Custom, Excise & Service Tax Tribunal
Itc Ltd vs Howrah Commissionerate on 19 February, 2026
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
EASTERN ZONAL BENCH: KOLKATA
REGIONAL BENCH - COURT NO. 1
Excise Appeal No. 77549 of 2018
(Arising out of Order-in-Appeal No. 36/HWH/XAP-53/2017-18 dated 08.03.2018
passed by the Commissioner of C.G.S.T. and C.X., Kolkata North Commissionerate,
G.S.T. Bhawan, Room No. 254, 180, Shantipally, Rajdanga Main Road,
Kolkata - 700 107)
M/s. ITC Limited : Appellant
Paperboards and Specialty Papers Division, Unit: Tribeni,
P.O.: Chandrahati, District: Hooghly,
PIN - 712 504
VERSUS
Commissioner of C.G.S.T. and Central Excise : Respondent
Kolkata North Commissionerate.
G.S.T. Bhawan, Room No. 254,
180, Shantipally, Rajdanga Main Road,
Kolkata - 700 107
APPEARANCE:
Shri J.P. Khaitan, Senior Advocate,
Shri Agnibesh Sengupta, Advocate,
Shri Indranil Banerjee, Advocate,
For the Appellant
Shri S.K. Dikshit, Authorized Representative,
For the Respondent
CORAM:
HON'BLE SHRI ASHOK JINDAL, MEMBER (JUDICIAL)
HON'BLE SHRI K. ANPAZHAKAN, MEMBER (TECHNICAL)
FINAL ORDER NO. 75266 / 2026
DATE OF HEARING / DECISION: 19.02.2026
ORDER:[PER SHRI ASHOK JINDAL] The appellant is in appeal against the impugned order wherein the demand of central excise duty amounting to Rs.22,93,955/- (inclusive of cesses), along with interest and penalty thereon, has been confirmed against them.
Page 2 of 14Appeal No.: E/77549/2018-DB
2. The facts of the case are that the appellant manufactures various types of paper and paper boards at its Tribeni factory. Re-processing of paper has to be undertaken within the said factory, mainly for the following reasons:
(a) When the paper is found to be defective or having quality issues or becomes slow/non-
moving stock subsequent to entering into the DSA, such paper is taken out of DSA and reprocessed within the factory. Such reprocessing usually involves pulping the paper and manufacture afresh of paper of same or some other variety. On completion of such reprocessing, the goods so manufactured are taken into DSA stock and cleared in the normal course on payment of applicable duty.
(b) In some cases, customers want
customized packing. If the customer's
requirement of packing is different from the one which is available in stock, such packed goods are taken out of DSA, repacked according to customer's requirements and again entered in the DSA before clearing in the normal course on payment of applicable duty.
(c) Where paper has been manufactured for a particular customer but erroneously booked in ERP system in the name of some other customer and the goods are packed with such other customer's name, repacking/reprocessing within the factory is required in order to rectify such mistake. When the goods require reprocessing/repacking for the aforesaid reason subsequent to entering of the goods in the DSA, such goods are taken out of DSA and Page 3 of 14 Appeal No.: E/77549/2018-DB reprocessed/rectified in the finishing house located within the factory. On completion of reprocessing/rectification, the goods are again taken into DSA stock and cleared in the normal course on payment of applicable duty.
(d) In course of such reprocessing by way of repacking/rectification, some quantity of paper gets rejected, which is then sent for repulping. The paper manufactured after such repulping is also duly entered in DSA and cleared thereafter upon due payment of duty.
3. A clear trail is available in the appellant's ERP System and records maintained in respect of the goods taken out of DSA for reprocessing. Wherever the reprocessing involves repulping of the manufactured paper and manufacture afresh of same or some other variety of paper, the appellant's records show such repulping, entry of such freshly manufactured goods in the DSA and subsequent clearance of such goods upon due payment of duty. Wherever the goods are subjected to repacking/rectification, the batch-wise entire sequence of events from the point the goods are taken out of the DSA and subsequently re-entered in the DSA and cleared thereafter on payment of duty is clearly reflected in the said records.
