Duty on returned ripped tobacco is not payable on clearance; only the underlying credit on cut tobacco must be reversed.

Ripped tobacco arising from cigarettes manufactured under Chapter X concessional procedure, when returned to the original manufacturer, is not subject to duty on clearance. The operative adjustment is reversal of the credit earlier availed on the underlying cut tobacco, as clarified by the Board. On the stated facts, the Tribunal treated the return as falling within the intended concession and found the demand of duty on clearance unsustainable. Any duty already paid on such clearance was therefore refundable, subject to the corresponding credit reversal on the tobacco.

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Issues: Whether duty was payable on clearance of ripped tobacco returned to the original manufacturer, or whether the assessee was only required to reverse the credit availed on the underlying cut tobacco, and consequently whether the duty paid at clearance was refundable.

Analysis: Cut tobacco had been received under Chapter X procedure against the concessional notifications and, in the course of manufacture, ripped tobacco emerged from defective cigarettes. The Board's clarification stated that such ripped tobacco, when returned to the original manufacturer, did not require payment of duty at the time of clearance and that only the credit earlier availed on the cut tobacco was to be reversed. The admitted position was that the ripped tobacco had in fact been returned to the original manufacturer. The assessee's failure was only in not reversing the credit earlier taken. The Tribunal treated the factual situation as falling within the intended concession and found the demand of duty on clearance unsustainable.

Conclusion: The assessee was not liable to pay duty at the time of clearance of the ripped tobacco for return to the original manufacturer. The duty paid was refundable, but the credit taken on the tobacco had to be reversed.

Final Conclusion: The appeal succeeded to the extent that the duty collected on clearance was ordered to be refunded, while the corresponding credit availed on the tobacco was required to be reversed.

Ratio Decidendi: Where ripped tobacco arising from cigarettes manufactured under Chapter X concessional procedure is returned to the original manufacturer, duty is not payable on such clearance and the proper adjustment is reversal of the credit earlier availed on the underlying cut tobacco.

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