CESTAT Rules, Duties Can be Charged If Excisable Goods Are Manufactured Or Produced In India
Pranav B Prem
The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has reiterated that excise duty is a charge on manufacture or production of excisable goods in India, and not merely on their clearance. The Tribunal allowed the appeal filed by M/s Rajasthan Antibiotics Ltd., holding that in the absence of any evidence of manufacture, excise duty cannot be imposed merely because the goods were cleared from the factory. The decision was rendered by a Division Bench comprising Justice Dilip Gupta (President) and Mr. P.V. Subba Rao (Technical Member).
The appeal arose out of the Order-in-Original dated 19th July 2018 passed by the Commissioner of Central GST, Alwar, confirming a demand of ₹60,95,448 towards Central Excise duty under the proviso to Section 11A(1) of the Central Excise Act, 1944, along with interest and an equivalent amount of penalty under Section 11AC.
The appellant, M/s Rajasthan Antibiotics Ltd., is engaged in the manufacture of pharmaceutical products and was registered with the Central Excise Department. It was availing credit under the CENVAT scheme on inputs and input services. Based on the findings in an audit report, a show cause notice dated 3rd June 2013 was issued covering the period from September 2009 to May 2010. The notice alleged that the appellant had clandestinely cleared 1,456.75 MT of edible lactose valued at ₹6,49,79,145 without payment of duty, by misdeclaring it as clearance of inputs “as such” and without manufacturing the same.
The appellant contested the show cause notice, asserting that it had not manufactured any edible lactose. Instead, it had imported edible grade lactose, some of which was sent to M/s Cepham Milk Specialties, a job worker, for conversion into pharmaceutical-grade (IP grade) lactose. According to the records, 340 MT was sent for job work, of which only 131.5 MT was returned as IP grade lactose, and 208.5 MT was lost in processing. The remaining unprocessed lactose was sold as such after reversing the CENVAT credit that had been availed on the import.
In the first round of litigation, the Tribunal had set aside the Commissioner’s earlier order dated 27th August 2014 and remanded the matter on 21st November 2017, directing the Commissioner to specifically examine whether the lactose imported by the appellant was edible grade and to decide the matter afresh after providing an opportunity of hearing.
Pursuant to the Tribunal’s remand order, the Commissioner passed the impugned order in 2018. In paragraph 25 of the order, the Commissioner acknowledged that the appellant had indeed imported edible lactose, referring to the Bills of Entry submitted, and confirmed that 1,567.320 MT of edible lactose had been imported between August and December 2009. However, despite the direction to assess the nature of the goods and the fact that the lactose was imported, the Commissioner proceeded to confirm the duty demand merely on the basis that the appellant had cleared edible grade lactose from its factory.
The Tribunal took exception to this approach. It observed that the Commissioner had failed to examine the essential question: whether the lactose in question had been manufactured by the appellant. The Tribunal emphasized that under Section 3 of the Central Excise Act, excise duty—also referred to as CENVAT—is leviable only on excisable goods which are “produced or manufactured in India.” The Tribunal reproduced the relevant portion of Section 3, highlighting that clearance alone is not sufficient to attract excise duty unless the goods are the result of manufacture or production in India.
The Bench noted: “According to the appellant, as recorded in the impugned order, it had no manufacturing facility to manufacture edible lactose at all. It had imported edible lactose, took it into its factory and availed CENVAT credit... got part of the edible lactose processed... and cleared the rest of the edible lactose as such after reversing the CENVAT credit.”
The Tribunal found that the Commissioner had not recorded any finding that the appellant possessed the facilities to manufacture edible grade lactose, nor had he produced any evidence to that effect. The demand was confirmed purely on the fact of clearance, which was not supported by the legal requirement of manufacture. The Tribunal pointed out that if the appellant had merely taken the imported lactose into its factory and then cleared it—either after job work or as such—it would only amount to clearance of the input, not manufacture.
Summarising its conclusion, the Tribunal held: “The Commissioner lost sight of the charging section of the Act and confirmed the demand without establishing through any evidence that the appellant had manufactured edible grade lactose.” In light of this, the Tribunal found the impugned order unsustainable in law and set it aside. The appeal was allowed, and the appellant was granted consequential relief.
Appearance
Shri G.K. Sarkar and Prashant Srivastava, Advocates for the appellant.
Shri Shiv Shankar, Authorized Representative for the Department
Cause Title: M/s Rajasthan Antibiotics Ltd. v/s Commissioner of CGST
Case No: Excise Appeal No. 53823 OF 2018
Coram: Justice Dilip Gupta [President], Mr. P.V. Subba Rao [Technical Member]
[Read/Dowload order]
