1994 (9) TMI 193 - AT - Central Excise

Summary

Issues Involved:
1. Allegations of improper account maintenance and duty evasion.
2. Validity of the demand for duty based on theoretical production.
3. Imposition of penalties under Rule 173Q of the Central Excise Rules.
4. Allegation of clandestine removal of cigarettes.
5. Applicability of Rule 173Q in the context of tobacco products.

Detailed Analysis:

1. Allegations of Improper Account Maintenance and Duty Evasion:
The appellants were accused of not maintaining proper accounts of cigarettes as required under Rule 94 of the Central Excise Rules. The allegations were based on the variation between the number of cigarettes recorded in trays (theoretical production) and the number actually packed and accounted for in the RG 1/EB 4 register. The Collector confirmed the demands for duty and imposed penalties based on these discrepancies.

2. Validity of the Demand for Duty Based on Theoretical Production:
The appellants argued that the theoretical production recorded in Appendix C and D registers was not an accurate reflection of actual production due to manual filling of trays, which could result in human errors. The Tribunal noted that the method of filling trays manually leaves much scope for imponderables such as production incentive bonuses or human errors. The Tribunal concluded that the figures recorded in Appendix C and D could only be theoretical and not actual production. Consequently, the demand for duty based on these figures was not justified.

3. Imposition of Penalties under Rule 173Q of the Central Excise Rules:
The Collector imposed penalties under Rule 173Q, but the appellants contended that this rule was not applicable to tobacco products as per Notification 23/86-C.E., dated 10-2-1986. The Tribunal agreed with the appellants, noting that Chapter VIIA, which includes Rule 173Q, does not apply to tobacco products. Therefore, the penalties imposed under Rule 173Q were legally unsustainable.

4. Allegation of Clandestine Removal of Cigarettes:
The Tribunal observed that there was no evidence or allegation of clandestine removal of cigarettes. The entire case was based on the discrepancy between theoretical production and actual packed cigarettes. The Tribunal emphasized that without tangible evidence of clandestine removal or excess consumption of cut tobacco, the conclusion that cigarettes had escaped levy was not warranted.

5. Applicability of Rule 173Q in the Context of Tobacco Products:
The Tribunal noted that the Collector had overruled objections regarding the applicability of Rule 173Q by misinterpreting Rule 173A(2) and failing to consider Rule 173A(1). The latter makes it clear that Chapter VIIA, which includes Rule 173Q, is applicable only to excisable goods notified in this behalf. Since tobacco products were excluded from the notification, Rule 173Q could not be invoked for imposing penalties on tobacco products.

Conclusion:
The Tribunal concluded that the demands for duty and the penalties imposed were not sustainable either on factual grounds or based on legal provisions. The appeal was allowed, and the bank guarantee provided by the appellants as a pre-condition for hearing the appeal was ordered to be discharged.