd. and Plasmac Machine Mfg. Co. Pvt. Ltd., concluded that the capability of being marketed is sufficient for excisability, and the loose cigarettes used for testing are indeed excisable.

2. Applicability of Rule 93 of the Central Excise Rules:
The appellants argued that Rule 93, which mandates that excisable tobacco products be delivered only when packed, implies that loose cigarettes are not excisable. The Department countered that Rule 93 pertains to the procedure for removal and collection of duty, not the definition of manufacture. The Tribunal, referencing the Supreme Court's decision in Wallace Flour Mills and Union of India v. Bombay Tyre International, held that the taxable event is the manufacture, and the method of collection is for administrative convenience. Therefore, Rule 93 does not negate the excisability of loose cigarettes.

3. Invocation of Longer Limitation Period Under Section 11A:
The appellants contended that the longer limitation period under Section 11A should not apply as there was no suppression of facts. They highlighted their longstanding practice of testing cigarettes and the Department's awareness of this practice since 1954. The Department argued that the appellants did not disclose the empirical testing details, constituting suppression. The Tribunal found substance in the appellants' plea, noting the physical control over the factory and the extensive correspondence with the Department. It concluded that the longer period under Section 11A could not be invoked, making the demand for duty beyond six months barred by limitation.

4. Imposition of Penalty on the Appellants:
Given the finding on the suppression of facts, the Tribunal found the imposition of penalties harsh. It noted that the records did not disclose any mala fides on the part of the appellants. Consequently, the Tribunal set aside the penalties imposed in all three appeals.

Conclusion:
The Tribunal upheld the excisability of loose cigarettes used for testing purposes, rejected the applicability of Rule 93 to negate excisability, and found the longer limitation period under Section 11A inapplicable due to lack of suppression. It also set aside the penalties imposed on the appellants. The appeals were disposed of in these terms.