Custom, Excise & Service Tax Tribunal
Vst Industries Ltd vs Commissioner Of Central Excise, ... on 3 December, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Final Order Nos. 22358-22361 / 2014 Application(s) Involved: E/MISC/312/2012 in E/3134/2012-DB, E/320/2012-DB, E/28124/2013-DB, E/1664/2011-DB Appeal(s) Involved: E/3134/2012-DB, E/320/2012-DB, E/28124/2013-DB, E/1664/2011-DB [Arising out of Order-in-Original No. 02/2012 dated 20/07/2012 passed by the Commissioner of Customs, Central Excise and Service Tax, Hyderabad-II] [Arising out of Order-in-Original No. 07/2011 dated 15/12/2011 passed by the Commissioner of Customs, Central Excise and Service Tax, Hyderabad-II] [Arising out of Order-in-Original No. 06/2013 dated 08/08/2013 passed by the Commissioner of Customs, Central Excise and Service Tax, Hyderabad-II ] [Arising out of Order-in-Original No. 01/2011 dated 15/03/2011 passed by the Commissioner of Customs, Central Excise and Service Tax, Hyderabad-II] VST Industries Ltd. Azamabad, Hyderabad 500 020 Appellant(s) Versus Commissioner of Central Excise, Customs and Service Tax Hyderabad-II L.B Stadium Road, Basheerbagh, Hyderabad 500 004 Andhra Pradesh Respondent(s)
Appearance:
Ms. L. Maithili, Advocate Century Court, 8/1, Ground Floor, 2nd Street.
Chennai 600 086 Tamilnadu For the Appellant Mr. A.K. Nigam, AR For the Respondent CORAM:
HON'BLE SHRI B.S.V. MURTHY, TECHNICAL MEMBER HON'BLE SHRI S.K. MOHANTY, JUDICIAL MEMBER Date of Hearing: 03/12/2014 Date of Decision: 03/12/2014 Order Per : B.S.V.MURTHY In all the four appeals the issue involved is common and therefore all the four appeals are taken together and a common order is being passed.
2. Appellant is engaged in the manufacture of Cut Tobacco and Cigarettes. Tobacco leaf is an input for the manufacture of Cut Tobacco and the Cut Tobacco manufactured by the appellant is being captively consumed in the manufacture of Cigarettes. Leaf Tobacco is processed and Cut Tobacco is produced and in this process, wastage like stalks, stems etc arise. Thereafter Cut Tobacco is processed further into Cigarettes and during the course of manufacture of Cigarettes which is entirely machine driven, certain amount of wastages in the form of dust, sand waste and floor sweepings arise. These are collectively known as Tobacco refuse. At present Tobacco Refuse which would arise is classifiable under Tariff Item 2401 3000 of the schedule to the Central Excise Tariff Act 1985. According to the estimate of the assessee, about 95-96% of the Cut Tobacco gets used up in the manufacture of cigarettes and 4 to 5% as Tobacco refuse. It is their submission that tobacco refuse is nothing but wastage emerging during the course of manufacture of Cigarettes and is not obtained by any process of manufacture but in the course of manufacturing process to produce their final produce namely Cigarettes.
3. The tobacco refuse which is generated during the manufacture of cut tobacco from tobacco leaf and during the manufacture of cigarettes from cut tobacco as mentioned earlier is an item classifiable under schedule to the Central Excise Tariff Act 1985 under CETH 2401 3000. The tobacco refuse is exempted from payment of duty under Notification No. 3/2005 CE dated 24.02.2005 as amended and the appellant has been clearing tobacco refuse at nil rate of duty. The reason for initiation of the proceedings against the appellant to demand duty on cut tobacco denying the benefit of Notification No. 52/2002 CE dated 17.10.2002 as amended are enumerated from paragraph 3 to paragraph 5 of the order-in-original No. 6/2013 passed by the learned Commissioner and the same are reproduced below:
3. As per Clause (d) to Section 2 of the Central Excise Act, 1944, excisable goods means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise. As per the Explanation to the subject Clause inserted with effect from 10.05.2008- For the purposes of this clause, goods includes any article, material or substance which is capable of being brought and sold for a consideration and such goods shall be deemed to be marketable. 3.1. Further, consequent to the amendment to Section 2(d) of the Central Excise Act, 1944, CBEC, vide Circular No. 904/24/09-CX, dated 28.10.2009, clarified that:
.the bagasse, aluminium/zinc dross and other such products termed as waste, residue or refuse which arise during the course of manufacture and are capable of being sold for consideration would be excisable goods and chargeable to payment of excise duty.
