2002 (9) TMI 542 - AT - Central Excise

Demand - Tobacco - Departmental instructions - Cigarettes Manual - Demand - Exemption - Clandestine removal - Accountal of goods

Issues Involved:
1. Variance between actual and theoretical quantity of cut tobacco used.
2. Wrong adjustment of the weight of paper in waste cigarettes.
3. Eligibility for exemption under Notification No. 356/86.
4. Alleged contravention of Central Excise Rules, including Rule 9(1) and Rule 226.
5. Demand for duty and imposition of penalty.

Detailed Analysis:

1. Variance between actual and theoretical quantity of cut tobacco used:
The core issue revolved around the variance between the quantity of cut tobacco actually used in the manufacture of cigarettes and the quantity that should have been used according to the theoretical specification weight declared by the appellant. The Collector concluded that the Cigarette Manual is merely a guideline and not binding on the assessee. However, the Tribunal cited the case of Asia Tobacco Co. Ltd., emphasizing that departmental instructions in the Cigarette Manual must be followed. The Tribunal found that the Collector did not rely on the data from Appendix 'F', which is crucial for determining variances. The Tribunal held that any notice issued on excessive consumption or incorrect accounts must be based on Appendix 'F' data, and the Collector's findings were set aside for not adhering to this requirement.

2. Wrong adjustment of the weight of paper in waste cigarettes:
The show cause notice alleged that the appellant wrongly adjusted the weight of paper contained in waste cigarettes towards cut tobacco. The Tribunal found that the proforma in Appendix 'C' records the gross weight of waste cigarettes, which includes paper, and this weight is later segregated in Appendix 'E'. The Tribunal concluded that the Collector's findings were incorrect as the appellants had accounted for the weight of waste cigarettes appropriately. The Tribunal emphasized that the reconciliation between Appendices 'C' and 'E' was not required as the actual reconciliation register is Appendix 'F', which was not considered by the Collector.

3. Eligibility for exemption under Notification No. 356/86:
The Collector denied the exemption under Notification No. 356/86 for the excess cut tobacco, arguing that it was not used in the manufacture of cigarettes. The Tribunal disagreed, citing Supreme Court rulings that the term "for use" should be interpreted as "intended for use" and not "actually used". The Tribunal held that since the cut tobacco was issued for the intended purpose of manufacturing cigarettes, the exemption under Notification No. 356/86 was applicable. The Tribunal found no evidence of unaccounted stock of cut tobacco or its removal from the factory, thus rejecting the Collector's findings.

4. Alleged contravention of Central Excise Rules, including Rule 9(1) and Rule 226:
The show cause notice alleged contraventions of Rule 9(1) for non-payment of duty and Rule 226 for improper maintenance of accounts. The Tribunal found that the duty demands were based on assumptions and not on concrete evidence. It concluded that the appellants had maintained the required records as per the Cigarette Manual. The Tribunal also noted that no penalty under Rule 9(2) was imposed, indirectly supporting the appellants' contention that no clandestine removal had occurred.

5. Demand for duty and imposition of penalty:
The Tribunal found that the duty demands were based on presumptions and assumptions, which could not be supported legally. Citing the Supreme Court's decision in the Oudh Sugar Mills case, the Tribunal ruled that such demands could not be upheld. Consequently, the Tribunal found no basis for imposing penalties under Rule 209(1) or Rule 226, as there was no evidence of non-maintenance of records or removal of goods in contravention of the Central Excise Rules.

Conclusion:
The Tribunal set aside the Collector's order, finding that the demands for duty and the imposition of penalties were not justified. The appeal was allowed, providing relief to the appellants.

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