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TMI Blog1991 (4) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 refund claims (17 claims for the period May, 1984 to Jan., 1986 and 8 claims from 1-11-1985 to 27-6-1986). These claims were filed under the provisions of Rule 97, as it existed then, prior to amendment deleting the applicability of the provisions of the Rule to the item cigarettes. 17 claims were rejected by the Assistant Collector under a detailed order dated 17-2-1987 and the other 8 claims also were rejected following the reasons given in the aforesaid order, by another order dated 24-3-1987. The appellants took the issue before the Collector (Appeals) by filing two appeals, which were rejected by the impugned order. The present two appeals are against the said order of the Collector (Appeals). 3. For appreciating the arguments from both the sides, it would be necessary to indicate the grounds of rejections of the refund claims both by the Assistant Collector and the Collector (Appeals). Taking up first the Assistant Collector s order, the disputed areas are identified as below: (i) The appellants claimed refund of duties paid on cigarettes received for reprocessing due to loose filling of tobacco and loss of flavour of cigarettes during transit and storage over long peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter permitted for reprocessing. Hence, their claims are not on hypothetical or theoretical grounds; (v) It was also contended that all these claims are in line with the practice prevalent for many years for bringing in damaged cigarettes and claiming refund under Rule 97; (vi) Refund of duty is to be given because they give back the value of cigarettes including duty paid, by way of credit notes issued to the wholesale dealers. (vii) They also filed a chart showing the value of ingredients, which were not recycled and also labour charges involved in processing and other expenses based on the balance sheet for 1982-83. (viii) As regards documentary evidence relating to quantity of cigarettes returned, they contended that the information was contained in various charts or statements attached to the refund claims. The buyer s letters indicate the quantity returned. Only those goods, which were fit for reprocessing were brought to the factory under D-3 declaration. 4. The Assistant Collector, not being satisfied with the above contentions held as below: (i) Their contention that DC (Audit) was fully satisfied that even after the deduction of the cost of uncycled items, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the custody of manufacturer. The cigarettes returned are only unsold lot lying with the buyers. It is a perishable commodity and if it remains unsold beyond the shelf life, they are bound to deteriorate and no evidence has been shown whether damage in storage has been noticed only in the particular lot or it is a general phenomenon. The goods have developed defects due to non-sale within the period of shelf life and hence he is not satisfied about the compliance of condition in clause (ix) of Rule 97. (iii) Cost of various ingredients given by the appellants indicates the value of tobacco at 8.70 per Milli uniformly. Fresh cigarettes are manufactured by retrieving the tobacco only and such processing is not covered by the scope of Rule 97. Remaking would mean utilisation of materials in the damaged goods and citing the analogy of electric motor, fans etc. remaking would mean utilisation of substantial part of the damaged unit and not utilisation of only items like bolt and nuts. In this case, only tobacco is retrieved and all other materials are discarded. Such tobacco retrieved can become cigarettes only by fresh manufacture by putting all other materials and such a proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate for arriving at the satisfaction. In the case of Vazir Sultan Co. -1983 (14) E.L.T. 2088, it has been held that Supdt. s verification cannot be discarded; (v) Assistant Collector has to give a finding on the market value, but he has only negatived the concept of deemed market value and refused to adopt the method suggested by Dy. Collr. (Audit) as not binding. He has also held that the goods are not marketable. Hence they are of no commercial value. He has not discharged the burden that market value is less than duty. Dy. Collector s letter had been acted upon and refund to the extent of nearly Rs. 2 crores have been granted in the past. If Assistant Collector is to take a different view, he should formulate his own principle and estimate the market value on that basis. If he has not done that, he should have followed the D.C. s guidelines, which formed a precedent for granting refund in the past. Besides, A.C s contention that the cigarettes damaged have no commercial value, because they are not marketable, is not acceptable. They do not want to spoil their brand name by sale of such damaged cigarettes. Hence they take them back on payment of full price inclusive of duty by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e should have been some offer for purchase at a price for construing it as a deemed price in the market during the period of return. (v) Dy. Collector s letter itself clearly indicates that market value arrived at by him is a deemed value. The concept of deemed value is not the one prescribed in the Rule. Even the basis adopted by him for arriving at the deemed value is open to serious doubt. He referred to the calculation sheet forming the basis for arriving at DC s conclusion to point out the value of tobacco remains the same even for higher priced brand and so also conversion charges. Such a basis has been accepted without any questioning by the D.C. The refunds sanctioned on that basis are totally erroneous and was a blunder. This cannot be continued even in respect of the present claims, when the mistake has been realised. (vi) As per the decision of C.B.E.C. - 1981 (8) E.L.T. 847 = 1981 ECR 499D, defective cigarettes cannot be regarded as goods and are not excisable. Hence, when they are not goods, there can be no market and hence cannot have market value. (vii) The only retrieved material is tobacco as admitted by the appellants. Its value cannot be the market value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have paid back the full value including duty earlier paid, to these buyers and brought the goods back; (iii) The goods, on their being brought back, were verified on the basis of D-3 declaration and subsequently taken for reprocessing/remaking; (iv) The only retrievable material is cut tobacco and other constituents of cigarette packets were not recycled but discarded. Retrieved tobacco is blended and taken for remaking of cigarettes; (v) The goods were not offered for sale at any lower price but were taken back on reimbursing the buyer to the extent of full value by issue of credit note. [It was disputed by the Department s counsel that all credit notes are not produced to show this position - only one or two credit notes were shown. - It was pleaded that the Department is to be given liberty to verify all credit notes for confirming the factual position. While agreeing with this position, we are presuming this as an admitted position only based on the credit notes produced before us on the presumption that other credit notes may be on the same line]. (vi) There had been no offer from buyers quoting a price for the damaged cigarettes because they did not want such ciga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cases