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M/s I.T.C. LTD. Versus Commissioner of Central Excise, Bangalore And Others

2017 (10) TMI 552 - CESTAT ALLAHABAD

Parts of cigarette packets - excisability/marketability - Whether parts of cigarette packets namely slides/slits (inner frame) are excisable goods within the meaning of CETA 1985? - Natural Justice. - Held that: - The ruling in the case of M/s Zupiter Printing versus Union of India [1991 (3) TMI 394 - DELHI HIGH COURT] supports the case of the appellant herein, as the issue therein was taxability of cigarette shells only manufactured by M/s Zupiter Printing by way of job work for the cigaret .....

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etable. - In the facts of the present case slide/slits are not goods or product known in the market and hence not marketable. - The slide/slits in the facts of the present case are specific to the appellant as manufactured by them for their own brand separately and cannot be inter-used by other cigarettes manufacturers for their brands. In the facts of the case that the slides/slits are also not interchangeably usable by the appellant itself for its various cigarettes being manufactured .....

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ding that slides/slits are not capable of being marketable and accordingly are not excisable/dutiable. - Appeal allowed - decided in favor of appellant. - E/Cross/153/2007, E/1207, 1205 & 1206/2007-EX [DB] - A/71184 71186/2017-EX[DB] - Dated:- 27-9-2017 - Mr. Anil Choudhary, Member (Judicial) And Mr. Anil G. Shakkarwar, Member (Technical) Shri Ravinder Narain (Adv.), Shri Ajay Aggarwal (Adv.) & Ms. Mallika Joshi (Adv.) for Appellant Shri Pawan Kumar Singh (Supdt.) AR for Respondent ORDE .....

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erved that the question of marketability of slides and slits was not taken in reply to the Show Cause Notice, yet, having regard to the fact that the question was raised in the synopsis of submissions before the Appellate Authority, but was not dealt with specifically by it, further it was urged before the Tribunal and no objection was taken as to maintainability of the contention on the ground that it was not raised before the Original Authority, we do not consider it appropriate to reject the .....

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esh. Similarly, on the same facts and circumstances the appeal of the appellant before the Apex Court regarding its Bangalore unit being Civil Appeal No.7515-7517 of 2004 was also disposed of in same terms, vide order dated 08/02/2006 remanding the matter to the Learned Commissioner (Appeals), Meerut-I 3. Accordingly as directed the appellants herein appeared before the Learned Commissioner (Appeals), Meerut-I and made their various submissions with regard to marketability & manufacture, whi .....

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d company at Saharanpur since May, 2002. Earlier also I have worked in several factories manufacturing cigarettes of M/s ITC Ltd. at different locations and I have experience in the field of the production of cigarettes and packing thereof for the last over 20 years. I am fully conversant with the entire process involved in packing of cigarettes including the process of preparing shell type and hinge lid type of cigarettes packets as well as the products and the equipment available in India for .....

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is purpose, a flat 'cut out' of paper board is required. Cigarettes, which are prepared on a separate cigarette making machine, are brought on a trolley to the packing machine. These cigarettes are put and folded in an aluminium foil. This folded aluminium foil containing the cigarettes, is placed on the aforesaid flat 'cut out' of paper board. This 'cut out' of paper board with the folded aluminium pack placed on it, is then slided into the shell, and the two ends of the .....

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es, cannot be used for another brand of cigarettes. For 'cut outs' for each brand of cigarettes, in the first instance, a suitable paper board is procured which is duty paid. The paper board required for packing different cigarettes is of different specifications. The difference in specification may be on account of (a) thickness, which varies from 205 to 250 gsm (grams per sq. mtr). (b) Nature of the Board i.e. foil, metalized, coated, folding box Board, etc. (c) colour, which may be wh .....

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Cigarettes, it cannot be used for any other brand of Cigarettes. After printing, the slit reel is cut to obtain the 'cut out' of the requisite width, length and shape. In this manner, printing is done first and the cutting and creasing is done subsequently on the same machine. The cut outs for each brand of cigarettes are 'design specific.' The printed 'cut out' for each brand of Cigarettes has a distinct and different marking thereon which contains particulars and detail .....

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s, are also separately specified for each brand of Cigarettes, which are also printed thereon. Keeping these factors into consideration, the following details were required to be printed for each brand of Cigarettes during the period relevant for the above appeals, for each brand of Cigarettes:- (i) Brand name like "Capstan Standard" (ii) MRP like "₹ 4.00 incl. of all taxes" (iii) Name and address of the manufacturer like "Mfd. By I.T.C. LTD., 37, Chowrenghee Calcu .....

