1999 (7) TMI 214 - AT - Central Excise

Summary

Issues:
1. Alleged evasion of central excise duty on cigarettes used for testing purposes.
2. Confirmation of duty amount and imposition of penalty by the Collector of Central Excise.
3. Applicability of excise duty on loose sticks of cigarettes.
4. Interpretation of tests conducted on cigarettes for quality control.
5. Marketability of cigarettes drawn for testing.
6. Time limitation for demanding duty on the tested cigarettes.

Analysis:
1. The case involved allegations of central excise duty evasion amounting to Rs. 13,91,847.66 on cigarettes used for testing purposes. The Revenue claimed that the cigarettes drawn for quality control tests were manufactured and not exempt from duty, leading to the demand notice under Section 11A(1) of the Central Excise Act, 1944. The Collector confirmed the duty amount and imposed a penalty of Rs. 3 Lakhs on the appellants, prompting the appeal.

2. The Collector's decision was based on a Tribunal order related to similar issues in the appellants' earlier case. The Tribunal had previously held that loose sticks of cigarettes are excisable goods and are consumed by consumers. The Tribunal's reliance on earlier judgments in similar cases was crucial in confirming the duty liability and penalty.

3. The Tribunal differentiated between the tests conducted in the present case and the empirical smoking tests in the appellants' previous case. The tests in question included inspection of wrapping, checking moisture content, and physical parameters of cigarettes, indicating a pre-marketable stage. The nature of these tests suggested that the cigarettes drawn for testing were not yet marketable and, therefore, not excisable.

4. The appellants argued that the cigarettes drawn for testing were not marketable until they passed the quality control tests and were properly packed with specified warnings as per the Cigarettes Regulation of Production Act, 1975. The Advocate highlighted relevant provisions and a Supreme Court judgment to support the argument that duty liability does not arise on cigarettes at the testing stage.

5. The Advocate further contended that even if duty was leviable on the tested cigarettes, the demand was time-barred as it exceeded the 6-month period from the show cause notice date. The argument emphasized that the Revenue was aware of the testing practices due to physical controls and inspections, limiting the period for demanding duty.

6. The Tribunal ultimately ruled in favor of the appellants, finding that the duty demand on cigarettes drawn for testing was not sustainable due to the pre-marketable nature of the tests. The decision also addressed the time limitation issue, stating that the larger 5-year limitation could not be invoked for duty demand. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellants.