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2002 (9) TMI 542
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....e input (un-manufactured tobacco) is physically weighed as also the output (cut tobacco). During the course of processing un-manufactured tobacco into cut tobacco, there arise certain rejections such as waste scrap, tobacco dust and floor sweepings, which are physically weighed. The cut tobacco that is manufactured is then issued to the 'Cut Tobacco' Stores where it is normally stored for a period of about 24 hours. (ii) 'Cut Tobacco' from the Cut Tobacco Stores is then issued to the Cigarette Making Department (C.M.D.) for being rolled into cigarette sticks on the cigarette making machines after payment of duty as per Notification No. 356/86. This is the second stage of conversion in a cigarette factory. At the Cigarette Making Department also, the input namely 'Cut Tobacco' is physically weighed. During the course of rolling cigarette sticks, there arises two types of wastes, namely :- (i) Tobacco dust and floor sweepings which are rejected and stored, accounted and dealt with separately. (ii) waste cigarette and winnowings which are recycled in the Primary Manufacturing Department. Both the types of waste....
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.... being followed on the shop floor and also to facilitate physical supervision of the manufacturing operations by providing a ready picture of the physical manufacturing activities and to the Jurisdictional Excise Authorities posted in each factory. The details that are set out in the various records are, recorded blendwise, brandwise and operationwise for each blend/brand of cigarette. The quantities as per physical weighments are entered in the registers at the end of each day and are verified daily by the Jurisdictional Excise Authorities. These records maintained are to be viewed in the context of 'Physical Control' that is exercised by the Jurisdictional Excise Authorities posted in each factory who are required to move in the factory from place to place and periodically check these records maintained in prescribed proforma named Appendices 'A' to 'F' and keep Remarks therein and to initiate immediate action on noticing any abnormality, 'Cut Tobacco' as issued to the Cut Tobacco Stores where it is normally stored for about 24 hours and the subsequent movement, in detail, of all transactions of 'Cut Tobacco', i.e. receipt storage and issue are maintained in Appendix 'B'. It may ....
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.... fed into the packing machines and made into cigarette packets. At the time of packing also, certain quantity of cigarettes are wasted and such waste cigarettes are collected separately and these are accounted for in Appendix E. The waste cigarette sticks collected from the Packing Department are weighed and the quantity entered in proforma Appendix 'E' as waste cigarettes from Packing Department. The details of the slitting of these waste cigarettes and the smalls, paper, etc. and sand realised from slitting, as also the details of smalls added back to the operations are entered in proforma Appendix 'E' as per physical weighments. (c) Excise duty @ 10 paise per kg., on cut tobacco was introduced for the very first time vide Notification No. 356/86, dated 24-6-1986. By another Notification No. 355/86, dated 24-6-86 set off of duty paid on Cut Tobacco was made eligible. (d) Cigarette manufacturers are also required to declare to the Excise Department the theoretical specification weight for each of its brands of cigarettes. The standard weight of tobacco in a cigarette is called "the specification weight" or "theoretical weight". This theoretical weight represents th....
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....was required, before the notices could be issued. The Cigarette Manual prescribes a record in proforma Appendix 'F' to be maintained by the 'Officers called as Reconciliation Accounts, which in column 5 should show the weight of 'Cut Tobacco' actually used in the manufacture of cigarettes after allowing for waste machine ends, shorts, etc.,. removed and for all 'Cut Tobacco' added. The theoretical out put of cigarette should be calculated on this quantity and thereafter, percentage difference between actual and theoretical should be worked out and remarks kept after ascertaining the reasons. This key record would be the control record to determine unaccounted use, production, etc., and has to be verified by each Senior Officer of Excise who visit the factory and the Jurisdictional Excise Authorities. 2. (a) The Directorate General of Anti-Evasion, Bangalore conducted some investigation into the accountal of cut tobacco by the appellant. On the basis of this so called investigation, a show cause notice bearing reference No. V/24/15/173/91-CI, dated 4-10-91 was issued to the appellant alleging as follows : (i) Since there is a variance between....
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....ections that the appeals before the Tribunal (E/451/92 - MAS and E/1304/2000 - MAS) be remanded to the Tribunal to be heard and disposed of afresh after considering the relevant material before the Tribunal and asking for more material if required. Therefore, the appellants were asked to produce calculation sheets and charts and re-heard. 3. We re-heard both sides, considered the submissions, the calculation charts, the record and find :- (a) The Collector has arrived at a conclusion that the Cigarette Manual is by way of guidelines for control of cigarette factories by the Department and an assessee cannot take shelter under these instructions. In the case of Asia Tobacco Co. Ltd. - 2000 (123) E.L.T. 536 (T) in the Order No. 370/1991, dated 5-6-1991 on an identical issue, this Tribunal has held that department's instructions in the Cigarette Manual have to be followed. We also find that any notice issued on excessive consumption, incorrect accounts, normal variance has to be based on data in Appendix 'F'. The Department is bound by their own instruction is trite law. It is an accepted position that there would be variation in number of cigarettes manufactured out o....