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h 'cut out' can only be used, for the cigarette packet for packing only that brand of Cigarettes. As such, these cut outs have to be used within the process of packing cigarettes of a particular brand, by the particular manufacturer of Cigarettes himself within his factory and he has to necessarily use it himself and that too for the purpose of packing only a particular brand of cigarettes. It is not possible for the appellant to use such 'cut out' for packing any other cigarette .....

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ar brand of cigarettes and are not a standard item, which can be interchangeably used by competing manufacturers packing cigarettes of different brands. These cut outs have never been sold by the appellant nor are they capable of being sold to any other manufacturer of Cigarettes. Such printed cut outs are nothing but duty paid paper board having the requisite material printed thereon and cut to specific size and shape. Such cut outs are not available in the market and are not a product which is .....

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anufacture to attract duty of excise. The twin tests for excisability of marketability and manufacture is not satisfied in respect of such 'cut out. CUT OUT' FOR HINGE LID TYPE OF PACKETS. Cigarettes are also packed in hinge lid type of packets. In order to ensure that such packets, when opened, can be firmly closed again, a paper board 'cut out' is pasted on the inner front side of the packet, so that when the lid of the packet is closed, the lid gets stuck by the said 'Cut .....

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ch, the 'cut out' required for packets for different brands is of different size and shape. Keeping in view the specifications of the packet required for each brand of cigarettes, the nature of paper board also different in terms of quality, thickness, colour, etc. The paper board of the desired specifications is cut to different size and shape as required for the packet for the particular brand of cigarettes. Hinge lid type of packets are prepared on highly sophisticated, automatic impo .....

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ets are first obtained in a flat form which are pre printed and cut to the desired size, shape and design. These are also referred to as Hinge lid blanks (HL blanks). The brand and trade name, licence no., name and address of the factory, MRP and other details, as required by law and in particular the declarations required to be made under Rule 93 of the Central Excise Rules, 1944 and the Package Commodity Rules, 1977, framed under the Standard of Weights & Measures Act, 1976 are already pri .....

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of dispute in the present appeals. In this stream, duty paid paper board is used, which is pre cut into Slit Rolls of the desired width. The width is as per the requirement for a hinge lid packet for a particular brand of Cigarettes. These Slit Rolls are fed in the same machine. A cutter which is specially designed to cut the aforesaid paper board into 'cut out' of the desired shape and specifications is installed in the machine as a component part thereof. The paper board fed into the m .....

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thin this stream of the same machine. The aluminium foil is then automatically folded, to fully cover the cigarettes from all sides so as to form a bundle containing cigarettes. The bundle of cigarettes in aluminium foil comes from one stream of the same machine. The paper board 'Cut Out' comes from the other stream of the same machine, which is put on top of the aluminium bundle containing cigarettes. From another stream of the same machine, the printed HL Blanks in flat form comes, on .....

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automatically folded from the sides as well as from the top. In this manner, the printed HL Blank is converted into a hinge lid packet containing cigarettes with the 'cut out' pasted on the inner front side of the packet. The aforesaid cigarette packing machines which are used for packing cigarettes in hinge lid type of packets are extremely fast and pack at the rate of about 110 to 420 packets per minute. In this manner on an average, (keeping into consideration packets of 10s and 20s), .....

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out from this automatic machine or that such cut outs can be fed into the said packing machine. Such paper board Cut Outs are not a marketable commodity and are not known to the market. The cutting of paper board has to be necessarily done within the said packing machine as an in process material in a continuous process, which culminates in a hinge lid packet of Cigarettes. These are cut within the machine by a cutter which is specially designed to cut the desired size and shape of the 'cut .....

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ndia who has any equipment to separately produce such paper board 'cut out's to be supplied to any other manufacturer of cigarettes for packing them in hinge lid type of packets. It is also not possible to do so. There is no possibility of any cigarette manufacturer using any such paper board 'Cut Out' from any outside source. Keeping in view the high speed automatic process of packing of hinge lid type of cigarettes and the special sophisticated, automatic and high speed machine .....

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arket comes into existence. Such cut outs are also not capable of being marketed and cannot be described as a marketable commodity. They are not generally bought and sold in the market and does not ordinarily come to the market for buying and selling. It is not a product which can be sold to the 'consumer'. There is no possibility at present, keeping in view of the aforesaid automatic machines available for making hinge lid type of packets to even consider the supply of such paper board .....

