2022 (4) TMI 361 - AT - Central Excise

Levy of Excise Duty alongwith penalty - cigarettes taken out of quality control checks on production line within the factory which was under physical control of the respondent - period January 2007 to October 2011 - extended period of limitation - HELD THAT - The disputed period is January 2007 to October 2011 and it is the contention of the appellant that w.e.f. 24.4.2009 the appellant has stopped such practice, therefore, no demand is sustainable after 24.4.2009. To that effect, the appellant has intimated to the Department on 24.4.2009 itself, as the unit of the appellant was under physical control of the Department. As it is evident from the records that the appellant has stopped such practice for which demand sought to be proposed against the appellant, we hold that for the period 24.4.2009 is not sustainable as same is presumptive demand. Therefore, for the period 24.4.2009 till October 2011, the demand of duty is not sustainable as proposed in the impugned show cause notice. Extended period of Limitation - HELD THAT - The appellant s unit was under physical control of the Central Excise Department, therefore, show cause notice dated 31.1.2012 issued for the period January 2007 till 23.4.2009 is barred by limitation, as the same has been issued by invoking extended period of limitation - demand for period till 23.4.2009 is barred by limitation. Appeal allowed - decided in favor of appellant.

Issues:
1. Demand on duty for cigarettes taken out of quality control checks within the factory.
2. Imposition of penalty on all the appellants.
3. Appellant's methodology to prevent brand mixing.
4. Change in trays for brand mixing prevention.
5. Pasting activity for packing convenience.
6. Barred by limitation for the period January 2007 to October 2011.

Analysis:
1. The appellants appealed against the order confirming duty demand for cigarettes taken out of quality control checks within the factory under the respondent's control from January 2007 to October 2011. Penalty was imposed on all the appellants. The appellant, a subsidiary of a company, maintained an in-house quality control laboratory for quality checks. Visual checks were conducted on the production line itself, including brand mixing prevention. A show cause notice was issued in 2012 for duty demand and penalty imposition.

2. The appellant's methodology to prevent brand mixing involved using trays for cigarette sticks, which were later replaced with plastic trays in 2007. The change led to scenarios of brand mixing due to trays containing cigarettes of multiple brands. To address this, a new process was adopted from January 2007, where the packing machine operator pasted one cigarette from each tray on the cigarette packet shell before packing. Records were maintained for this pasting activity and subsequent handling of the pasted cigarettes.

3. The pasted cigarettes were collected at the end of the shift, ripped open, and the tobacco retrieved was mixed with loose tobacco of the same brand. Records were maintained for the ripped cigarettes and mixing of tobacco. The show cause notice alleged that the pasting activity was for packing convenience without test reports, leading to duty liability on the cigarettes used in the activity.

4. The appellant argued that the pasting activity ceased in 2009, and they informed the Department accordingly. They contended that the demand post-April 2009 was presumptive and not sustainable. The appellant claimed the show cause notice for the period before April 2009 was time-barred due to the unit being under the Department's physical control. The Tribunal found the demand after April 2009 unsustainable and the notice for the period before April 2009 barred by limitation.

5. The Tribunal set aside the impugned order, allowing the appeals due to the cessation of the pasting activity in 2009, making the demand post-April 2009 not sustainable. The show cause notice for the period before April 2009 was deemed time-barred, as the unit was under the Department's physical control.

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