3.2. Tobacco Refuse has been specified under Chapter Sub-Heading No. 24013000 of the First Schedule to the Central Excise Tariff Act, 1985 hence the same are excisable goods. M/s. VST is selling the Tobacco Refuse for a consideration and hence the said product is marketable. Further, the Tobacco Refuse, being capable of being bought and sold for a consideration, the same are to be considered as goods.
3.3. In view of the above, it appeared that Tobacco Refuse, which falls under Chapter Heading No. 24013000 of the First Schedule to the Central Excise Act, 1985, is having the following characteristics:-
i. They are goods;
ii. They are excisable goods; and iii. They can be sold for a consideration
4. Cut Tobacco falling under Chapter Sub-Heading No. 24039970 (under Chapter Heading 2404.20 upto 27.02.2005) is a dutiable product and M/s. VST has been captively consuming the said product within their factory subject to the conditions specified under the Captive Consumption, Exemption Notification No. 52/2002-CE dated 17.10.2002, as amended. Proviso to the said Notification stipulates that nothing contained in the said Notification shall apply to inputs used in or in relation to the manufacture of final products which are exempt from the whole of the duty of excise, leviable thereon or are chargeable to nil rate of duty.
5. Further from the Cut Tobacco captively consumed in the manufacturing process, M/s. VST manufactures Cigarettes (Chapter Sub-Heading Nos. 24022010, 2422020, 24022030, 24022040 and 24022050) and Tobacco Refuse, which arises during the course of manufacture of Cigarettes and are capable of being sold for a consideration. As mentioned above, Tobacco Refuse is a marketable and excisable goods. Out of the two final products viz., Cigarettes and Tobacco Refuse (which arises during the course of manufacture) manufactured by M/s. VST from the captively consumed Cut Tobacco, Cigarettes are dutiable and the Tobacco Refuse is chargeable to Nil rate of duty upto 27.02.2005 and exempt from the whole of the duty of excise leviable thereon with effect from 28.02.2005. Thus, it is clear that the Notification No. 52/2002-CE dated 17.10.2005, as amended, is not applicable to that quantity of Cut Tobacco, which has gone into the manufacture/production/generation of Tobacco Refuse.
4. Proceedings initiated periodically on this ground have culminated in impugned orders confirming demand for duty on Cut Tobacco captively consumed attributable to Tobacco Refuse and the details are as under:
Sl. No. Appeal No. SCN No.& date Order-in-Original No. & date Duty (Rs.) Penalty (Rs.) 1 E/1664/2011 O.R. No. 02/2010 dt. 06.01.2010 01/2011 dt. 15.03.2011 4,48,41,397/- 4,48,41,397/-
2 E/320/2012 O.R. No. 23/2010 dt. 06.01.2011 07/2011 dt. 15.12.2011 1,14,40,020/- 15,00,000/-
3 E/3134/2012 O.R. No. 14/2011 dt. 05.12.2011 02/2012 dt. 20.07.2012 1,40,45,842/- 10,00,000/-
4 E/28124/2013 O.R. No. 21/2012 dt. 03.12.12 06/2013 dt. 08.08.2013 1,30,11,933/- with interest 10,00,000/-
It can be seen from the above that mandatory penalty also has been imposed in respect of the demand for more than Rs. 4.48 crores on the ground that the appellants have resorted to suppression with an intention to avail the benefit of exemption Notification No. 52/2002-CE dated 17.10.2002. Paragraph 21 of the order-in-original No. 01/2011 regarding suppression is relevant and is reproduced below:
21. I find that the tobacco refuse is generated in the factory at two stages. Firstly, during the course of manufacture of cut tobacco from the tobacco leaf and secondly, during the course of manufacture of cigarettes from the cut tobacco. M/s. VST never informed the Department that the quantity of tobacco refuse which is shown in the ER1 return is the total quantity of tobacco refuse generated at both the stages. I find that M/s. VST has neither declared to the Department that the Tobacco Refuse being generated out of Cut Tobacco consumed captively without payment of duty in their factory is being sold for a consideration, nor have assessed and paid the excise duty before the stipulated due date. Under the above circumstances, I hold that there was suppression on the part of the assessee with an intention to avail the benefit of exemption Notification No. 52/2002-CE, dt. 17.10.2002, which is not available to them. Accordingly, I hold that the invocation of extended period is sustainable.