3. The appellant at all times regularly kept the Department informed of the quantity taken out of the DSA without payment of duty for re-processing. In the monthly Excise Returns (ER-1) filed manually up to March 2010, the goods taken out of DSA for re-processing were shown under "Quantity Cleared - Non dutiable" column and an annexure was filed with every return giving the break-up of, inter alia, the Page 4 of 14 Appeal No.: E/77549/2018-DB quantity taken out for re-processing. In the monthly returns filed online from April, 2010, there was no separate column/field for entering the details of goods taken out of DSA for reprocessing. On the advice of the jurisdictional Excise Range/Division the appellant started following the practice of showing the quantity of goods taken out of DSA for reprocessing within the factory in 'quantity cleared' column of ER-1 Return but showing 'nil' assessable value and 'nil' duty in respect of the same. If during a particular month, any variety of paper was taken out of DSA only for reprocessing then such quantity separately appeared in the monthly return with 'nil' value and 'nil' duty. However, if during the same month, some quantity of a particular variety was cleared from the factory upon payment of duty and some quantity of the same variety was taken out of DSA for reprocessing, in the monthly return, the two quantities appeared as a consolidated figure but the value and duty mentioned in the return were only of the quantity cleared from the factory upon payment of duty, i.e., though the monthly returns included the entire quantity taken out for reprocessing, such quantity did not appear as a separate item wherever the same variety of paper was cleared from the factory upon payment of duty. The appellant intimated the Excise Range Superintendent in writing every month the full details of the different varieties of paper taken out of DSA for re-processing.
4. Consequent to EA 2000 Audit, a Show Cause Notice dated 29.07.2016 was issued to the appellant demanding central excise duty, for the period from October, 2015 to May, 2016, on the allegation that the appellant had removed the manufactured product from DSA without payment of central excise duty, in the guise of "reprocessing" without indicating in the Page 5 of 14 Appeal No.: E/77549/2018-DB ER-1 Returns, without informing the Department, without issuing any invoices and without obtaining remission under Rule 21 of the Central Excise Rules, 2002.
4.1. The matter was adjudicated by way of the impugned Order-in-Original No. 105/AC/CE/CGR/2016 dated 08.02.2017 wherein demand of central excise duty amounting to Rs.22,93,955/- (inclusive of cesses), along with interest, was confirmed. The ld. adjudicating authority also imposed a penalty of Rs.22,93,955/- under Rule 25 of the Central Excise Rules, 2002.
4.2. Against the said order, the appellant preferred an appeal before the Ld. Commissioner of C.G.S.T. and Central Excise, Kolkata North Commissionerate, who vide the impugned order dated 08.03.2018 upheld the order passed by the ld. adjudicating authority.
4.3. Aggrieved from the said order, the appellant is before us.
5. During the course of hearing, the Ld. Counsel appearing on behalf of the appellant made the following submissions: -
(i) It was not the case of the department in the show cause notice that the goods taken out of DSA without payment of duty for the purpose of re-processing were removed from the factory.
The appellant had produced before the department records to show batch-wise entire sequence of events from the point the goods were taken out of DSA; subsequently re-entered into DSA after re-processing and thereafter cleared upon payment of duty. It was not shown Page 6 of 14 Appeal No.: E/77549/2018-DB by the department, as in fact it cannot, that the goods taken out of DSA for re-processing were not so re-processed or that duty was not paid at the time of clearance of the re-processed goods. There is not an iota of evidence, as in fact there can be none, that the goods taken out of DSA for re-processing were otherwise dealt with. The allegation of the Department was that remission under Rule 21 was not obtained and invoice should have been issued under rule 11 and duty paid.
