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TMI Blog2002 (9) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... slitting them, that is the weight of the paper was also included in that of the cigarette. It was thus found that the assessee were wrongly adjusting the weight of the paper contained in waste cigarettes, towards accountal of cut tobacco. Secondly, M/s. ITC had declared to the Deptt. the quantity of cut tobacco, used in the manufacture of 1000 cigarettes in Appendix I, for each brand of cigarette. As and when this input-output ratio changed, a fresh declaration was filed by them. 4. Therefore, it appeared that M/s. ITC Ltd. had not satisfactorily accounted for the cut tobacco manufactured by them, and were not able to show that the entire cut tobacco manufactured by them and cleared at nil rate of duty, was captively consumed. Since the benefit of Notification 356/86, dated 24-6-86 was not available to cut tobacco not used for captive consumption, it appeared that duty was payable at tariff rate of 225% adv. on the quantity of cut tobacco found unaccounted. Accordingly, a show case notice dated 4-10-91 was issued to M/s. ITC, demanding duty of Rs. 1,49,17,120.28 for the period from April, 91 to September, 91 and seeking to impose penalty under Rule 209. 5. This show cause notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was an impossibility. (e) The Collector, in earlier order bearing No. 26/92, dated 30-3-92 had confirmed the duty demand primarily because the assessee was unable to reconcile the difference in support of their claim. Now that such an exercise has been carried out, there was no non-accountal of cut tobacco. (f) Even if it is assumed that there was non-accountal of cut tobacco, there is nothing on record to substantiate that the assessees had clandestinely removed the cut tobacco without payment of duty, causing loss to the exchequer. Such an allegation could, more so, not be made, when the unit was under physical control. This Order-in-Original No. 8/99, dated 13-8-99 passed by the Commissioner of Central Excise, Bangalore-II Commissionerate, Bangalore not acceptable to the Department on the following grounds :- (i) The appeal filed by the assessees has not been disposed off by the Tribunal, consequent to the order of the High Court. The petition before the High Court is filed seeking to get the order of pre-deposit quashed, and not for a decision on merits. Therefore, on merits of the case, there is no decision of the Tribunal against the Collectors Order-in-O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of exemption notification is available only in respect of cut tobacco used for captive consumption in the manufacture of cigarettes, and where this condition is not fulfilled, duty is chargeable at tariff rate. (vi) A parallel can drawn between 57D(1) and the contents of the Board s circular referred to the above, in that, both lay down that credit, whether in the form of Modvat credit or set-off, should not be denied on the grounds that part of the input is contained in waste. However, credit under the Modvat scheme or any other input duty relief scheme can be allowed only in respect of inputs received into the factory and used in the manufacture of the final product. The same cannot, under any circumstances, be allowed on inputs nor received or not used in manufacture or not accounted for satisfactorily. A provision to this effect is contained in erstwhile Rule 57-I(2), wherein credit of duty availed on inputs not satisfactorily accounted is reversible. Though this rule is not applicable to the case on hand, the spirit behind any input duty relief scheme is the same. The Commissioner s action in stretching the provisions so as to allow the benefit of the exemption not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e quantum of cut tobacco accounted is in excess of the cut tobacco issued for manufacture, which is an impossibility. He has chosen to rely upon a reconciliation between the quantities issued and accounted, by the assessee. A sample SCN dated 26-6-96 has been chosen for this purpose. From the reconciliation, as it is claimed to be, two important points are to be noted. Firstly, the assessee has proceeded from the tobacco to be ideally used as per input-output ratio declared - which, in the first place is only an assumption, as such quantity has never been utilised by the assessee. The basis of reconciliation, itself, is faulty. Secondly, the purported reconciliation only attempts to show an error of calculation on the part of the department, and does not, in any manner, explain for the unaccounted cut tobacco. This purported reconciliation statement, therefore, cannot be imparted with any credibility. (ix) Further, it is significant to note that, the assessee have, all along, been arguing that tobacco being hygroscopic, it is not possible to offer an exact reconciliation/account of cut tobacco. This argument has been put forth by the assessee before the Commissioner