I T C LIMITED Vs. COLLECTOR OF CENTRAL EXCISE

JUDGEMENT

(1.) Whether cut tobacco in the continuous manufacturing process of factory made cigarettes "is also independently leviable to excise duty as "smoking mixture for pipes and cigarettes" under tariff item 4, category II Clause (iv) of Schedule I of the Central Excises and Salt Act, 1944, is the legally significant and equally the financially important question for tobacco trade in this reference to the Division Bench.

(2.) Despite the volume of pleadings on either side, it should suffice to advert to the salient facts to zero in on the focal point at issue. Writ petitioner No. 1 Messrs India Tobacco Company Limited, are engaged, inter alia, in the business of the manufacture and sale of machine-made cigarettes and also of smoking mixture in their factory at Munger and they own four other factories in the States of Uttar Pradesh, Karnataka in the financial year of 1982 the company had paid more than 350 crores as Central Excise Duty. It has been averred that the petitioner-company manufacture two distinctly different categories of tobacco products from unmanufactured tobacco, namely, factory-made cigarettes on the one hand and smoking mixture for pipes and hand-rolled cigarettes on the other. It is their case that the smoking mixture for pipes and hand-rolled cigarettes is essentially different in its raw material, the process of manufacture and its character and content from the Contents of machinemade factory cigarette. In paragraph 8 and in particular sub paragraphs (a) to (n) thereof the distinctive features of the content and the process of manufacture of smoking mixture for pipes and hand-rolled cigarettes are detailed seriatim to highlight their contrast with the content and process of manufacture of the machine-made cigarettes spelt out in sub paragraphs (a) to (g) of paragraphs. It is the case that the unmanufactured tobacco, i.e., in-process material used for the manufacture of machine made cigarettes, is referred to and commercially known as cut tobacco and is not a finished product which is capable of being marketed to the ultimate consumer. Such in-process material being unmanufactured falls under tariff- item 4 category I and has been exempted from payment of duty. According to the petitioners, this position has all along been accepted by the Central Excise Department and no demand of excise duty on unmanufactured cut tobacco used in the manufacture of factory cigarettes was earlier raised. The Central Government by Notification No. 29/79-C.E. dated the 1st of March, 1979 (Annexure 1) exempted unmanufactured tobacco from the whole of the duty leviable thereon whilst at the same time the rate of excise duty on factory-made cigarettes was substantially increased. Even after this notification, the petitioner company were never required to pay any excise duty on the unmanufactured cut tobacco in the process of the manufacture of cigarettes in the factory. However, the petitioner company continued to pay duty on the manufactured cigarettes at the highest rates ranging from 372 per cent ad valorem to 413 per cent ad valorem.

(3.) However, on the 23rd of October, 1982 the petitioner company suddenly received a communication (Annexure 2) from the Additional Collector of Central Excise, Patna, holding that the cut tobacco in the process of the manufacture of machine-made cigarettes was dutiable as smoking mixture under tariff item 4, category 11 Clause (iv) of the First Schedule. This order is said to have been issued without any show cause notice having been served upon the petitioner and without giving them any opportunity for hearing. The petitioner company in their reply to Annexure 2 (vide Annexure 3) explained that the unmanufactured cut tobacco in the process of the manufacture of factory-made cigarette was exempted from excise duty and requested the authority to rescind the earlier order in Annexure 1. However, the respondents persisted in the stand and the Superintendent of the Central Excise, respondent No. 4 issued verbal order preventing the petitioner company from using unmanufactured cut tobacco for manufacture of cigarettes in the factory with effect from 30th October, 1982 and the writ petitioners were later informed (vide Annexure 4) that no change was warranted in the earlier orders. Subsequently, the petitioner company were required (vide Annexure 5) to supply certain figures in respect of cut tobacco used for the manufacture of cigarettes wrongly describing the said product as manufactured tobacco mixture for the years 1978-79 to October, 1982.