IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH, HYDERABAD
COURT NO. I
Appeal No. E/30668/2016
Arising out of Order-in-Original No.HYD-EXCUS-002-COM-060-15-16, Dated: 29.03.2016
Passed by CCCE & ST, Hyderabad-II
Date of Hearing: 17.06.2019
Date of Decision: 17.06.2019
M/s BADAMI FOODS
SY.NO.74 & 75, MADHUBAN COLONY ROAD
KATTEDAN, HYDERABAD, TELANGANA – 500077
COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX
HYDERABAD – II, KENDRIYA SHULK BHAVAN, L.B. STADIUM ROAD
BASHEERBAGH, HYDERABAD, TELANGANA – 500004
Appellant Rep by: Shri G Prahlad, Adv.
Respondent Rep by: Shri P. Sudhakar Reddy, AR
CORAM: Sulekha Beevi C S, Member (J)
P Venkata Subba Rao, Member (T)
CX – Appellants are engaged in the manufacture of biscuits – they were also manufacturing sugar syrup which was captively used in the manufacture of both dutiable and exempted biscuits – department was of the view that sugar syrup which was captively consumed by the appellants, being an intermediary product the appellants are liable to pay duty on the same and the exemption provided as per notification 67/1995-CE dated 16.3.1995 was not available to the appellants – SCN issued proposing to demand CE duty on this sugar syrup captively consumed for manufacture of exempted biscuits – demand confirmed along with interest, equal penalty imposed – appeal to CESTAT.
Held: It is the case of the department that the sugar syrup is marketable product and merits classification under 1702 9090 of CETA, 1985 – however, on going through the said Chapter heading, the sugar syrup ought to contain at least 50% by way of fructose – in the present case, the department having not conducted any tests to prove the fructose content of the sugar syrup, the decision in the case of Rishi Bakers Pvt. Ltd. [ 2015 (328) ELT 634 (Tri-Delhi) ] would apply to hold that the sugar syrup manufactured by appellants is not a marketable commodity – it is the burden of the department to establish the marketability as well as the excisability of a product while demanding duty – in the present case, the department has miserably failed to establish marketability or the classification of the said sugar syrup – in the decisions in the cases of Lucky Biscuits Company – 2017-TIOL-3841-CESTAT-KOL and Parle Biscuits Pvt. Ltd. – 2017-TIOL-4475-CESTAT-DEL, the Tribunals have analyzed very same point and held that demand of duty on intermediary product viz., sugar syrup cannot sustain – following the said decisions, the demand has no legal or factual basis and is required to be set aside – the impugned order is set aside – the appeal is allowed : CESTAT [para 7, 8, 9, 10]
Case laws cited:
Rishi Bakers Pvt. Ltd. – 2015 (328) ELT 634 (Tri-Delhi)…………..para 3, 7…………..relied upon
Lucky Biscuits Company Vs CCE, Patna – 2017-TIOL-3841-CESTAT-KOL………….para 3, 9………….followed
Parle Biscuits Pvt. Ltd. Vs CCE, Alwar – 2017-TIOL-4475-CESTAT-DEL…………..para 3, 9………….followed
Bhagwati Foods Pvt. Ltd. Vs CCE, Kanpur – 2016-TIOL-2499-CESTAT-ALL………….para 3………….referred
Yakult Danond India Pvt. Ltd. – 2017-TIOL-4211-CESTAT-CHD…………..para 3.1…………..referred
Godavari Sugar Mills Ltd. – 2007-TIOL-602-CESTAT-BANG……………para 3.2…………..referred
FINAL ORDER NO. A/30574/2019
Per: Sulekha Beevi:
1. This appeal is filed by the appellant against Order-in-Original No.HYDEXCUS- 002-COM-06-15-16 dated 29.03.2016.
2. The brief facts are that the appellants are engaged in manufacture of biscuits and are registered with Central Excise department. They were also manufacturing sugar syrup which was captively used in the manufacture of both dutiable and exempted biscuits clearing them with or without payment of duty by availing notification 03/2006-CE dated 01.03.2006 as amended by notification 03/2007-CE dated 01.03.2007 and by notification 22/2007 dated 03.05.2007. The department was of the view that sugar syrup which was captively consumed by the appellants, being an intermediary product the appellants are liable to pay duty on the same and the exemption provided as per notification 67/1995-CE dated 16.03.1995 was not available to the appellants. During the period March, 2007 to 11.09.2011, it was noticed that appellants manufactured a quantity of 33,92,538 KGs of sugar syrup and consumed the same captively for manufacture of exempted biscuits and did not discharge duty on intermediary product. Show cause notice was issued proposing to demand Central Excise duty on this sugar syrup captively consumed for manufacture of exempted biscuits along with interest and also for imposing penalties. After due process of law, original authority confirmed the demand of Rs.63,71,760/- along with interest and imposed equal penalty. Hence, this appeal.
