Concessional cut tobacco used in manufacture can be returned as ripped tobacco under Rule 196B(i) without differential duty demand.

Cut tobacco cleared under a concessional notification and actually used to manufacture machine-rolled cigarettes was treated as having been used for the intended purpose even when defective cigarettes were later ripped open and ripped tobacco emerged. The text states that Board circulars and trade notices recognised such ripped tobacco as returnable to the original manufacturer under Rule 196B(i), with reversal of duty credit at the appropriate stage. On that basis, a demand for differential duty founded on Rule 196 was considered unsustainable where the concession had been properly availed for the intended manufacturing use.

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Issues: Whether ripped tobacco emerging from defective machine-rolled cigarettes made from cut tobacco cleared under a concessional notification could be returned to the original manufacturer under Chapter X procedure without attracting differential duty, and whether the duty demand under Rule 196 was sustainable.

Analysis: Cut tobacco had been received under the concessional notification for use in the manufacture of machine-rolled cigarettes, and the record showed that it was in fact so used. The ripped tobacco arose only because the cigarettes manufactured from that tobacco were defective and were ripped open. The Board's circular and trade notices specifically recognised that ripped tobacco arising from such cut tobacco could be returned to the original manufacturer under Rule 196B(i), with reversal of the duty credit at the appropriate stage. The consistent administrative interpretation was entitled to weight, and the Tribunal also noted that the concession had been availed for the intended manufacturing use. In that setting, the premise that the cut tobacco had not been used for the intended purpose was untenable, and the demand founded on Rule 196 could not stand.

Conclusion: The demand of differential duty on ripped tobacco was unsustainable and the issue was decided in favour of the assessee.

Ratio Decidendi: Where concessional cut tobacco is actually used in the manufacture of machine-rolled cigarettes and ripped tobacco emerges only from defective cigarettes, the returned ripped tobacco may be dealt with under Rule 196B(i), and differential duty cannot be demanded on the footing that the original concession was not used for the intended purpose.

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