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TMI Blog1994 (2) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... inging cut tobacco on payment of duty under Notification 356/86 dt. 24-6-1986. According to this notification, cut tobacco for the use in the manufacture of machine-rolled cigarettes is leviable to duty @ Rs. 10 paise per kg. This notification was amended on 1-3-1989 adding the proviso, provided that where the use of cut tobacco in the manufacture of machine-rolled cigarettes is elsewhere than in the factory of production of such tobacco, the procedure is set out in Chapter X of the Central Excise Rules is followed . Accordingly, the appellants, thereafter applied for a facility of bringing cut tobacco into their factory from outside and were granted the necessary L6 licence for the purpose. The department found that from 1-3-1989 to 30-6-1990, the appellants had brought certain quantity of cut tobacco from M/s. Deccan Tobacco Processor Ltd. (DTPL) and that the records of the appellants show that certain quantities of ripped tobacco had emerged and the appellants had sent back ripped tobacco to their processors, namely, DTPL. The department took the view that ripped tobacco is nothing but cut tobacco, which should have gone into the manufacture of cigarettes and that their transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the appellants, passed an order dated 22-2-1990 that the despatches of ripped tobacco already made under Rule 196BB to DTPL may be treated as the removal under Rule 196B(i) as per the Board s circular. The appellants, further, contended before the Collector that the demand cannot be made under Rule 196 and that it could be only made under Section 11A of the Central Excises and Salt Act, 1944 for which the demand was barred by limitation in the absence of a formal show cause notice under Section 11A. The Collector of Central Excise, Allahabad considered the defence of the appellants. He noted that the demand of duty raised subsequently dropped by the Assistant Collector for the period 20-3-1989 to 20-4-1989 was also included in the present notice which is a subject of adjudication by the Collector. The Collector observed that Rule 196 under which the duty was sought to be recovered, did not specify the issue of show cause notice. The Collector of Central Excise, Allahabad held that cut tobacco is good tobacco on receipt and when used in the manufacture of machine-rolled cigarettes. However, in course of such use a portion of such tobacco, the Collector observed, is obtained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r s order. 3. Shri M. Chandershekharan, Sr. Counsel appearing for the appellants submitted that ripped tobacco emerges as a result of production cigarettes that are found to be defective. It cannot be marketed and, therefore, they are ripped. Their processor, DTPL to whom these are sent, reprocessed the tobacco again into cut tobacco. The ripped tobacco loses its moisture. Department is seeking to recover duty on the ripped tobacco which the appellants have returned to the processor. The ld. Sr. Counsel urged that there is no case for demanding duty on ripped tobacco because, admittedly, the cut tobacco received under concessional rate of duty has been used in the manufacture of cigarettes and ripped tobacco is generated out of defective cigarettes. Therefore, the material obtained has been used for the purpose for which the concession was given. Therefore, there cannot be any duty thereon under Rule 196 whereunder duty is demandable if the material is not used for the purpose for which it was obtained. The ld. Sr. Counsel contended that the fact cigarettes made by using exempted rated cut tobacco found to be defective cannot be a ground for recovery under Rule 196. 3A. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which are fully finished and have reached the RG 1 stage. Ripped tobacco emerges before that stage. According to the manual of the department on cigarettes and procedure thereto, the cigarettes when they are put in trays and ready for packing are to be considered finished cigarettes. Even, according to the Board s circular, the ld. SDR urged that Para 4 thereof would cover the department s case and duty had to be paid at the full rate of ripped tobacco which is only cut tobacco and it is sent to DTPL who are in any case not manufacturers of machine-rolled cigarettes, but are only processors. The ld. SDR argued that in the circumstances Rule would clearly apply and when cut tobacco not found to have been used for the purpose for which exempted rate was allowed, differential duty has to be demanded from the appellants. 5. We have carefully considered the submissions made by both the parties herein. Notification 356/86 originally granted the exemption to cut tobacco for use in the manufacture of machine-rolled cigarettes. It is seen that before its amendment, which prescribed the following Chapter X Procedure where the use of the tobacco in cigarette making takes place in another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch cut tobacco has not been used in the manufacture of machine-rolled cigarettes. 6. It is clear from the above the Board has clearly envisaged the possibility of cut tobacco in the form of ripped tobacco emerging from a factory making machine-rolled cigarettes using the concessional rated cut tobacco under Notification 356/86 and has clearly indicated that the return of such ripped tobacco can be accommodated under provisions of Rule 196B(i). It has also laid down the further requirement that the original manufacturer will have to clear goods again at payment of duty at the appropriate rate. It is, further, noticed that there is another Trade Notice No. 104/90, dated 11-9-1990 of the Indore Central Excise Collectorate, which is with reference to cut tobacco dust but it deals with parallel situation which has been stated as under : Under Notification 356/86, dated 24-6-1986, cut tobacco can be sent to another factory for use in the manufacture of machine-rolled cigarettes on availment of concessional rates of duty by following Chapter X Procedure. Now in the context of this notification, doubts have been expressed whether differential duty in respect of such quantities of cu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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