In a major ruling, the Kolkata bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) ruled that excise duty exemption for tobacco refuse, by-product in cigarette manufacturing
The respondent M/s. NTC Industries Limited was engaged in the manufacture of Cut tobacco, Smoking Mixture and Cigarettes. It was alleged that the respondents manufactured and issued 10,33,255 Kgs. of cut-tobacco for captive consumption in the production of cigarettes, out of which 58,364 Kgs. and 31,194 Kgs. i.e. 89,558 Kgs. of cut-tobacco were converted into winnows/spills and tobacco dust during processing.
Accordingly, the said proportionate cut-tobacco was not captively used for manufacture of cigarettes but disposed of otherwise without payment of duty and liable to pay Central Excise duty. It was also observed that the respondents are not entitled to the benefit of Notification 121/94-CE dated 11.08.1994, as amended on proportionate Cut Tobacco not captively consumed in the manufacture of cigarettes.
A show cause notice was issued to the respondent to demand Central Excise duty on clearance of winnows/spills and tobacco dust for the period April 1997 to February 2002. The matter was initially adjudicated by the adjudicating authority, and demand of duty was confirmed.
The bench clearly observed that tobacco refuse cannot be considered as final product but has to be treated as a by-product. By-product or waste may be liable to excise duty but the bench does not consider the liability of the tobacco refuse to excise duty.
In the present case, the reading of the show cause notice clearly shows that the revenue was treating the “Tobacco refuse” as a by-product. The original adjudicating authority also confirmed the demand by considering the “Tobacco refuse” as a by-product assessee are not manufacturer of “Tobacco refuse” and the same emerges as a byproduct during the course of manufacture of their final product i.e. Cigarettes and Cut Tobacco.
Further consideration is whether tobacco refuse cleared by the assessee is a ‘final product’ of the assessee. In this case as rightly submitted by the counsel, the assessee was engaged in the manufacture of Cigarette. During the course of manufacturing of Cigarettes, and for the process of manufacturing of Cigarettes, they have to manufacture Cut Tobacco also. Therefore it can be clearly said that the appellant was a manufacturer of Cut Tobacco and Cigarette.Therefore it can be clearly said that the appellant is a manufacturer of Cut Tobacco and Cigarette.
The two member bench of the tribunal comprising Ashok Jindal ( Judicial member) and Rajeev Tandon ( Technical member) highlighted that input namely cut tobacco used in the manufacture of dutiable cigarettes and tobacco refuse is a by-product which emerges during manufacturing, the tobacco refuse is not liable to duty.
The CESTAT Bench held that the respondent was not liable to pay duty on this tobacco refuse/dust, therefore, further does not find any infirmity in the impugned order. The same was upheld and the appeal filed by the revenue was dismissed.
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