Accountal of cut tobacco under concessional procedure cannot attract excise duty absent proof of diversion or clandestine removal.

Cut tobacco received under Chapter X concessional procedure was entered in the prescribed records and used in cigarette manufacture, with sorts and broken cigarettes later ripped open and the tobacco re-accounted after excluding tissue paper and normal handling loss. The alleged shortage was not supported by evidence of diversion, clandestine removal, or unauthorised use, and the losses were found to be within permissible tolerance. On that basis, the claimed duty demand based on a theoretical re-calculation of weight was not sustainable.

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Issues: Whether the alleged shortage of cut tobacco and the exclusion of the weight of tissue paper in re-accountal of tobacco recovered from sorts and broken cigarettes justified the demand of central excise duty.

Analysis: The cut tobacco had been received and entered in the prescribed records under Chapter X procedure for manufacture of cigarettes at concessional duty. In the process of manufacture, sorts and broken cigarettes were generated, ripped open, and the tobacco recovered was re-entered after excluding the tissue paper and allowing for normal loss in ripping and handling. The record did not show that the cut tobacco had been removed from the factory or diverted for an unauthorised purpose. The claimed losses were found to be small and within the permissible tolerance, and there was no evidence of clandestine removal or misuse of the goods received under the concessional procedure.

Conclusion: The alleged shortage was not established as duty-relevant non-accountal or clandestine removal, and the demand was not sustainable.

Ratio Decidendi: Where goods received under a concessional procurement procedure are duly accounted for and the alleged deficiency is only normal process loss without evidence of diversion or clandestine removal, duty cannot be demanded on a theory of theoretical re-calculation.

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