L.T.C. LTD. versus COLLECTOR OF CENTRAL EXCISE, PATNA

Citation: [2002] SUPP. 5 S.C.R. 1 · Decided: 10-12-2002 · Supreme Court of India · Bench: S.N. VARIAVA · Disposal: Dismissed

Judgment (excerpt)

l.T.C. LTD. 
A 
v. 
COLLECTOR OF CENTRAL EXCISE, PATNA 
' 
DECEMBER IO, 2002 
[S.N. VARIAVA AND B.N. AGRAWAL, JJ.] 
B 
Central Excise Act, 1944/Central Excise Rules, 1944-Section 3/Rule 
93-Excise dutj-On samples of cigarettes required for quality control test-
Held, liable to excise duty, since the manufacture of the end product i.e. C 
cigarette is completed before removal for test and is fit for consumption. 
Appellant-Company a manufacturer of cigarette, was issued show 
cause notices alleging therein that it had been clearing without payment 
of excise duty 20 sticks of cigarettes from each cigarette making machine 
in the cigarette making department on each working day as samples for D 
test in their quality control laboratory within the factory premises, total 
·quantity each day being 65 packets of cigarettes of each brand 
manufactured in the factory; and that the company neither submitted any 
classification .list nor maintained any account in respect of quantity of 
cigarettes removed which was liable to excise duty. Appellant-company 
contested the demand. 
E 
Assessing authorities levied excise duty with penalty on the appellant-
company holding that manufacturing process in respect of cigarettes is 
completed at the stage when they emerge in the form of sticks·of cigarettes 
and excise duty under the provisions of Section 3 of Central Excise Act, 
1944 on the manufai:ture or production of the final article, i.e., in the case F 
of cigarette was attracted at that very stage even though collection was 
deferred.until clearan\:e; and that the process of packing of cigarettes was 
. not incidental or ancillary to manufacture but it was incidental or ancillary· 
to the sale of the end products. 
In appeal Tribunal held that excise duty is leviable but remitted the 
matter to the assessing authorities for limited purpose of working out the 
effective excise duty recoverable on disputed quantity of cigarettes. 
In appeal to this Court appellant company contended that in terms 
G 
H 
2 
SUPREME COURT REPORTS (2002] SUPP. 5 S.C.R. 
A of Rule 93 of Central Excise Rules, 1944 no exciseable tobacco products 
can be delivered from any factory unless the same are made into separate 
packets and enclosed in a wrapper bearing, inter :ilia, the name of the 
factory and the licence number which can be done only after the 
completion of testing and thus as the process of manufacture of cigarettes 
B was not completed, no excise duty is leviable thereon. Alt~rnatively it was 
contended that certain quantity of cigarettes is destroyed during the 
process of testing whereupon no excise duty is leviable. 
Respondent-Revenue contended that manufacture of cigarette within 
the meaning of section 2(1) of Central Excise Act, 1944 is completed no 
C sooner they are completed into sticks of cigarettes and the process of 
packing into separate packets and wrapping the same is neither incidental 
nor ancillary to the completion of manufacture of cigarette, but the same 
may, at the highest, be incidental or ancillary to its sale; and that it is not 
known as to whether any quantity of cigarette was at all destroyed during 
the process of testing and if a·t all there was any destruction, what was its 
D quantum as no account in this regard was either maintained or produced 
either before the assessing authority or the Tribunal. 
Dismissing the appeals, the Court 
HELD: I. For the purposes of levy of excise duty, the test to be 
E applied is whether the goods manufactured are marketable or not. In the 
present case, the cigarette, which is the end product of tobacco, is fit for 
consumption before the same is removed for test. Packing of the cigarette 
cannot be said to be incidental or ancillary to the manufacturing process, 
but the same may be incidental or ancillary to its sale only. In case it is 
F laid down that packing of cigarette is incidental or ancillary to the 
completion of manufactured products, the same may result into evasion 
of excise duty as before packing the cigarettes the same may be regularly 
supplied to each and every employee for his consumption without payment 
of excise duty thereon. The definition of 'manufacture' under section 2(1) 
very clearly includes process which is incidental or ancillary to the 
G completion of manufactured product. Manufacture of cigarette is 
completed when the same emerges in the form of sticks of cigarettes which 
are sent to the laboratory for quality control test. Sticks of c

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