Export-linked excise set-off cannot be denied where duty is already recovered on reprocessing and goods were never cleared for export.
Cut tobacco duty credit under the export-linked set-off scheme was available when issued for manufacture and could be used against duty on cigarettes cleared for home consumption. For cigarettes returned for reprocessing after export clearance, duty on the relevant input had already been recovered at the reprocessing stage, so the same amount could not be demanded again by debiting the set-off account. Cigarettes that never left stock were outside the proviso governing goods exported under bond, so that proviso could not be used to deny credit merely because export proof was not produced. The proper consequence for non-export, if any, was recovery for breach of bond conditions, not disallowance of otherwise permissible credit.
Issues: (i) Whether the demand of duty and disallowance of set-off credit under Section 11A of the Central Excise Act, 1944 could be sustained in respect of cigarettes cleared for export but not ultimately exported and later reprocessed, and in respect of cigarettes lying in stock in the factory; (ii) whether the proviso to Notification No. 355/86-C.E. dated 24-06-1986, as amended by Notification No. 69/94-C.E. dated 15-03-1994, applied only after actual export under bond so as to deny the credit taken on cut tobacco before export proof was produced.
Issue (i): Whether the demand of duty and disallowance of set-off credit under Section 11A of the Central Excise Act, 1944 could be sustained in respect of cigarettes cleared for export but not ultimately exported and later reprocessed, and in respect of cigarettes lying in stock in the factory.
Analysis: The scheme of the notification allowed credit of duty already paid on cut tobacco used in the manufacture of cigarettes, and the credit could be utilized for payment of duty on cigarettes cleared for home consumption. In respect of the export consignments that were not exported and were returned for reprocessing, the duty on the cut tobacco was recovered again at the reprocessing stage, so the same duty could not be demanded once more by debiting the set-off account. In respect of the cigarettes that were never cleared for export and remained in stock, the proviso relating to cigarettes exported under bond had no application at all. The demand was therefore unsustainable on the merits.
Conclusion: The duty demand and disallowance of credit were not sustainable against the assessee.
Issue (ii): Whether the proviso to Notification No. 355/86-C.E. dated 24-06-1986, as amended by Notification No. 69/94-C.E. dated 15-03-1994, applied only after actual export under bond so as to deny the credit taken on cut tobacco before export proof was produced.
Analysis: The notification and the departmental circular permitted credit to be taken when cut tobacco was issued for manufacture, and the credit was available for utilization against duty on cigarettes cleared for home consumption. The proviso operated only where cigarettes were exported under bond; it did not convert actual export proof into a precondition for taking the credit itself. Where goods were not exported, the proper course was recovery of duty for non-fulfilment of the bond condition, not denial of the otherwise permissible set-off in the manner adopted in the impugned order.
Conclusion: The proviso did not require actual export proof as a precondition to the availment of credit, and the assessee's method of availing set-off was held to be permissible.
Final Conclusion: The impugned order was set aside and the appeal was allowed on merits, with no separate findings required on the remaining grounds.
Ratio Decidendi: Where duty on the relevant input has already been recovered again at the reprocessing stage, the same amount cannot be demanded a second time, and a proviso to an exemption notification governing export under bond cannot be applied to goods that were never cleared for export.
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AI Drafter ✕
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