3. On behalf of the appellant learned counsel, Shri G. Prahlad, appeared and argued the matter. He submitted that for manufacture of biscuits, sugar syrup is one of the ingredients. For preparation of sugar syrup 150 KGs of sugar is dissolved in 65 litres of water in a kettle with heating facility and heated upto 65 to 70o C to ensure that the sugar is completely dissolved. Subsequently, the temperate is increased to 105o C. When the temperature is at 105o C, 300 gms of citric acid is dissolved in 500 ml water which is added and then temperature is maintained at 105o C for 45 to 60 minutes. Subsequently, heater is turned down and the contents are allowed to stand in the kettle for 20 to 30 minutes. This syrup is used for production of biscuits once the same attains room temperature. The syrup does not contain any chemical which increases the shelf life and is not capable of being stored. In the normal course of business, entire sugar syrup manufactured is consumed on day to day basis and nothing is left over for more than 8 hours as the same stands the risk of being fermented if left for a long time. He, thus, argued that sugar syrup which is intermediary product is not marketable and the demand of excise duty cannot sustain. Further, the department has not adduced any reliable evidence to establish that sugar syrup is marketable. He relied upon the decision in the case of Rishi Bakers Pvt Ltd as reported at 2015 (328) ELT 634 (Tri-Delhi) to argue that sugar syrup is not a marketable product and also that it is for the burden of the department to establish the marketability. The department has not adduced any evidence to show that fructose content in the sugar syrup exceeds 50% to classify the product under 1702 9090. The following decisions were relied upon by the learned counsel to support his arguments.
a) Lucky Biscuits Company Vs CCE, Patna – 2017 (7) TMI 235 -CESTAT Kolkata = 2017-TIOL-3841-CESTAT-KOL
b) Parle Biscuits Pvt Ltd Vs CCE, Awar – 2018 (1) TMI 465 = 2017-TIOL-4475-CESTAT-DEL
c) Bhagwati Foods Pvt Ltd Vs CCE, Kanpur – 2016 (9) TMI 678 = 2016-TIOL-2499-CESTAT-ALL
3.1. The decision in M/s Yakult Danond India Pvt Ltd as reported at 2017 (8) TMI 1044 CESTAT-Chandigarh =2017-TIOL-4211-CESTAT-CHD was relied upon by the learned counsel to submit that in the absence of any evidence to prove that the sugar syrup is marketable the demand of duty cannot sustain.
3.2. Without prejudice to the above arguments, learned counsel submitted that appellant is eligible for benefit of notification 67/1995-CE. In terms of this notification when there is manufacture of dutiable and exempted final products, and the obligation prescribed under Rule 6 of Cenvat Credit Rules (CCR), 2004 is discharged by the manufacturer, there would be no liability to pay duty on intermediary product manufactured and captively consumed for manufacture of exempted final product. For the disputed period from March, 2007 to March, 2010, the appellant has maintained separate set of accounts for the inputs used in dutiable and exempted products. For the period from April, 2010 the appellant had reversed the proportionate credit for all items used in exempted biscuits. He drew attention to letter dated 25.04.2010 written by the assessee to the department wherein intimation was given to the department with regard to the reversal made by them. It is also submitted that for the year 2010-11 the appellant has reversed credit of Rs.59,61,753/- and for the year 2011-12 appellant reversed an amount of Rs.95,31,999/-. He relied upon the decision in the case of Godavari Sugar Mills Ltd as reported at 2007 (212) ELT 234 Tri- Bangalore = 2007-TIOL-602-CESTAT-BANG to argue that when the wrongly availed credit has been reversed, the benefit of notification 67/1995-CE cannot be denied. The decision in GD Bakers Industries Pvt Ltd as reported at 2014 (308) ELT 777 (Tri-Bang) = 2014-TIOL-1586-CESTAT-BANG was also relied.
