TMI Blog1994 (9) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... The allegations in both S.C.N.s can be summed up as below :- The appellants are licensed for the manufacture of cigarettes. They are maintaining the accounts as prescribed under Rule 94 of the Central Excise Rules (accounts prescribed for the manufacture of tobacco products). Cigarettes manufactured on each machine are directly collected from the machine, by machine operators into trays, each tray being marked to contain 1600, 1800 or 1880 number of sticks of cigarettes. The total quantity of cigarettes manufactured in a day is calculated by multiplying the number of trays so filled with the pre-determined quantity of cigarettes contained in the trays, which are recorded in Column 9 of Appendix `C register prescribed in the cigarette manual. This is taken as day s production of cigarettes. The cigarettes filled in trays are transferred to the conditioning/dry room, where they are stored for a specified period at a conditioned temperature. Thereafter, the cigarettes are moved to the packing department. The total number of trays and total number of cigarettes contained therein as are received in the packing section are accounted for respectively in Cols. 2 and 3 of the packing acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The main thrust of the arguments from Shri Ravinder Narain, the ld. advocate, runs as below : 4.1 There is no whisper of any allegation of clandestine removals of cigarettes from the factory and there are no evidences to point out this position. The Collector, in his findings, refers to a case of seizure of 3 cartons of packed cigarettes not being accounted in RG 1, which is yet to be adjudicated. There is no previous record of any duty evasion against the appellants. They are under physical control and production, right from the stage of cut tobacco upto packing of cigarettes and their clearances is subject to daily checks by the officers posted at the factory for exercising physical checks. There cannot be any possibility of removals of cigarettes sticks clandestinely either outside or for consumption inside the factory, without being noticed by the Central Excise officers posted at the factory. They are paying revenue of crores of rupees and the amount of duty evasion alleged is a pittance. 4.2 The allegation in the S.C.N. is only based on the variation between theoretical production on sticks filled in trays vis-a-vis cigarettes packed and accounted in R.G.1 record. RG 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption of cut tobacco, exceeding the tolerance of 2.5% fixed. They have worked out the details for the period of demand indicating that if the theoretical production of cigarettes sticks is to be accepted as correct production, issue of cut tobacco in each month would be more than the actual issue. He refers to the work-sheet prepared by them in this regard to point out that for March 1992 to Dec. 1992, a quantity of more than 1.22 lakh kgs. ought to have been issued in excess of the quantity that was issued, if the department s allegation based on theoretical production of cigarettes in sticks is to be justified. Issue of cut tobacco is done on payment of duty on such tobacco and are subject to clearance by the officers under physical control. Hence such an excess issue without payment of duty on 1.22 lakh kg of cut tobacco is not possible and there is no such allegation even in the S.C.N. Hence, simply based on the discrepancy between sticks of cigarettes recorded on theoretical basis vis-a-vis the quantity of cigarettes actually packed, conclusion cannot be drawn that the cigarette sticks have escaped the levy of duty. 4.6 Penalty has been imposed under Rule 173Q. Cigarettes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be to the extent noticed here running into over 4 crores of cigarettes in one case and over 2 crores in another case. Hence, in such a case even clandestine removal can be presumed. In this context, he refers to the decision of East Regional Bench in the case of Siemens Ltd. reported in 1994 (70) E.L.T. 305. 5.5 Since the cigarettes produced and accounted in the record pres- cribed by the department are not shown to have been packed and cleared on payment of duty, they are to be deemed to have escaped levy and this is a case of non-levy of these cigarettes. Hence, demand under Section 11A is justifiable. 5.6 As regards the margin allowed for 2.5%, it is in regard to cut tobacco consumed vis-a-vis cigarettes packed. There is no margin allowed excepting for actual wastage in packing section, in regard to cigarette sticks produced vis-a-vis those packed. Obviously, there is no need for allowing a margin, because cigarettes have already come into existence and they are only required to be put in packs. Hence, allowance can be permitted only to the extent of damage in packing section. 5.7 Even according to the ld. counsel s contention on behalf of the appellants, the differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and filling is to be done upto the line drawn on the wall. On this basis pre-determination of the quantity filled for each brand is indicated. There is no mechanical filling or flow meter attached to the cigarette making machine for indicating the number of sticks actually produced. 6.3 In the context of the above undisputed factual position, we are required to first consider whether the number of cigarette sticks shown as produced by arriving at the figure by multiplying the number of filled trays with the pre-determined capacity of each tray, could be construed to be actual production of cigarettes accounted in the records at Appx. `C `D . On a careful consideration of the issue, we are to hold that the figure of cigarette sticks shown as daily production cannot be construed to be actual production for the following reasons. The very method of filling the trays as indicated in the earlier para leaves much scope for imponderables such as temptation either for earning production incentive bonus or on account of defective line or other human failures. Line drawn on the wall need not be uniform at all places. Paper placed on the trays may have rinkles. There is no scope for clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, even this evidence is wanting. Since cut tobacco is cleared on payment of duty, for which set-off is admissible and consumption of the quantity of cut tobacco cleared vis-a-vis cigarettes accounted for in RG 1 records is in keeping with the norms prescribed and in the absence of any allegation of clandestine removal of cut tobacco for arriving at this production, we are lead to hold that this quantity could not be construed to have been actually produced, which has escaped levy. 6.6 The factors pleaded by the ld. counsel for the revenue are mainly based on the assumption that quantities of sticks recorded in `C register and `D register are actual production, which they should account for by way of packing, failing which they should pay duty. Since we are to hold that these figures cannot be held to be actual production of cigarettes but can only be construed to be rough and ready guide for causing further investigation, failure to account for non-existent cigarettes by way of packing could not attract the mischief of non-levy referred to in the provisions of Section 11A of the Central Excise Act. 6.7 Moreover, these differences are recorded and are open for scrutiny and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s based only on presumption and hence did not support the findings of the Government of India in their order confirming the duty demand. They have held that the conclusion drawn by the authorities to the effect that there is a non-accountal, is based only on inference involving unwarranted assumption and such a finding is vitiated by an error of law. In the case of the appellants before us, we find similar circumstances. Actual production of sticks is to be presumed on the calculation of number of trays filled manually (susceptible to imponderables and human errors). Figures in Appx. C are recorded uniformly adopting 1800 or 1600 sticks per tray, irrespective of the quantity actually filled. Hence conclusion arrived at on the basis of such a theoretical basis, without any other tangible or even circumstantial evidences, would be vitiated by an error of law, as held by the Supreme Court. The other case laws cited by the ld. counsel for the appellants are not discussed here, since we find that the ruling of the Supreme Court, in some what similar circumstances, is answering the question. As regards the case law cited by Shri Bulchandani, we find that it is in regard to manufactured e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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