2015 (2) TMI 307 - AT - Central Excise

Removal of tobacco refuse without payment of duty - initiation of the proceedings against the appellant to demand duty on cut tobacco denying the benefit of Notification No. 52/2002 CE dated 17.10.2002 - Held that - - Benefit has been denied on the ground that tobacco refuse is also excisable goods, marketable, can be considered to have been manufactured and can be sold for consideration. Assessee is engaged in the manufacture of Cigarette. During the course of manufacture of Cigarette, and for the process of manufacture of Cigarette, they have to manufacture Cut Tobacco also. Therefore it can be clearly said that the appellant is a manufacturer of Cut Tobacco and Cigarette. Can anyone say that appellant is a manufacturer of tobacco refuse is the moot question to which the obvious answer in the light of the decision of the Tribunal in the case of Golden Tobacco Ltd. is tobacco refuse is not a final product . The Tribunal also while rendering the decision in the case of Golden Tobacco Ltd. had relied upon the decision of the Hon ble High Court of Bombay in the case of Rallis India Ltd. Vs. Union of India 2008 (12) TMI 46 - HIGH COURT BOMBAY where a similar view was taken. Decision of the Tribunal taking a view that tobacco refuse cannot be considered as a final product of the assessee has to be considered and followed. Once we do that the provisions that nothing contained in the notification shall apply to inputs used in or in relation to manufacture of final products which are exempted, would not be applicable to the present case. Therefore just because appellant cleared tobacco refuse without payment of duty, cut tobacco which forms part of such refuse cannot be levied to central excise duty as proposed by the Revenue in these cases. The demands against the appellants, interest thereon and penalties imposed cannot be sustained. - Decided in favour of assessee.

Summary

Issues Involved:
1. Classification and excisability of Tobacco Refuse.
2. Applicability of Notification No. 52/2002-CE dated 17.10.2002.
3. Marketability and excisability of by-products.
4. Allegations of suppression and invocation of the extended period for demand.

Issue-Wise Detailed Analysis:

1. Classification and Excisability of Tobacco Refuse:
The appellant is engaged in the manufacture of Cut Tobacco and Cigarettes, with Tobacco Refuse being a by-product. The Tobacco Refuse, which arises during the manufacturing process, is classifiable under Tariff Item 2401 3000 of the Central Excise Tariff Act 1985 and is exempt from duty under Notification No. 3/2005 CE dated 24.02.2005. The appellant argued that Tobacco Refuse is merely wastage and not a manufactured product.

2. Applicability of Notification No. 52/2002-CE dated 17.10.2002:
The core issue was whether the appellant could avail the benefit of Notification No. 52/2002-CE, which exempts Cut Tobacco used in the manufacture of dutiable final products. The Commissioner denied this benefit, arguing that Tobacco Refuse is an excisable and marketable product, thus making the cut tobacco used in its production ineligible for the exemption.

3. Marketability and Excisability of By-products:
The Tribunal examined whether Tobacco Refuse could be considered a final product. The appellant cited several precedents, including Golden Tobacco Ltd. Vs. CCE, Vadodara-II, where it was held that by-products like Tobacco Refuse are not final products but by-products. The Tribunal agreed, stating that by-products, even though excisable, are not the primary manufactured goods of the assessee.

4. Allegations of Suppression and Invocation of the Extended Period for Demand:
The Commissioner imposed penalties and invoked the extended period for demand, alleging suppression of facts by the appellant. The Tribunal found that the appellant had not suppressed any material facts and that the Tobacco Refuse was correctly classified and exempted under the relevant notifications. The Tribunal noted that the appellant had consistently declared the production of Tobacco Refuse in their ER1 returns.

Judgment Summary:
The Tribunal concluded that Tobacco Refuse, arising as a by-product during the manufacture of Cigarettes and Cut Tobacco, could not be considered a final product. Therefore, the exemption under Notification No. 52/2002-CE was applicable to the Cut Tobacco used in the manufacture of Cigarettes, despite the generation of Tobacco Refuse. The Tribunal set aside the demands, interest, and penalties imposed by the Commissioner, allowing the appeals with consequential relief to the appellants.

Conclusion:
The Tribunal's decision was based on the interpretation that Tobacco Refuse is a by-product and not a final product, thus allowing the appellant to benefit from the exemption notification. This judgment reinforces the principle that by-products, although excisable, do not affect the eligibility of primary manufactured goods for exemption under specific notifications.