3.3. With regard to the issue of limitation, learned counsel submitted that the question of marketability of sugar syrup has been under dispute for several years and there have been decisions in favour of the assessee. Therefore, the finding rendered by the lower authority that the appellants had knowledge about marketability of sugar syrup is untenable. When the issue is interpretational one, the demand raised invoking extended period alleging suppression of facts with an intention to evade payment of duty is highly illegal. In Ravi Foods Pvt Ltd as reported at 2016 (12) TMI 19 CESTAT-Hyd = 2016-TIOL-3409-CESTAT-HYD the Tribunal set aside the demand for the extended period holding that the department was all along aware of the fact that appellant was manufacturing sugar syrup which is an intermediary product. It was also argued that the issue being interpretational one and there being no positive evidence to establish any suppression of facts on the part of the appellant, the penalties may be waived.
4. Learned AR Shri P. Sudhakar Reddy appeared and argued the matter on behalf of the department. He adverted our attention to the notification 67/1995-CE and submitted that the notification stipulates that the exemption contained therein for captively consumed goods will not apply to inputs used in relation to manufacture of final products which are exempted from the duty of excise. Admittedly sugar syrup was used in manufacture of exempted biscuits. The sugar syrup manufactured by the appellant and captively consumed would fall under heading 1702 of Central Excise Tariff Act (CETA), 1985 which reads as under:
“1702: other sugars, including chemically pure lactose, maltose, glucose and fructose in any form and preparations thereof; sugar syrups not containing added flavouring or colouring matter; artificial honey, whether or not mixed with natural hone; caramel”
5. The sugar syrup/solution produced by the appellant finds place in the Schedule to the CETA, 1985 against heading 1702 and therefore is excisable good within the meaning of Section 2(d) of Central Excise Act, 1944. The product has come into existence as a result of process amounting to manufacture as envisaged under Section 2(f). Further the syrup produced by them contained 55 to 60% of Sucrose as stated by the appellant. Therefore, the syrup rightly merits classification under Chapter heading 1702 9090 of CETA and is liable to excise duty. The contention of the appellant that the sugar syrup is not marketable without any reference to the % of sugar concentration is untenable for the reason that sugar syrup is used in wide variety of biscuits/ sweetened food preparations. Therefore, the said sugar syrup is marketable product. The Commissioner has correctly relied upon market survey taken from the website to conclude that the sugar syrup is marketable item. The website reveals that said product is usually known as ‘invert sugar syrup’ and is ideal for confectionary industry for making caramel and other toffee sweeteners. It is also used in bakery products, jams, cakes and puddings. Thus, invert sugar syrup would be capable of being traded in the market as a commodity. The appellants are therefore liable to pay excise duty as demanded in the show cause notice and as confirmed by the adjudicating authority.
6. Heard both sides.
7. The demand of duty is on the sugar syrup which is manufactured and captively consumed by the appellants. It is the case of the department that the sugar syrup is marketable product and merits classification under 1702 9090 of CETA, 1985. However, on going through the said Chapter heading the sugar syrup ought to contain at least 50% by way of fructose. In the present case, though the department alleges that sugar syrup is classifiable under 1702 9090 there is no evidence adduced by the department as to what is the fructose content in the said syrup. In Rishi Bakers Pvt Ltd (supra) on similar set of facts the contention of the department that sugar syrup falls under heading 1702 9090 and that the said item is marketable was not accepted by the Tribunal. In the said decision, the Tribunal held that marketability of the product has been perceived by the department on the basis of marketability of invert sugar syrup. Since the department has not conducted any chemical test to arrive at the percentage of fructose content in the syrup, the contention that it merits classification under heading 1702 9090 or that it is marketable product cannot be accepted. The relevant portion of the decision is reproduced as under.
