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TMI Blog2004 (6) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... on cigarettes cleared for home consumption. It appeared that the appellants had irregularly availed set-off of Rs. 25,29,935.70 during the period from 15-3-1994 to 31-12-1994 on cut tobacco used in manufacture of cigarettes meant for export but not exported. They also utilized credit amounting to Rs. 56,90,953.95 on 113815.79 Kgs. of cut tobacco which was used in the manufacture of export brands of cigarettes which were held in stock in the factory as on 31-12-1994. Therefore, show cause notice was issued to the appellants for disallowing irregular set-off amounting to Rs. 82,20,889.70 (25,29,935.75 + 56,90,953.95) which was taken as credit and utilized against the provisions of Notification No. 355/86, dated 24-6-1986 as amended by Notification No. 69/94-C.E., dated 15-3-1994 and Central Excise Duty of Rs. 82,20,889.70 which was short-paid on clearances of cigarettes for home consumption was demanded under Proviso to Section 11A(1) of Central Excise Act besides proposing to impose penalty on them under Rules 9(2), 209 and 173Q of Central Excise Rules, 1944. The case was adjudicated by the Commissioner who disallowed credit of Rs. 80,59,021/- and confirmed a demand of differential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CCE, Chandigarh v. Smithkline Beecham Consumer Health Care Ltd. [2003 (151) E.L.T. 5 (S.C.)], in Para 9 it was held that lesser collection of duty because of adjustment of duty paid on inputs is not a case of short-levy and as such Section 11A cannot be invoked inasmuch as it is not a case of duty not levied or not paid or short levied or short-paid. 5. The Central Board of Excise and Customs issued Circular No. 43/90-CX. 8, dated 6-7-90 wherein it was directed by Board that the set-off on duty was to be permitted on that quantity of cut tobacco which has been issued for manufacture of cigarettes irrespective of whether some of it is contained in the waste. It is well settled by the decisions of the Apex Court that such instructions of the Board are binding on the Department. Therefore the very basis on which the show cause notice was issued was that the appellants have taken credit of duty paid on cut tobacco on issuing the same for manufacture of cigarettes and not after export of cigarettes manufactured out of such cut tobacco violates the conditions of such exemption notification and consequently the availment of set-off credit was irregular is incorrect and baseless. From th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used in the said proviso is are exported under bond therefore, clearly indicates that it also refers to the time of clearance of goods from the factory under the bond. The Notification nowhere mentions that credit will be available only after exportation or that proof of export has to be furnished before the benefit thereunder can be availed of. 6. The differential duty confirmed and set-off credit disallowed of Rs. 80,59,021/- relates to three different and distinct export consignments of cigarettes. The particulars of these are as follows :- Type Description Volume of Cigarettes (in 000) Cut Tobacco issued for manufacture (Kgs) Duty/Set-off credit (Rs. Lakhs) Part A Cigarettes reprocessed Saharanpur 48000.000 47519.700 23.68 Part B Cigarettes reprocessed at Bangalore 50049.600 50866.595 25.43 Part C Cigarettes lying in stock at Bangalore for destruction 61220.800 62952.484 31.47 TOTAL 159270.400 161180.408 80.59 He pleaded that the cigarettes under Part B and C relates to cigarettes which were held in stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed a condition to the effect :- iv. Since credit of duty paid on cut tobacco at Bangalore has already been availed of, duty would be paid afresh on the full quantity of cut tobacco (inclusive of the retrieved quantity added on) issued for the manufacture of cigarettes. This condition was complied with and thereafter on 10-2-1995, the Jurisdictional Assistant Collector of Central Excise, Bangalore issued a show cause notice No. 164/95 to the appellants demanding Central Excise Duty, amounting to Rs. 4.56 crores in respect of subject consignments of cigarettes alleging that appellants had failed to produce proof of export of the quantity of cigarettes which were being exported under the aforesaid five AR. 4s. However, by his Order-in-Original No. 42/96, dated 28-2-1996, the Assistant Commissioner dropped the proceedings under the said show cause notice after satisfying himself that these cigarettes cleared for export to USA were actually not exported but the appellant after obtaining appropriate permission from the Collector of Central Excise, Meerut took them to Saharanpur factory for reprocessing and after completion of reprocessing the tobacco obtained after slitting the ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion from the Commissioner of Central Excise, Bangalore for destruction for which application has been made by the appellant in October 1999. They are unfit for human consumption. The findings of the Commissioner on this quantity is based on incorrect premises and on an incorrect interpretation of the notification. Contrary to what has been alleged in the show cause notice and in the impugned order, these goods though of export brands, are unfit for human consumption and are lying in the factory premises. No AR. 4 form for effecting clearance of these cigarettes was furnished. Therefore, proviso to Notification No. 69/94 introduced in Notification No. 355/86 does not have any application. The cigarettes have been manufactured using duty paid cut tobacco. So long as duty paid cut tobacco is used in manufacture of cigarettes, the requirement of said notification is satisfied and set-off of credit can be availed off in respect of the duty paid on the cut tobacco in respect of cigarettes cleared for home consumption upon payment of duty. Therefore, the demand of Rs. 31.47 lakhs (Part C of Para 6 above) contained in the impugned order is also unsustainable. 