Tobacco dust and refuse cannot replace cigarettes as the final product for exemption under Notification No. 214/86.

Tobacco dust and tobacco refuse arising during manufacture were not the final product for denying exemption under Notification No. 214/86 in respect of cut tobacco sent for job work. The analysis treated cigarettes as the true final product, since the manufacturer was registered for cigarettes and the cigarettes were entirely cleared for export. On that basis, the by-products could not displace the actual manufactured goods for exemption purposes, and the exemption on cut tobacco remained available. The demand and penalty were therefore set aside.

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Issues: Whether tobacco dust and tobacco refuse emerging during manufacture could be treated as the final product for denying exemption under Notification No. 214/86 on cut tobacco sent for job work.

Analysis: The appellants were registered manufacturers of cigarettes and the cigarettes were entirely cleared for export. The denial of exemption rested on treating tobacco dust and tobacco refuse arising in the process as the final product. The notification was examined and the core question was whether such by-products could displace the real final product of the manufacturing activity. The reasoning accepted that the final product was cigarettes and not tobacco dust or tobacco refuse.

Conclusion: Tobacco dust and tobacco refuse could not be treated as the final product for the purpose of Notification No. 214/86, and the exemption on cut tobacco was available to the assessee. The demand and penalty were set aside and the appeal was allowed.

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