as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cigarettes, etc., have been utilised in any other manner than in rolling of cigarettes. The Department has failed to do so. Relying on our finding in Order No. 1215/2002, dated 20-9-2002, we find no reasons in ground No (1), (ii) and (iii) of the present appeal. As regards ground No (iv), we find no merits in the same since we have found and held that the interpretation of the expression for use in manufacture would be satisfied, in the facts of these cases, in view of the law as laid down by the Apex Court in cases Dalmia Dadri (AIR 1988 S.C. 342), Steel Authority of India [1996 (88) E.L.T. 314 (S.C.)] and Multi Metals [1992 (57) E.L.T. 209] to be followed. The Department is, as well, bound by this interpretation of the term in the Notification to mean intended for use and not actually used . Allegedly unaccounted cut tobacco should have been found in the premises allegedly ready for other clandestine use, however that is not the case before us. Therefore, we find no merits in the grounds (iv), (v) and (vi). As regards variation , by our Final Order No. 1215/2002, dated 20-9-2002, we have considered that the variation is to be determined as per Paras 64 and 65 of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced the manner of maintenance of the Appendices and drawn inferences that do not logically follow. The Commissioner was required to apply his own mind to the issues and not that of the DC. The Commissioner has not addressed the issue of faulty accountal in Appendix C . His reasoning is indirect, that as the overall ratio is within permissible limits there could not have been non-accountal. The calculation of non-accountal shown in the show cause notices has not been directly addressed by him. He has only reproduced without comment the DC s erroneous observations (Para 14) that since the weight of paper and filter had not been taken into consideration at all while issuing cut tobacco for manufacture of cigarettes at Appendix C stage i.e. at the starting point, there was no meaning in weighing paper and filter at any point, sat Appendix E stage and alleging that cut tobacco to the extent of weight of paper and filter was unaccounted. That in other words if an additional factor (i.e. weight of paper and filter) was to be considered at any subsequent stage, in a chain of operations, the same would have to be included at the starting point itself, which has not been done. The ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acco has, therefore, to be seen from all the Appendices maintained. Both month-wise and for the entire period of April, 1991 to September, 1991, which tracks and accounts for cut tobacco from the point of issue till the time cigarettes are packed. All these figures have been taken from Appendices C, D and E maintained by ITC in terms of the Cigarettes Manual which have been verified by the Department Officials posted at the factory. These statements have been prepared on the same lines as directed by CCE, Bangalore, on 19-8-1997, and prepared by the jurisdictional Deputy Commissioner of Central Excise, in relation to the show cause notices issued for the period 1-10-1992 to 31-10-1998 (subject-matter of Revenue Appeal No. E/1304/2000). The tobacco actually used in manufacture has been derived having regard to the rejections as well as tobacco content in waste cigarettes and in cigarettes remaining unpacked. The quantity so derived for each brand of cigarettes for each of the months covered by the show cause notices has been compared with the corresponding quantity of theoretical consumption. It can be seen that there are situations where actual consumption is less that the theore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and that the retrieved cut tobacco was sent back for manufacture and was accounted properly in Annexure A ; that since the weight of paper and filter had not been taken into consideration at all, while issuing cut tobacco for manufacture of cigarettes at Appendix C stage i.e. at the starting point, there was no meaning in weighing paper and filter at any point, say Appendix E stage and alleging that cut tobacco to the extent of weight of papers and filter was unaccounted; that in other words if an additional factor (i.e. weight of paper and filter) was to be considered at any subsequent stage, in a chain of operations, the same would have to be included at the starting point itself, which has not been done in the instant case. This does not support the plea of SDR, being made before us, as recorded supra. The report of the Deputy Commissioner relied by the Commissioner does not confirm the plea of Revenue, assessee showed 50 Kilograms of waste cigarettes as accountal of 50 Kilograms of cut tobacco. In fact 50 Kilograms cigarettes contained 20 Kilograms of paper and 30 Kilograms of cut tobacco and would constitute accountal of 30 Kilograms of cut tobacco and 20 Kilograms ..... X X X X Extracts X X X X X X X X Extracts X X X X
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