Set-off on cut tobacco issued for manufacture is available on the full quantity, even if some finished cigarettes are later destroyed.

Set-off of duty paid on cut tobacco was treated as admissible on the full quantity of cut tobacco issued for manufacture of cigarettes, not merely on the quantity ultimately found in cigarettes cleared on payment of duty. The Board's circular was read as allowing credit on duty-paid excisable goods issued for manufacture of finished goods, and the later destruction of some cigarettes as oily cigarettes did not change that position. A prior Board letter concerning inputs destroyed before being used in manufacture was distinguished because the goods here had already been issued for manufacture. The impugned order was set aside and the set-off claim was accepted.

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Issues: Whether set-off of duty paid on cut tobacco was admissible on the entire quantity of cut tobacco issued for manufacture of cigarettes, or only on the quantity ultimately contained in cigarettes cleared on payment of duty.

Analysis: The Board's circular clarified that set-off is available on the quantity of duty-paid excisable goods issued for manufacture of finished goods, and is not confined to the portion actually contained in the finished products. The cut tobacco in the present case had been issued for manufacture of cigarettes, and the fact that some cigarettes were later taken apart for destruction as oily cigarettes did not alter the position. The Board's earlier letter dealing with inputs destroyed before being used in manufacture was distinguishable because it concerned destruction before clearance for manufacture, which was not the situation here.

Conclusion: The set-off was admissible on the quantity of cut tobacco issued for manufacture of cigarettes. The impugned order was set aside, the appeal was allowed, and the cross-objection was rejected.

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