1997 (11) TMI 290 - AT - Central Excise

Summary

Issues:
1. Liability to pay duty on cigarettes removed for testing
2. Allegations of duty suppression and extended period invocation
3. Requirement to maintain accounts of samples removed for testing
4. Role of officers in factories under physical control
5. Interpretation of Departmental Instructions on excisable manufactured products
6. Intent to evade duty and limitation period for duty payment

Analysis:

The primary issue in this appeal before the Appellate Tribunal CEGAT, MUMBAI was whether the appellant is liable to pay duty on cigarettes removed for testing. The Additional Collector had held that duty was payable on the quantity of cigarettes removed for testing. The Department alleged suppression of facts and invoked the extended period under Section 11A of the Act for duty recovery. The appellant argued that there was no requirement to intimate the Department about the quantity sent for testing, as Rule 94 did not mandate maintaining accounts for such samples. The appellant emphasized that the factory was under physical control, and the Department officials were aware of the testing practice, both in the appellant's factory and the industry in general.

Regarding the role of officers in factories under physical control, the Departmental Representative contended that officers' presence was limited to assessing finished excisable goods under Rule 52A, and the account of cigarettes produced as per Rule 94 was not maintained. However, the Tribunal highlighted that officers in such factories undertake various checks beyond assessment to prevent duty evasion. Referring to a previous judgment, the Tribunal emphasized that duty payment beyond six months could be time-barred in units under physical control due to the incongruity of clandestine removal charges.

The Tribunal also considered the Departmental Instructions on excisable manufactured products, which stated that no excise duty is charged on samples issued for testing inside the factory if irretrievably lost in the testing process. The Tribunal found that the samples were lost during testing, supporting the appellant's contention that no duty was payable on those samples. The existence of such instructions and the officers' conduct in implementing them indicated that the appellant had no incentive to suppress removal to evade duty.

In determining the intent to evade duty and the limitation period for duty payment, the Tribunal referenced a Supreme Court judgment, emphasizing the need for positive action to establish intent. Since there was no allegation or finding of such positive action by the appellant, the Tribunal concluded that the appellant did not remove the cigarettes with intent to evade duty. Consequently, the appeal was allowed, and the impugned order demanding duty payment was set aside. The Tribunal did not delve into the appellant's arguments on the merits due to the limitation issue being resolved in favor of the appellant.