pending with him on this basis and the ratio of the Appellate Collector s order cited. When refunds are claimed under the rule, the party should declare the market value of the finished product, the amount spent on reprocessing and the deemed market value of the returned cigarettes. The A.C. can then process the claim as usual. (emphasis supplied) The above letter pre-supposes that in the case of other goods (other than cigarettes), there is normally actual sale of the goods returned. This view of D.C. is not correct. In many cases, goods returned may not be sold and are not sold. Hence, if the reasoning of D.C. for adopting a deemed concept is to be accepted, in every case where goods are returned, (which are not sold) in damaged condition, the solution suggested by D.C. is to be applied as a valid and acceptable criterion. We are unable to subscribe to such a preposition, apart from other consideration and arguments urged before us from either side. Moreover, we find that reprocessing charges is uniformly indicated at Rs. 6.50 for all brands, when the market value of the different brands (prior to damage) range from Rs. 60/- to Rs. 300/-. It was claimed that this has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of forming an opinion about the market value being more than the duty paid. For arriving at this opinion, the assessees are required to give a tangible and acceptable basis, which has not been given. The data furnished before D.C. (Audit), if construed as the basis, totally fails to inspire any sound basis for acceptance, as an alternative basis, in the absence of market value being given by the appellants. It is possible to obtain quotations for purchase of such damaged cigarettes (even if they are not sold for protecting their brand name) and provide these quotations as indicative of market price for the returned cigarettes during the relevant period. This has not been done. They only repeat that they do not want the goods to go to the consumer, but take them back, by paying the full value to the wholesaler. 11.6 Their alternative plea is that credit note should be considered as purchase price and transactive value for those cigarettes. This argument is, no doubt, attractive. But, we are to look at it with due care and caution. It is an admitted position that the goods are taken back from the wholesale dealers and the stocks could be from those unsold stocks. We see this posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue. Hence even if Supdt. s verification on D-3 is accepted, that can only go upto establishing the identity of CFcs and not beyond that. Hence in our view, the Assistant Collector is well justified in refusing to adopt the letter of D.C. (Audit) for forming an opinion on the market value, especially when he is required to form the opinion and he is discharging his quasi-judicial function and not an administrative function. In this view of the matter, when no tangible and acceptable basis for assessing the market value is provided, he cannot form an opinion on his own notions and if he does, it is liable to be challenged as arbitrary. 11.9 The Assistant Collector has taken note of the fact that the only material retrievable is cut tobacco and other materials are discarded and thus has construed the whole process to be manufacture of new cigarettes. Rule 97 permits grant of refund of duty paid on excisable goods issued for home consumption for being remade, refined, reconditioned or subjected to any other similar process. The facility for remaking is also provided. Shri Jhulka has contended that even powdering of damaged refractory bricks for remaking bricks is permitted by the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the defect or deterioration resulted from (i) defective manufacture or (ii) storage or (iii) due to some accident while in transit and (iv) the goods have not been made use of in any manner except for trial purpose. In this case, though initially, the appellants contended that in some cases, there was loose filling due to defective manufacture and in some cases spots have developed during transit and in other cases, they have become deteriorated due to storage in buyer s premises. Ultimately, they have admitted before the Assistant Collector that in all the cases, the goods have deteriorated due to storage in the buyer s premises. The Assistant Collector has held that defect or deterioration should have occurred during storage in manufacturer s custody. In this case, the goods have been admittedly received from the storage premises of the wholesale buyers. Shri Jhulka also admitted the aforesaid position but pleaded that even if they are received from buyer s premises and they are from unsold lot of cigarettes, they are covered by provisions of Rule 97, provided the goods in an identified manner are returned to the factory within the period of one year from the date of clearan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possible, we are unable to accept this view because we are to read the Rule as a whole. Cl. (ix) aforesaid provides for contingency of use for trial purposes. Though, in the case of cigarettes, this may not be applicable, mainly because, if cigarettes are smoked for trial purpose and returned, they are to be deemed to have been consumed. That is why other conditions have to be read. Another condition is that the goods should be returned intact in the original packing for facilitating the identification with the duty payment documents. Hence, usage for trial purposes is permissible only in the case of items like machines etc. where identity can be established with the duty payment documents. In the case of consumer goods like the cigarettes, such identity can be established only by bringing CFcs intact from the buyer s premises and co-related to the duty payment documents. Hence reading the entire scheme of the Rule, it would not be proper to construe the term storage as restricted to storage only in the manufacturer s custody. Once the goods have been cleared for home consumption, it can be stored in manufacturer s own depots and can go even to the wholesaler s depots. So long a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t when damaged cigarettes are offered for sale in the market, the market value of at least such salvaged tobacco is more than the duty paid on the cigarettes. The appellants plead that duty earlier paid on cigarettes plus the value of cut tobacco retrieved could be taken as market value for the damaged cigarettes. This cannot be accepted for the simple reason that no one would look into the duty paid on the cigarettes, when he quotes a market price for purchase of damaged cigarettes. He will only look into the value of retrievable materials and offer a price for damaged cigarettes based on the estimate of value of such materials that could be retrieved and margin of profit, which he would make. Even that data basis has not been produced to show that value of cut tobacco, if sold in the market, perse would be more than the duty paid on the cigarettes. Hence, we are of the view that Assistant Collector is fully justified in holding that in his opinion Cl. (vi) of the proviso to Rule 97(1) is not satisfied and hence rejection of refund claims on this ground alone is required to be upheld. 14. A plea is made that earlier refunds have been sanctioned on the basis of the formula prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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