TMI Blog2002 (9) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... D. stage, the 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 wastes mentioned herein are physically weighed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 be noted that while inputs into the Appendix C stage are all recorded by weight (in Kgs.), the output, from the Appendix C , Cigarette Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 the quantity of tobacco that should ideally could be in a cigarette stick, assuming certain standard processing and manufacturing parameters. The actual performance may, and almost necessarily does vary from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 the quantity of Cut Tobacco actually used in the manufacture of cigarettes and the quantity of Cut Tobacco that ought to have been used in terms of the theoretical specification weight declared by the appellant per cigarette (arrived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of a unit weight of tobacco, even on a day to day basis. Any order of the Collector which was purely based on the theoretical data arrived in that case was set aside. The present show cause notice also proceeds purely on theoretical basis. The Collector has not given a finding and has not relied on Cigarette Manual Appendix F proforma, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 356/86 to the amount of cut tobacco which is in excess of the amount which would have been used as per the formula declared by M/s. ITC Ltd. and concludes that the arguments given by the appellants are not acceptable for the reasons of :- (i) on nature of tobacco; and (ii) the department was aware of the fact of the variance are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Court, the product in question was Sugar, while in the present case the final product is cigarette. That would be no reason to uphold the Collector s finding, as regards the non-applicability of the Supreme Court s decision in the present case before us. The learned SDR s plea of M/s. ITC Ltd. themselves having declared the formula notwithstanding. If M/s. ITC had an iota of mens rea, they could and wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 weight cannot be avoided or wished away. A perusal of Appendices C and E proforma relied by the Department, reveal that they are not re-conciliation registers but they are only cigarette manufacturing accounts and waste cigarette and smalls accounts respectively. The finding of the Collector that Appendices C and E are not reconciled, itself clearly shows that the adjudicating authority has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity 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 Account, in Proforma E which stipulates the accounts of weight of paper to be shown in Column No. 17 separately. The learned Advocate for the appellants has demonstrated before us, that by reading the figures in Appendix C , in exclusion to the records in Appendices D and E will cause an error, the same that Department is arriving at. We cannot find anything amiss in his statement from the detailed charts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 concessional rate of duty under Notification 356/86. The assessee has nowhere refuted the arithmetical calculation in terms of which the demand of duty was made, but has only taken the plea that at the stage of App. C it was not possible to separate the weight of paper. (If so, appropriate adjustment should have been incorporated after slitting, by bringing the figure from App. E and adjusting the opening balance o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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