7. He also pleaded that with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notification No. 69/94-C.E. dated 15-3-1994 by amending Notification No. 355/86, dated 24-6-1986. The show cause notice issued to the appellant is not for varying the credit of duty taken on cut tobacco but it is a demand for duty short paid on cigarettes without making any change in the credit taken on the cut tobacco as per the procedure prescribed by the Board. She pleaded that the case of CCE, Chandigarh v. Smithkline Beecham [2003 (151) E.L.T. 5 (S.C.)] is not applicable in the present case as in that case, set-off credit was challenged and therefore Section 11A was not applicable. The set-off Notification No. 201/79 had prescribed a detailed self-contained procedure and any credit wrongly taken or taken in excess could have been dealt with under the provisions of that notification itself. However, in the present case, the demand is of short levy or duty short paid on cigarettes. Therefore, Section 11A is fully applicable. The credit on cut tobacco was allowed and used by the appellants even before manufacture of the cigarettes. The Notification No. 355/86-C.E. as amended by Notification No. 69/94-C.E., dated 15-3-1994 gives exemption to cigarettes falling under sub-heading No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... She pleaded that when we look at the overall scheme it can be concluded that the Government as a policy intend to forego the duty paid on cut tobacco if the duty was paid on cigarettes manufactured or if cigarettes were exported. The Government did not intend to forego the duty paid on cut tobacco for any other situation. Therefore, duty cannot be claimed as a setoff or credit as a matter of right by the manufacturer. The issue is simply a demand of CED due to non-fulfilment of the conditions of notification the benefit of which was given in anticipation of the fulfilment by the assessee but not so fulfilled. The assessee did not comply with the terms and conditions of the notification in violation of their clear commitment to do so. This misstatement attracts the proviso to Section 11A. Subsequent disposal of non-exported cigarettes or the fact of duty paid on cut tobacco on reprocessing are irrelevant to the present case since even if the duty was paid the benefit of the same notification is available to them subsequently on the end product independently. 10. We have carefully considered the submissions made by both sides. From the records, we find that the appellants were avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et off as per the permission granted to them and record prescribed by the Department communicated to them under letter dated 5-3-1994 issued by the Superintendent of Central Excise, Pulikeshinagar Range-I, Bangalore. They also stated that the Central Board of Excise and Customs under their Circular No. 43/90-CX., dated 6-7-1990 had clarified that set off of duty can be permitted on that quantity of cut tobacco, which, has been issued for manufacture of cigarettes irrespective of whether some of it is contained in the waste. However, duty should be charged on the waste, which has arisen during the process of manufacture. They were accordingly taking credit on cut tobacco which was being issued for manufacture of cigarettes were availing credit of duty on cut tobacco in the set off register maintained by them as prescribed by the Department. They have cleared 48 millions of cigarettes containing cut tobacco of 47519.70 Kgs involving set off credit of Rs. 23.68 lakhs in the month of August under AR-4 No. 76/94-95, 78-81/94-95 for export under bond under Rule 13 of the Central Excise Rules from their factory and these goods were taken to Bombay Port for export. Since demand pattern was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner in his order has observed that since the cigarettes were not exported therefore, the appellants were not entitled to utilize the set off credit taken on cut tobacco used in manufacture of these 48 million cigarettes. The Commissioner has taken stand that when the proof of export is produced before the Assistant Commissioner, thereafter only the credit of duty on cut tobacco can be used for clearance of cigarettes for home consumption. The appellants have strongly opposed this view of the Commissioner on the ground that Rule 13 of Central Excise Rules permits export of the goods under bond without payment of duty on execution of a bond. If the conditions of bond are not fulfilled then only the duty not paid at the time of clearance is demanded and recovered. Under the Notification 355/86 the same position is valid. They have cleared the cigarettes for export under bond. Since the cigarettes could not be exported these were taken to Saharanpur factory for reprocessing under Rule 97A. Rule 97A permits re-entry of the goods cleared for export under claim of rebate or bond but not exported for any reason to the same factory or any other factory for being re-made, refined, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cco of 62952.484 Kgs involving set off of Rs. 31.47 lakhs. These cigarettes were neither cleared nor any application for export was filed. These were lying within the factory as on 31-12-1994. Simply by stating that the cigarettes are of export brand does not bring these cigarettes under Proviso to Notification No. 355/86. The proviso applies only when the cigarettes are exported under bond. Since they have not filed any AR-4 for export nor exported these cigarettes the question of application of Proviso to Notification No. 355/86 does not arise. These will be covered by the main part of the notification. Export brand of cigarettes which could not be cleared by the appellant for export because the various factors were lying in the stock and awaiting permission from Central Excise Department at Bangalore for destruction for which application was made in 1999. 14. We find that since these cigarettes were not cleared nor any application for clearance for export was filed, therefore proviso to Notification does not apply to these cigarettes. We do not find any substance in the finding of the Commissioner that the quantity of cigarettes on which set off credit was availed have not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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