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mercial name. They are cut to size and shape for a particular brand of cigarette having a hinge lid type of packet of a specification of size and design to suit the requirement thereof, The preparation of these paper board Cut Outs within the machine in a continuous and uninterrupted process, cannot be described as an independent process of manufacture and such cutting of paper board, does not bring into existence a new, distinct and different commercial commodity known to the market, so as to a .....

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llants also appeared for personal hearing and also led evidence in support of the contentions. They also made available Mr. Aniruddha Sengupta who had sworn the affidavit for the purpose of cross-examination /explanations if required. The Learned Commissioner (Appeals), has been pleased to hold that the slides/slits are marketable and hence excisable observing that the contentions of the appellant that slides/slits (inner frame) are not manufactured products since no different or new commercial .....

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M/s Zupiter Printing the party was manufacturing only outer shells of cigarette packets for the cigarette manufacturer. Thus, the marketability of cigarette packets and parts thereof, that is inner frames is established beyond doubt as the same is manufactured by the manufacturers other than the cigarette manufacturer has been found in the case in M/s Zupiter Printing. The Learned Commissioner has also made reference to the Larger Bench ruling of this Tribunal in C.C.E. Versus G.T.C.-2005 (184) .....

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n the continuous uninterrupted integrated process of filling of milk in them are not capable of being sold to the consumers in the market as they do not come into existence independent of filled pouch. Further, taking notice of the contention of the appellant with respect to the slides/slits (inner frames) which are prepared within the automatic machine and used within the continuous uninterrupted integrated process, the same principle should be applied. The Learned Commissioner (Appeals) observ .....

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nner frame) are not marketable, whereas the Revenue is in cross objections in support of the order of the Learned Commissioner (Appeals). 6. The Learned counsel for the appellant in support of the contentions have taken us through the ruling of the Apex Court in the case of Union of India Versus M/s Sonic Electrochem (P) Ltd. - 2002 (145) E.L.T. 274, wherein the question before the Court was whether plastic body, a part of Electro Mosquito Repellent (EMR) and fragrant mat are chargeable to excis .....

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r clause 5(d) of Notification No.160/1986 CE, wherein the contention of Revenue was that under clause 5(f) of the Notification, plastic body a part of EMR is liable to excise duty. The Apex Court observed that for an item to be dutiable, there are twin requirements under the Tariff Act. Being (a) manufacture and (b) marketability. There is no dispute as regards the manufacture, that the plastic bodies are manufactured by the assessee, but the germane question is whether it has marketability. The .....

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fact that different manufacturer of the same product have a different plastic body to suit its design and requirement. If one goes to the market to purchase plastic body of EMR of a particular manufacturer either for replacement or otherwise one cannot get it in the market because it is not a commercially known product. 7. Reliance is also placed on the ruling of the Apex Court in the case of Board of Trustees Versus Collector of Central Excise, A.P. - 2007 (216) E.L.T. 513, wherein the Visakhap .....

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ss constituting manufacture and secondly marketability. In the facts of the case the second test of marketability is in issue. It is well settled that goods are manufactured with the object being sold in the market. If the goods are not capable of being sold then the test of marketability is not fulfilled. Further, the burden is on the Department to prove whether there is the process which constitutes manufacture and secondly, whether the product is marketable. The Hon'ble Court further obse .....

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e of M/s Gujarat Nermada Valley Fertiliser Company Ltd. versus Collector of Excise & Customs - 2005 (184) E.L.T. 128 (SC), wherein also relying on the ruling in the case of Union of India Versus M/s Sonic Electrochem Private Ltd. (supra), it was held that the marketability onus lies on Revenue to prove marketability. Marketability cannot be established on basis of mere stability. Sufficient proof that the product is commercially known is necessary. Unless a product is capable of being market .....

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(152) E.L.T. 241, wherein the question before the Apex Court was whether cigarette packets would be other packing containers or boxes within the meaning of Tariff Item No. 17 of Central Excise Tariff Act, in view of the contention of the Revenue that cigarette packet is a small paper box and cannot be termed as a container which is relatively large enclosure. The contention of the assessee was that cigarette packet would be neither packaging container nor a paper box. Under the tariff as releva .....

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The Notification No. 66/82 CE provided exemption to articles of paper or paperboard, except printed boxes and printed cartons (including flattened or folded printed boxes and flattened or folded printed cartons) whether the assembled or unassembled condition. It was the contention of the appellants that under Rule 93 the Department itself considers the cigarette packets as packets and not boxes and in sharp contrast the rules specifically refers to boxes/booklets in respect of matches in Rule 7 .....

