Per Justice K. Sreedharan :

The appellant herein challenges the correctness of Order No. 21/98 dt. 30.4.98 passed by the Commissioner of Central Excise, New Delhi. As per that order, duty liability amounting to Rs. 71,62,799/- and penalty of Rs. 7 lakhs have been imposed on the appellant. The circumstance under which the above duty and penalty have been imposed, is that the appellant who manufacture branded chewing tobacco did not pay duty on the unbranded tobacco during the period from 20.5.94 to 10.8.94.

2. Before proceeding further it is to be stated that the Department had no case that the appellant did not pay required duty on the branded tobacco which were cleared during the period from 20.5.94 to 10.8.94.

3. For proper understanding of the dispute in this appeal a short survey of the duty structure of tobacco during the relevant period is required. Prior to 1.3.94 the duty on the products falling under Chapter sub-heading No. 2404.49 was nil. The appellant was not liable to pay any duty on the unbranded tobacco manufactured by him prior to 1.3.94. As a result of the Budget Proposal which came into force from 1.3.94, the goods falling under Chapter sub-heading No. 2404.49, were liable to duty at the rate of 30% basic excise duty together with 10% additional excise duty. This means unbranded tobacco cleared by the manufacturer were subject to the above duty after 1.3.94. While so, the Government of India issued Notification No. 14/94-CE whereby the facility of proforma credit available under Rule 56A was extended to branded chewing tobacco. As such the credit of duty paid on the products falling under chapter sub-heading 2404.49 could be availed while clearing the final product under Chapter sub-heading No. 2404.41. With effect from 25.4.94, the Government of India extended modvat credit under Rule 57A to the product covered by Not f. No. 24/94. From 20.5.94 the modvat credit was available to the manufacturers of tobacco instead of proforma credit. By Notification No. 121/94, the Government of India exempted the tobacco from payment of duty if they are captively consumed to manufacture the specified final products. During the period from 20.5.94 to 10.8.94, they had unbranded tobacco captively consumed in the manufacture of branded tobacco. Branded tobacco cleared during the period was subject to the duty and the entire duty on the branded tobacco cleared by them were duly discharged. While so, show cause notice dt. 6.12.95 was issued alleging that they clandestinely removed unbranded tobacco from the place where they were manufactured without payment of duty. The notice proceeded on to state that priorto 20.5.94 no Central Excise duty was required to be paid on excisable goods manufactured in a factory if they are consumed or utilised in the same factory as raw materials for the manufacture of any other commodity. The appellants who are having unbranded chewing tobacco captively consumed in the manufacture of branded tobacco continued the same process in the same factory as they were doing prior to 20.5.94, for the subsequent period as well.

4. The Department has taken a stand in this case that unbranded chewing tobacco cleared/captively consumed by the appellant during the period from 20.5.94 to 10.8.94 was dutiable. The duty on the goods captively consumed by the appellant was not paid. In not having paid the duty on the unbranded chewing tobacco, the duty liability has been quantified at Rs. 71,62,799/-. The penalty for not paying the duty has been fixed at Rs. 7 lakhs.

5. As per the decision of the Supreme Court reported in Premier Tyres Limited, 1987 (28) ELT 58 (SC), the Court and the Tribunal should lean in favour of construction which will avoid double taxation. The stand taken by the Department if upheld will result in double taxation; that is manufacturer of branded tobacco should pay duty on the unbranded tobacco as also on branded tobacco. First the Government gave the proforma credit of the duty paid on unbr