(ii) The Assistant Commissioner accepted the appellant's explanation in respect of part of the goods, namely, the defective/slow/non-moving goods taken out of DSA for re-pulping/re- processing and manufacture afresh by holding that such paper was not marketable. But the appellant's explanation in respect of paper taken out of DSA for the purpose of re-packing was not accepted by the authorities below on the ground that packed paper was marketable goods and not entitled to the same treatment. It is submitted that the authorities below could not have been more wrong. The reasons why the appellant had to re-pack the goods were:
(a) customers did not want the goods in the packing in which they were available in stock; or
(b) goods manufactured for a particular customer were mistakenly booked in ERP system in the name of some other customer and were packed with such other customer's name.Page 7 of 14
Appeal No.: E/77549/2018-DB
(iii) The appellant had to perforce resort to repacking in such cases and there was nothing unlawful or fanciful about it. It is submitted that if paper cannot be sold because it is not in the packing in which the customer wants it, it cannot be regarded as marketable goods. Providing the customized packing desired by the customer in which he will buy the paper is without a doubt part and parcel of the process of manufacture for making the goods marketable. Similarly, if the appellant has wrongly packed goods manufactured for a particular customer with packing which mentions some other customer's name, it cannot be said that manufacture of such goods is complete, inasmuch as the goods cannot be sold with the wrong packing. Manufacture of marketable goods is complete only after the repacking. It is submitted that the reason which prevailed for dropping the demand in respect of defective/slow/non-moving goods was equally applicable in respect of goods which had to be repacked before they could be sold.
(iv) The Ld. Appellate Authority was wholly unjustified in proceeding on the basis as if there was any dispute with regard to the reasons because of which the appellant had taken goods out of DSA for repacking, namely, for customised packing desired by the customer or for rectification of the packing which wrongly mentioned the name of a party other than the actual buyer. The said reasons furnished by the appellant in its replies to all the show cause notices were never disputed by the Department. In fact, the appellant had requested that an Page 8 of 14 Appeal No.: E/77549/2018-DB officer of the Department may be deputed to its factory to verify the factual position from the appellant's system and records. Because the Department was aware of all the facts and the practice followed by the appellant, the adjudicating authority never raised any dispute in that regard but merely criticised the appellant as being imprudent/inefficient. The Ld. Appellate Authority was wholly unjustified in faulting the appellant for non-production of evidence on facts which were never in controversy.
(v) It is submitted that the authorities below fell into error in holding that paper which could not be sold the way it was packed, was marketable goods chargeable to duty. It is submitted that till the goods were packed in a manner acceptable to the customers, they cannot be regarded as marketable. Such paper with the unacceptable packing was also defective goods covered by Board's Circular dated October 30, 1971 and the decision of the Tribunal in the case of Collector of Central Excise v Supreme Industries Limited [1999 (109) ELT 704 (Tribunal)]. The appellant cannot be required to pay duty in respect of paper taken out of DSA for the purpose of re-packing so as to make it marketable.
(vi) The appellant's alternative contention based on Notification No. 67/95-CE dated March 16, 1995 and the decision of the Tribunal in Modi Plastics Limited v Commissioner of Central Excise [2007 (216) ELT 112 (Tri.-Kolkata)] was wrongly rejected on the ground that the goods in Page 9 of 14 Appeal No.: E/77549/2018-DB question were not rejected by the customers as defective. The authorities below failed to consider that since the goods were not in the packing desired by the customer, the appellant was not even in a position to deliver such goods without re-packing. Thus, the goods were reprocessed within the factory of production by way of repacking so as to make them marketable. It is submitted that exemption under Notification bearing No. 67/95-CE was squarely available in the instant case.
(vii) Rule 8 requires payment of duty and rule 11 requires issue of invoice in respect of goods removed from a factory. Remission under rule 21 has to be obtained when goods are lost or destroyed by natural causes or by unavoidable accident or are unfit for consumption or for marketing. Where the goods are claimed to be unfit for consumption or marketing, the same are required to be destroyed under the supervision of the proper officer in such a manner that they become irretrievable as an excisable commodity. In the instant case, the goods were fit for being used in the factory for repacking and became marketable upon such repacking and there was no question of destroying them. Thus, none of the said provisions were applicable.