5. The learned counsel for the appellant, submitted that the issue is covered by the decision of the Tribunal in the case of Golden Tobacco Ltd. Vs. CCE, Vadodara-II [2010 (259) E.L.T. 269 (Tri.-Ahmd.)]. He submits that the Commissioner has not followed the decision only on the ground that in that case Tribunal was considering the application of provisions of Rule 6 of CENVAT Credit Rules whereas in the present case the dispute relates to availability of benefit of Notification No. 52/2002. He also submits that Notification No, 52/2002 provides for exemption to Cut Tobacco used in the manufacture of final products which are not exempted. Therefore what is required to be examined is whether tobacco refuse is a final product for the appellant or not. For this purpose he relies upon the decision in the case of Magnum Ventures Vs. CCE, Ghaziabad [2014 (303) E.L.T. 226 (Tri.-Del.)] wherein it was held that sludge and pulper waste cannot be considered as manufactured product at all. He also relies upon the decision in the case of CCE, Chandigargh Vs. Markfed Vanaspati & Allied Industries and others reported in [2003 (153) E.L.T. 491 (S.C.)] to submit that spent earth which has a residue cannot be considered as a product manufactured. He also relies upon the decision in the case of Commissioner Vs. Shakumbari Sugar & Allied Industries Ltd. [2005 (189) ELT A62 (SC)] to submit that bagasse which has obtained during the course of manufacture of sugar is waste covered under Central Excise Rules 57(D)(1). Reliance was also placed on the decision in the case of Bhavani Cigarettes Pvt. Ltd. Vs. CCE, Mumbai [2005 (189) E.L.T. 182 (T)] wherein the Tribunal took the view that the stand taken by the Revenue that Cut Tobacco was not entitled to exemption to the extent it contained tobacco dust or tobacco refuse is not correct.
6. The learned AR on the other hand reiterates the observations of the learned Commissioner. He submits that the decision of the Tribunal related to Rule 6 as rightly observed by the Commissioner. In this case the issue is not whether the appellant has to pay 8%/10% of the value of the goods cleared without payment of duty against common inputs have been used but the issue is whether the appellant is eligible for exemption to Cut Tobacco when it is used in the manufacture of exempted final products. As regards the decision of the Tribunal and other decisions cited, the learned AR when the matter was heard on 12.11.2014 sought time to study the issue once again and find out whether there are any contrary decision in favour of the Revenue. Today when the matter was called, learned AR said that he could not find any such decision.
7. We have already reproduced the manufacturing process, the reasons/grounds for commencement of proceedings against the appellant and the basis for confirming the demand by the Commissioner while discussing the statement of facts and therefore we would not like to repeat the same. Quite clearly the issue involved is whether the Cut Tobacco which forms part of tobacco refuse cleared without payment of duty as per Notification No. 3/2005 CE dated 24.2.2005 as amended. Exemption notification No. 52/2002 CE dated 17.10.2002 is the notification, the benefit of which has been denied resulting in confirmation of demand and imposition of penalty. It would be appropriate to reproduce the relevant Notification for better appreciation.