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cket cannot be termed as container as discussed in M/s Punjab Anand Lamp industries (supra), but it can be considered a small packet or a box containing cigarettes. Further, with respect to marketability, reliance was placed on the ruling in M/s Asia Tobacco Company Ltd. Versus Union of India, 1992 (58) E.L.T. 418 Madras High Court, which indicated that cigarette packets are marketable. In that case, what was marketed and purchased was outer shell of cigarette packet for keeping in the cigarette .....

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hat a cigarette packet containing shell and the slide covering all sides would be a box. Further, there is no question of double taxation because excise duty on cigarettes is separately levied and in regard to packet duty is to be levied on the basis of Tariff Item 17(4). 9. The Learned counsel also relied on the ruling in the case of M/s Zupiter Printing and other Versus Union of India (supra), wherein the issue before the Hon'ble Delhi High Court was whether outer shells of cigarette packe .....

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which are open from both sides be classified as box or container. The fact in the said case was that M/s Zupiter Printing was manufacturing outer shells of printed sheets supplied to it by Godfrey Philip India Ltd, a manufacturer of cigarettes on job work basis. M/s Zupiter Printing was only charging conversion charges that is converting the printed sheets into outer shells. The outer shells prior to the introduction of the Finance Bill, 1982, were cleared under Tariff Item No. 68, which is a r .....

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ibed as outer shell, the other a slide which is inserted in the shell to complete the packet. The said packet becomes complete only when slide is inserted into the outer shell. The outer shell cannot be itself hold or contain the cigarettes. It is only when the slide which contains the cigarettes is inserted in the shell, it becomes a cigarette packet. The High Court further observed that the question for consideration, whether the outer shell manufactured by M/s Zupiter Printing which has no li .....

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old and bought. But at the shell stage, it can neither be bought nor sold in the market. Accordingly, it was held that the shells of cigarette packets manufactured by M/s Zupiter Printing can neither be bought nor sold in the market. Accordingly it held that the shells of cigarette packets manufactured by M/s Zupiter Printing are not excisable under Entry 17(4) of the first schedule, as introduced by Finance Act, 1982. The Learned counsel have also relied on the ruling in the case of C.C.E. Vers .....

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efore an officer, normally speaking, if he so desires to challenge the correctness of the averments made in these affidavits, he should call the deponent for being cross-examine or test the correctness of the averments by any other means open to him and it would not be proper for the officer to arbitrarily reject the affidavits as incorrect. Further observed that the method followed by the Assistant Collector in dealing with the experts affidavit and trade opinion is clearly contrary to the obse .....

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ed to describe a packet of cigarettes. It was also observed that it is settled law that for the purpose of classification of the goods for levy of excise, the description of the articles is to be determined in accordance with the understanding prevalent in the trade. The cigarette packet is only known as packet in the trade parlance and not as box. Thus, the cigarette packet can only be a container, or an article made of paper and would be wholly exempt from duty under the said Notification and .....

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the outer shells and inner slides cannot be subjected to any separate assessment. Whatever it may be, there is absolutely nothing to show that the outer shells are to be called box. Thus, as packets are not liable to excise duty. Accordingly, it was held against the Revenue that shells are not dutiable. The Learned counsel also relied on the ruling of the Apex Court in the case of Commissioner of Income Tax Versus Brij Lal Lohia and Mahabir Prasad Khemka - 1972 (84) I.T.R. 273, wherein it was he .....

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nd no material is brought by Revenue in support of marketability. 12. The Learned AR for Revenue have relied upon the impugned order. 13. Further relying on the grounds of cross objection, it is urged that the Learned Commissioner (Appeals) have given due consideration to the ruling in the case of C.C.E. Vs M/s S.R. Tissues - 2005 (186) E.L.T. 385 (SC), and accordingly held that the paper board is cut to different shape and size and undergoes processing of creasing, folding and printing before b .....

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given his findings. Accordingly, further placing reliance on the ruling in the case of Delhi Cloth, & General Mills, an entirely new product has emerged after cutting slitting, folding and creasing of paperboard known as a slides/slits (inner frame) in the tobacco trade, industry and further in view of the M/s Zupiter Printing (supra), the marketability of cigarette packets and part thereof is established. The Learned Commissioner (Appeals) have elaborated the point of marketability, by obse .....

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ival contentions we find that the findings of the Learned Commissioner (Appeals) are erroneous and factually wrong. The Learned Commissioner (Appeals) have whimsically brushed aside the affidavit of Mr. Aniruddha Sengupta filed in support of the contentions by the appellant. Neither any question was put by the Court below to the said Mr. Aniruddha Sengupta nor the Revenue (in spite of being available), chose to cross-examine the said Mr. Anirudh Sengupta. Thus, we hold that the contentions and a .....

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