Captive consumption exemption upheld for cut tobacco where tobacco refuse was only waste from the manufacturing process.

Cut tobacco used captively in manufacture qualified for the captive consumption exemption under Notification No. 52/02 because the disputed quantity arose only as tobacco refuse during the cutting process and was treated as waste or a by-product, not as the assessee's final product. The Tribunal followed its earlier decision in the assessee's own case and held that mere clearance of tobacco refuse without duty did not justify denial of exemption to the intermediate cut tobacco. Demand, interest, and penalties were therefore unsustainable, and the impugned order was set aside in favour of the assessee.

---

---

Issues: Whether cut tobacco, to the extent it resulted in tobacco refuse during the captive manufacturing process, could be denied the benefit of the captive consumption exemption and subjected to central excise duty.

Analysis: The exemption under Notification No. 52/02 applied to intermediate goods manufactured in the factory and used captively in the manufacture of the final dutiable product. The disputed quantity arose only as refuse during the cutting of tobacco leaves and was treated as a by-product or waste, not as the assessee's final product. An identical issue in the assessee's own case had already been decided by the Tribunal, and the same view was followed here. On that basis, the mere clearance of tobacco refuse without duty did not justify denial of exemption to the cut tobacco used in manufacture.

Conclusion: The demand, interest, and penalties were unsustainable, and the impugned order was set aside in favour of the assessee.

---