(viii) The authorities below were wholly unjustified in labelling the established practice and procedure followed by the appellant as per the advice of the department and the contemporaneous reporting and accounting maintained by it in respect of the goods taken out of DSA for re-
Page 10 of 14Appeal No.: E/77549/2018-DB processing as a scheme or ploy to suppress facts or mislead the department or create confusion. Nothing can be farther from the truth. No motive or intent to contravene the law or evade payment of duty can be imputed to the appellant. No duty was required to be paid in respect of goods taken out of DSA for re- processing. Even assuming that duty was required to be paid at the time of taking the goods out of DSA for re-processing, the appellant would have been entitled to instant credit of such duty. The situation would have been entirely revenue neutral.
5.1. It is further submitted by the Ld. Counsel for the appellants that the matter is fully covered in the appellant's favour by the decision of this Tribunal in the appellant's own case in ITC Ltd. v. Commissioner of C.Ex., Kolkata-IV [Final Order No. 77664 of 2025 dated 06.11.2025 in Excise Appeal No. 76622 of 2016
- CESTAT, Kolkata] relating to the period April 1, 2010 to September 30, 2015, wherein the same issue has been decided in favour of the assessee.
5.2. In view of the above submissions, the Ld. Counsel for the appellant prayed for setting aside the impugned order and allowing the appeal.
6. On the other hand, the Ld. Authorized Representative of the Revenue supported the impugned order. Accordingly, he prayed for rejection of the instant appeal.
7. Heard the parties and considered their submissions.
Page 11 of 14Appeal No.: E/77549/2018-DB
8. We find that the dispute in the present appeal relates to the goods taken out of DSA for the purpose of re-packing, which has been considered by the Revenue as marketable goods for the purpose of levy of central excise duty. Admittedly, the ld. adjudicating authority accepted the appellant's explanation in respect of part of the goods, namely, the defective/slow/non-moving goods taken out of DSA for re-pulping/re-processing and manufacture afresh and held that such paper was not marketable. However, the explanation offered by the appellant in respect of paper taken out of DSA for the purpose of re-packing was not accepted by the authorities below on the ground that packed paper was marketable goods and not entitled to the same treatment. The case of the appellant is that they had taken the goods out of DSA for repacking, for reasons such as customised packing desired by the customer or rectification of the packing which wrongly mentioned the name of a party other than the actual buyer and till the goods were packed in a manner acceptable to the customers, they cannot be regarded as marketable; that although the Department was fully aware of all the facts and the practice followed by the appellant in relation to such reprocessing/repacking/rectification, no objections were raised as to the same.
8.1. We find that the very same issue has been examined by this Tribunal in the appellant's own case in ITC Ltd. v. Commissioner of C.Ex., Kolkata-IV [Final Order No. 77664 of 2025 dated 06.11.2025 in Excise Appeal No. 76622 of 2016 - CESTAT, Kolkata], wherein it has been held as under: -
Page 12 of 14Appeal No.: E/77549/2018-DB
"9. We find that the factual details are not in dispute. The only issue before us is about the re-packing of the goods which were already in the RG-1/DSA stage. As per the Learned Sr Counsel, the appellants had taken out the some quantities of paper out of DSA Register and got the same re-packed as per the specific requirement of the customers. After this, once again they were taken back in the DSA records. After this, the goods were cleared from the factory on payment of Excise Duty. From the Show Cause Notice and impugned order, we do not find anything contrary to the effect that the appellant has not properly accounted for these goods or cleared the same after re-packing without payment of Excise Duty.
10. As a matter of fact, we find that whatever logic has been adopted by the adjudicating authority for dropping re-pulping of the paper, the same reasoning would equally be applicable even in the case of re-packing. In both the cases, the goods were in the RG-1 stage, which shows that they were fully manufactured product. They were removed out of RG 1, re-processes / re-packed, taken back in the RG 1 and were finally cleared on payment of Excise Duty. We do not find any case of revenue loss has been made out by the Department, so as to demand the Excise Duty.