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.... accounts of their manufacture and clearance of cigarettes, it is prima facie established, based on evidence of records relied upon by the Revenue that all is not well with the assessee. Cigarette being an evasion-prone commodity, such non-accountal leads to manipulation of accounts and consequential evasion of excise duty which has to be viewed seriously." Since he has not relied on the results on Appendix 'F' which was not even produced during the hearing before us and or relied by the department in the show cause notice, we find that there is no reason for us to uphold the Collector's findings that the weight of paper content in the cigarette was wrongly adjusted. The ld. SDR submitted that an actual experiment as prescribed by Manual Instructions in Paras 64 and 65 thereof was not conducted. The demands ab initio cannot be made. In this view we do not and cannot uphold the order of the Collector making out there huge demands. (b) As regards the second allegations in the show cause notice regarding a discrepancy between the formula weight declared of the cigarette, the Collector has found that the show cause notice seeks to deny the exemption under Notification No. 35....
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....tion as carrying meaning in the phrase 'for use' in the manufacture of machine rolled cigarettes and extending the exemption only to cut tobacco which is used in the manufacture of machine rolled cigarettes. The notification could not have been worded 'actually used' because duty is payable at the time of clearance and actual use, is an event that occur only after clearance. Hence the wording of the notification, has to be read in this manner. Therefore I hold that M/s. ITC have not accounted for 24,739 kgs during the period from 1-4-91 to 30-9-91 and are not eligible for the exemption under Notification 356/86 and therefore are liable to pay duty @ 225% ad valorem." (c) We find that the Commissioner's finding as regards the decision of the Oudh Sugar Mills' case [1978 (2) E.L.T. (J 172)] that the same was with respect to non-accountal of certain quantity of input is not correct. That decision is based on a case that arose out of a 'variance' observed between the formula weight and actual weight as in the present case. The Supreme Court quashed the demand made on the basis of 'formula weight'. The only difference between the two cases, the matter decided by the Supreme Cour....
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.... the issues herein are squarely covered in favour of the appellants by the law as laid down by the Apex Court. (d) The variance observed by the Commissioner is between the theoretical quantity and actual quantity based on a formula and such variance established, without following the procedure prescribed by the Cigarette Manual cannot be considered and lead to a conclusion, that the 'Cut Tobacco' has been not used but removed without rolling of cigarettes. The 'variance' in the theoretical weights and the actual weights is an accepted phenomenon in a cigarette factory and Appendix 'F' has been prescribed as a Control Register by the Cigarette Manual to be maintained by the Jurisdictional Excise Officer. It is surprising that this data of 'variance' if any, based on the Appendix 'F' Control Register has not been relied upon by the Department to allege unaccounted removal of 'Cut Tobacco'. The phenomenon of 'variances' in a cigarette factory cannot be nullified by merely revising the formula. This fact of variances in the cigarette factory is an accepted position by the Departmental as well as in Tribunal decisions. Therefore, the difference, between formula weight and actual....
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....356/86 is called for. We also do not concur with the findings of the Commissioner as regards Appendices C and E arrived at by him. (e) Lot of emphasis has been placed by Revenue on the issue of the weight of paper having been accounted in Appendix 'C' register. There is no doubt that register 'C' is to account 'waste cigarettes' i.e. at the cigarette rolling stage. The proforma in column 3 shows the quantity received and thereafter in column 5, it has to show the quantity of Dust, Column 6 the Quantity Shorts and thereafter on Column 7, Quality Actually/Used is worked out, and the number of cigarettes rolled is entered. Cigarettes wasted (such as not correctly rolled) would get entered in Column 5 or 6 depending upon their actual state. This would be obviously be in weight since waste cigarettes being incomplete, cannot be counted in numbers and would have paper, etc., cover with the paper used. Keeping the same in mind, there is nothing abnormal in the appellants contention that at Appendix 'C' stage they cannot show the separate weight of paper and tobacco in the waste cigarettes. Since that can be known only after slitting of such waste cigarettes i.e. at Waste Cigarette....
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.... use of the said cut tobacco. One of the columns showing the disposal of cut tobacco is "waste cigarettes". Again shown in kilograms. The weight shown here is carried over to Appendix 'E' (Waste Cigarettes Account), wherein the issuing of the waste cigarettes for slitting is shown, and the weight of the waste cigarettes is segregated after slitting, into paper, smalls and sand. This clearly shows that the weight of the waste cigarettes in Appendix C was gross weight, and included the weight of paper in which the tobacco is rolled to constitute a cigarette. As the weight of paper contained in the waste cigarettes in Appendix C is wrongly accounted against the cut tobacco in the same Appendix, it is clear that cut tobacco equal to that weight remains unaccounted and did not go into the cigarette manufacturing process. The Appendices maintained by the assessee clearly show the quantity of cut tobacco that was used in the manufacture of cigarettes (including waste arising in the process of manufacture). A quantity equal to the weight of paper contained in the waste cigarettes in App. C is not so used, in terms of the assessee's own accounts, and is not eligible of the benefit of ....