Tobacco Goods manufactured and captively consumed - Notification No. 121/94-C.E. superseded In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) (hereinafter referred to as the said Special Importance Act) and sub-section (3) of section 136 of the Finance Act, 2001 (14 of 2001) (hereinafter referred to as the said Finance Act) and in supersession of the notification of the Government of India in the erstwhile Ministry of Finance (Department of Revenue), No. 121/94-Central Excise, dated 11th August, 1994, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts all goods falling under Chapter 24 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the said Tariff Act) manufactured in a factory and used within the factory of production in or in relation to the manufacture of final products all goods falling under Chapter 24 of the first Schedule to the said Tariff Act, from the whole of the duty of excise and additional duty of excise and national calamity contingent duty leviable thereon, which is specified in the respective Schedules to the said Tariff Act and the said Special Importance Act and the said Finance Act :
Provided that nothing contained in this notification shall apply to inputs used in or in relation to the manufacture of final products (other than those cleared either to a unit in a Free Trade Zone or to a 100% Export Oriented Undertaking or to a unit in an Electronic Hardware Technology Park or Software Technology Parks), which are exempt from the whole of the duty of excise leviable thereon or are chargeable to Nil rate of duty.
8. It can be seen that the question that arises is whether we can consider the tobacco refuse as final product. Benefit has been denied on the ground that tobacco refuse is also excisable goods, marketable, can be considered to have been manufactured and can be sold for consideration. There can be two views about all these issues. But question arises whether it can be considered as a final product of the assessee. Para 3 of the decision in the case of Golden Tobacco Ltd. [2010 (259) E.L.t. 269 (Tri.-Ahmd.)] is relevant and is reproduced below:
3. After hearing both sides, we find no merits in the above distinctions drawn by the appellate authority between facts of the present case and facts as available before Mumbai High Court. In the present case, the reading of the show cause notice clearly shows that the Revenue is 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. Appellants are not manufacturer of Tobacco refuse and the same emerges as a by-product during the course of manufacture of their final product i.e. Cigarettes and Cut Tobacco. The fact that such Tobacco refuse is a specified item against a particular entry in Central Excise Tariff and has been exempted by virtue of the notification, will not change the character of Tobacco refuse from by-product to final product. The same were the facts before Mumbai High Court; inasmuch as Mother Liquor was a specified item and was exempted by way of issuance of particular notification. However, Honble High Court held that inasmuch as Mother Liquor was a by-product which comes into existence during the course of manufacture of final product the assessee is not liable to pay amount of 8%/10% in terms of Rate 6.
9. In the above case it has been 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 we are not considering the liability of the tobacco refuse to excise duty. What we are considering is whether tobacco refuse cleared by the assessee is a final product of the assessee. In this case as rightly submitted by the learned counsel, the assessee is engaged in the manufacture of Cigarette. During the course of manufacture of Cigarette, and for the process of manufacture of Cigarette, they have to manufacture Cut Tobacco also. Therefore it can be clearly said that the appellant is a manufacturer of Cut Tobacco and Cigarette. Can anyone say that appellant is a manufacturer of tobacco refuse is the moot question to which the obvious answer in the light of the decision of the Tribunal in the case of Golden Tobacco Ltd. is tobacco refuse is not a final product. The Tribunal also while rendering the decision in the case of Golden Tobacco Ltd. had relied upon the decision of the Honble High Court of Bombay in the case of Rallis India Ltd. Vs. Union of India [2009 (233) E.L.T. 301 (Bom.)] where a similar view was taken. Thereafter several decisions have been rendered following the same view and the issue is no longer res integra.
10. When this observation was made, the learned AR had sought time and no contrary decision has been placed before us at this stage. Under these circumstances the decision of the Tribunal taking a view that tobacco refuse cannot be considered as a final product of the assessee has to be considered and followed. Once we do that the provisions that nothing contained in the notification shall apply to inputs used in or in relation to manufacture of final products which are exempted, would not be applicable to the present case. Therefore just because appellant cleared tobacco refuse without payment of duty, cut tobacco which forms part of such refuse cannot be levied to central excise duty as proposed by the Revenue in these cases. In view of the above discussion, the demands against the appellants, interest thereon and penalties imposed cannot be sustained. In the result all the impugned orders are set aside and the appeals filed by the appellants are allowed with consequential relief if any to the appellants.
(Operative portion of the order has been pronounced in open court on 03.12.2014) (S.K. MOHANTY) JUDICIAL MEMBER (B.S.V. MURTHY) TECHNICAL MEMBER iss