11. We find that in the case of Collector of Central Excise, Meerut Vs. Supreme Industries Ltd., cited supra, the Tribunal has held as under:-
7. I observe that the learned counsel's contentions have strong force. The letter dated 14-1-1993 shows that they had duly informed the Department. There is also no doubt that they had made appropriate entries in RG 1 and RT 12. Further, the Collector has rightly relied on the Board's instructions and letter No. 22/71/CX, 6, dated 30-10-1971, They have also rightly drawn attention to Cochin Collectorate's Trade Notice No. 156/76, dated 22-9-1976 which indicates that for the purpose of conversion/alteration etc., a manufacturer can remove goods deposited in the bonded storeroom for modification and conversion into goods of the same class provided he makes the necessary entries in the accounts Page 13 of 14 Appeal No.: E/77549/2018-DB
8. In view of the above position neither any duty is chargeable nor any offence is made out and the Collector was right in allowing the appeal and there is no cause for interfering with his order. I, therefore, reject the Department's appeal.
12. This Tribunal in the case of Modi Plastic Vs. Commissioner of Central Excise, Patna, cited supra has held as under:-
2. Shri B.N. Chattopadhyay, learned Consultant appearing for the appellants states that they had defective pipes in their factory which were entered in the RG-I Register and as recorded in the impugned Order passed by the lower appellate authority, after receiving complaints from customers that some of the finished goods had minor defects like hairline cracks etc., the appellants segregated such defective goods and took it for reprocessing within the plant. Some of the defective goods were made into pipe fittings and the rest became waste and scrap. The waste and scrap were also recycled in the manufacture of finished pipes and the same were cleared on payment of duty.
3. In view of the factual position that the impugned defective goods had been reused within the factory premises of the appellants for production of finished pipes and pipe fittings ultimately, the appellants were clearly eligible from duty-exemption under Notification No. 67/95-C.E., dated 16-3-1995.
Accordingly, the impugned Order is set aside and the appeal is allowed with consequential relief to the appellants.
13. We also find that Circular No. 22/71-CX.6 dated 30/10/1971, cited by the Learned Sr. Counsel is applicable in this case. Para 2 of this Circular reads as under:
2. The matter has been examined and it has been decided that the manufacturers will be free to effect transfer of defective or damaged excisable goods from the store-room of their factory for re-processing/re-conditioning within the factory, without payment of duty, Page 14 of 14 Appeal No.: E/77549/2018-DB after making necessary entries in the accounts.
14. The procedure adopted by the appellant conforms to the clarification given by the Board Circular No. 22/71-CX.6 dated 30.10.1971.
15. In view of the foregoing, we set aside the impugned order and allow the appeal on merits.
16. We also find considerable force in the argument of the appellant that they have intimated the Department about the transactions and hence they have not indulged in any suppression so as to invoke the extended period payment. From the factual records produced by the appellant, we find that all the transactions were recorded by them in the Monthly Returns. They were also intimating the transaction details to the Range officials. We do not find that any case of suppression, with an intent to evade duty payment, has been made out against the appellant. Hence, we set aside the confirmed demand for the extended period on account of time bar also."
9. We find that the ratio of the decision cited supra is squarely applicable to the present case. Accordingly, by following the above decision, we hold that the impugned demand, along with interest and penalty thereon, confirmed against the appellant vide the impugned order, is not sustainable in the eyes of law and therefore, the same is set aside.
10. In the result, we set aside the impugned order and allow the appeal, with consequential relief, if any, as per law.
(Dictated and pronounced in the open court) Sd/-
(ASHOK JINDAL) MEMBER (JUDICIAL) Sd/-
(K. ANPAZHAKAN) MEMBER (TECHNICAL) Sdd