Intermediate goods used in exempted final products are taxable only if they are marketable.

PJ/Case law/2014-15/2266

Case:- SHIV SHAKTI PROCESSED FOODS Vs COMMISSIONER OF CENTRAL EXCISE, PUNE

Citation:- 2014-TIOL-1097-CESTAT-MUM

Brief facts:- Brief facts of the case are that the applicants are engaged in the manufacture of biscuits falling under Chapter 19 of the Central Excise Tariff by M/s Parle Products Pvt Ltd. For the use in the manufacture of biscuits sugar syrup is prepared by applicants and the same are used in the manufacture of biscuits which are exempted from payment of duty by Notification No. 3/2006-CE as amended. Revenue was demanding duty on the sugar syrup on the ground that as the intermediate goods were used in the manufacture of exempted product therefore the applicants are liable to pay duty of excise on sugar syrup.

Appellant’s contention:- The contention of the applicant was that the sugar syrup manufactured by the applicant was not marketable as such and this plea was taken by the applicant before the adjudicating authority. There was no evidence on record to show that sugar syrup in question is marketable as such. Therefore, the demand of duty in respect of sugar syrup was not sustainable. The applicant relied upon the decision of the Tribunal in Ambaji Foods (India) Pvt Ltd vs CCE, Kanpur reported in 2011-TIOL-345-CESTAT-DEL.The contention was that the Tribunal in the case of Ambaji Foods(supra) remanded the matter to the adjudicating authority to decide the issue on marketability.

Respondent’s contention:- The Revenue relied upon the finding of the lower authority as the sugar syrup was dutiable as such and submitted that sugar syrup was liable to central Excise duty as held by the Tribunal in Pepsico India Holdings Ltd. vs CCE, Chennai 2009 (245) ELT 707and in the case of Cadbury India Ltd vs CCEreported in1998 (104) ELT 457. The contention was that as sugar syrup was used in the manufacture of exempted biscuits therefore applicants were liable to pay duty on the sugar syrup which is intermediate excisable product.

Reasoning of judgment:- It was found that the Tribunal in the case of Ambaji Foods (supra) relied upon by the applicant in similar situation after taking into consideration earlier decisions of the Tribunal held as under:

“11. Apparently the Adjudicating Authority has instead of deciding the marketability of the product had merely dealt with the issue of possibility of marketability of the final product, and relying upon the decision of the Hon'ble Supreme Court in Gujarat Narmada Valley Fert. Co. Ltd. case had arrived at the finding about the marketability of the final product. The decision of the Apex Court in Gujarat Narmada case is on the point that the issue of marketability of the materials need not be decided on the basis of the actual sale of product but it must be capable of being sold in the market or known in the market as the goods. In other words, though actual sale need not be established, the capability of the product being sold in the market or known in the market as goods must be established. It nowhere discloses any analysis of the materials on record to arrive at any finding regarding capability of the product being sold in the market or the same as being known to the market as the goods. Before relying upon any decision, it is necessary for the Adjudicating Authority to analyse the materials in relation to the facts of the case and to ascertain whether the reported decision of the higher authority is applicable to such the facts of the case in hand.”

The Tribunal remanded the matter to the adjudicating authority to decide the issue afresh. In view of the above, the appeal was taken up for hearing after waiving pre-deposit of the dues. The issue of marketability of sugar syrup was not taken into consideration by the adjudicating authority. The adjudicating authority had to decide the issue of marketability of the sugar syrup in question in view of the observation made by the Tribunal in the case of Ambaji Foods (supra). The impugned order was set aside and the matter was remanded to the adjudicating authority for de novo adjudication after affording an opportunity of personal hearing to the appellant.

Both the appeal and stay application were disposed of accordingly.

Decision:- Matter remanded.

Comment:- The gist of the case is that when final products are exempted from payment of excise duty then intermediate goods shall be chargeable to duty but only if the said intermediate goods are marketable. If the intermediate goods are not marketable then no excise duty can be leviable on their clearance because to charge excise duty on a product, the twin conditions of manufacture and marketability needs to be satisfied.

Prepared by: Prayushi Jain

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PJ/Case law/2014-15/2266

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