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TMI Blog2002 (12) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... early includes process which is incidental or ancillary to the completion of manufactured product. Manufacture of cigarette is completed when the same emerges in the form of sticks of cigarettes which are sent to the laboratory for quality control test. Sticks of cigarettes can be consumed and manufacture of the end-product, i.e., cigarette, which is commercially known in the market as such, is completed before its removal for test and after testing only packing of the same, which is the requirement of Rule 93 of the Rules, is done. Thus, we hold that sticks of cigarette which are removed for the purpose of test in the quality control laboratory located within the factory premises of the appellant-Company are liable to excise duty. Coming now to the second question, it may be stated that learned counsel appearing on behalf of the Revenue could not dispute the proposition that the quantity of cigarette sticks that is destroyed in the course of quality control test is not liable to excise duty. In view of the non-maintenance and non-production of accounts in relation to the destruction of cigarette sticks during the course of testing, we are of the opinion that excise duty was lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne after the samples sent are tested in the laboratory. According to it, some quantity of cigarettes is destroyed in the process of testing. 4.The assessing authorities by two separate orders disposed of the proceedings. In one case, excise duty was levied to the tune of Rs. 65,45,630.32 and penalty to the tune of Rs. 5 lacs and in another case, Rs. 6,14,278.48 apart from penalty of Rs. 15,000/-. The assessing authorities passed the orders after holding that the manufacturing process in respect of the cigarettes is completed at the stage when they emerge in the form of sticks of cigarettes and excise duty under the provisions of Section 3 of the Act on the manufacture or production of the final article, i.e., in the case of cigarette, was attracted at that very stage even though collection was deferred until clearance. It was further held that the process of packing of cigarettes was not incidental or ancillary to manufacture but it was incidental or ancillary to the sale of the end products. 5.Challenging orders passed by the assessing authorities, four separate appeals were filed on behalf of the appellant-company before the Tribunal which have been disposed of by a common or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s leviable on the cigarettes that are destroyed during the process of testing in the laboratory. 9.In order to appreciate the points raised, it may be useful to refer to the provisions of Sections 2(d), 2(f) and 3(1)(a) of the Act and Rule 93 of the Rules which run thus : - "S. 2. Definitions. - In this Act, unless there is anything repugnant in the subject or context, - (d) "excisable goods" means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt; (f) "manufacture" includes any process - (i) incidental or ancillary to the completion of manufactured product; (ii) which is specified in relation to any goods in the section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture, and the word "manufacturer" shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account." "S. Duties specified in the Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars or cheroots, as the case may be; (2) each such packet consists of a wooden, tin or cardboard box opening only at the top or of a paper wrapper top completely closed on all sides and with all sides and with all outer edges gummed down". 10.Excise duty is leviable under Section 3 of the Act on all excisable goods which are produced or manufactured in India at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as 'the Tariff Act'). The expression 'Excisable goods' has been defined under Section 2(d) of the Act to mean goods specified in the First Schedule and the Second Schedule appended to the Tariff Act as being subject to a duty of excise. 'Tobacco' has been enumerated as excisable goods as Item No. 1 in Second Schedule to the Tariff Act. The expression 'manufacture' has been defined under Section 2(f) of the Act to include any process incidental or ancillary to the completion of a manufactured product. Under Rule 93 of the Rules excisable tobacco products, which include cigarette, shall be delivered from the factory after the products are made into separate packets after affixing manufacturer's label thereon an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to duty. The ratio of this judgment is that inasmuch as the 'refined oil' obtained by the respondent at an intermediate stage of production of vanaspati cannot be treated as 'refined oil' known to the market and consumers because no refined oil is ever marketed unless it is deodorised, it is not 'goods' for the purpose of the Act. It was found as a fact that the respondent did not deodorise the 'refined oil' at any stage; it applied the said process only after hydrogenation. 14.In the case of Union Carbide India Ltd. v. Union of India, [1986 (2) SCC 547], the appellant-company was engaged in the manufacture and sale of flashlights (torches). For that purpose, it used to purchase aluminium slugs and produced aluminium cans or torch bodies at its factory by a process of extrusion. The Superintendent of Central Excise called upon the appellant-company to submit a price-list in respect of the aluminium cans for the purposes of levying excise duty thereon. While complying with the said demand, the appellant protested that the said aluminium cans cannot be described as 'goods' for the purpose of levying excise duty inasmuch as they are not marketable and that they are prepared only for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they cannot be treated as 'goods' for the purposes of Section 3. It was observed that marketability is an essential ingredient in order to be dutiable under the Schedule to the Act. It was further observed that excise duty is leviable if the goods are capable of being sold, though its actual sale is not necessary. 16.In the case of Union of India v. Delhi Cloth General Mills Co. Ltd., 1997 (92) E.L.T. 315 (S.C.), reliance whereupon has been heavily placed on behalf of the appellant-Company, question that had arisen was whether excise duty was leviable on calcium carbide that was manufactured by the assessee-company not for its marketing, but for captive consumption, i.e., the same used to be utilised further in the production of acetylene gas for being marketed. On these facts, it was held that excise duty was not leviable on the manufacture of calcium carbide which was manufactured only for the captive consumption as one of the raw materials for production of acetylene gas and the same was leviable on the end product, i.e., acetylene gas which was marketable. This decision cannot be of any avail to the appellant as the same is clearly distinguishable. 17.From a conspectus o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to how much quantity was destroyed during the process of testing. It was pointed out by learned Additional Solicitor General that though in the show cause notice the appellant-Company was specifically called upon to show cause for non-maintenance of account in relation to the sticks of cigarette sent for quality control test, but in spite of that it failed to produce any account whatsoever to show as to how much quantity of cigarette sticks was sent for quality control test during different periods, much less producing any account in relation to the destruction of the cigarette sticks during the course of testing. At this stage, Shri Ganesh submitted that the matter should be remitted either to the Tribunal or the assessing authority for affording opportunity to the appellant to produce the accounts and then record a finding as to how many cigarette sticks were destroyed during the course of testing. In our view, no useful purpose will be served by remitting the matter on this question, firstly, because even according to the show cause reply filed by the appellant-Company before the assessing authorities, it had not maintained any account in relation to the destruction of cigarett ..... X X X X Extracts X X X X X X X X Extracts X X X X
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