“8. Next comes the question of classification. The Department has classified the product, in question, under sub-heading 1702 90 90. Sub-heading 1702 90 90 comes under the 6 digit sub-heading 1702 90 which covers “other sugars including invert sugar and sugar syrup blends containing in the dry stage 50% by weight of fructose”. The goods, in question, are sought to be classified under 1702 90 90 as “sugar syrup blends containing in dry stage, 50% by weight of fructose”. In our view for classification as “sugar syrup blend” in this sub-heading the product must contain 50% by weight of fructose sugar in dry state. In these cases, the appellant’s plea from the very beginning has been that the fructose sugar content is less than 50% and in this regard they have produced the test report of Shriram Institute of Industrial Research. It is seen that the Commissioner (Appeals) has not given any finding on this plea. Not only this, there is no evidence to show that before seeking classification of the goods, in question, under sub-heading 1702 90 90, the samples drawn from the goods had been got tested by the CRCL to confirm as to whether the fructose content of the goods, in question, in dry stage is 50% by weight. Just because the appellant during period till June 2008 were paying duty on the goods by classifying the same under sub-heading 1702 90 90, it cannot be presumed that they had accepted that the goods, in question, conform to the description of sugar syrup blends of sub-heading 1702 90 for which the sugar syrup in dry stage must contain 50% by weight of fructose. The Apex Court in the case of Metlex (I) Pvt. Ltd. v. CCE, New Delhi reported in 2004 (165) E.L.T. 129 (S.C.) = 2004-TIOL-77-SC-CX has held that filing of classification list mistakenly does not mean that party has to pay duty, if in law, he is not bound to pay duty. Same view has been taken by the Apex Court in its judgment in the case of Bonanzo Engg. & Chemical P. Ltd. v. CCE reported in 2012 (277) E.L.T. 145 (S.C.) = 2012-TIOL-25-SC-CX. In view of this, we hold that the classification of the goods under sub-heading 1702 90 90 is not sustainable, as absolutely no evidence has been produced by the Department to show that the fructose content of the goods, in question, in dry state was 50%.
9. Even if it is assumed that the goods, in question, are covered by sub-heading 1702 90 90, for attracting Central Excise duty the goods must be proved to be marketable. The Tribunal had remanded this matter to Commissioner (Appeals) for examining the question of marketability of the goods, in question. In this regard it is settled law that the marketability of a product has to be established in the condition in which it emerges. In this regard the Apex Court in the case of Bata India Ltd. v. CCE, New Delhi (supra) has held that the test of marketability is whether product is marketable in condition in which it emerges. In this regard the marketability of the goods produced by a particular manufacturer cannot be presumed on the basis of the marketability of the similar goods in different condition being produced by another manufacturer, unless it shown that the two products are identical. In these cases, the Commissioner (Appeals) has held that the goods, in question, to be marketable only on the basis that the “invert sugar syrup” being manufactured by M/s. Dhampur Speciality Sugars Ltd. is being sold to M/s. Britannia Industries, M/s. J.B. Mangaram Food Industries and M/s. ITC Ltd. In our view this basis of holding that the goods, in question, are marketable is absolutely wrong, as it has been presumed that the sugar syrup being made by the appellants is identical to the “invert sugar syrup” being made by M/s. Dhampur Speciality Sugars Ltd. for which there is no basis. Chemically, invert sugar is obtained by Hydrolysis of cane sugar (sucrose, a disaccharide with specific rotation of + 66.5°) and the same is a mixture of glucose (with specific rotation of +52.7°) and fructose (with specific rotation of – 92°), with net specific rotation of – 19.7°. The process of hydrolysis of cane sugar (which is dextrorotatory i.e. with rotation of + 66.5°) is also called inversion, as the mixture of glucose and fructose formed by this process is levorotatory with sp. Rotation of – 19.7° and for this reason the mixture of glucose and fructose formed by hydrolysis of cane sugar is called invert sugar. The invert sugar has longer shelf life. Whether a sugar syrup is ordinary cane sugar syrup or is invert sugar syrup has to be ascertained by chemical test which has not been done. It is, therefore, totally wrong to presume a given sugar syrup as invert sugar syrup without test. The judgments of the Apex Court in the cases of Gujarat Narmada Valley Fert. Co. Ltd. v. CCE & Cus. (supra), Nicholaas Piramal India Ltd. v. CCE, Mumbai (supra) and Medley Pharmaceuticals Ltd. v. CCE & Cus, Daman (supra) cited by the learned DR are not applicable to the facts of this case.”
8. In the present case, the department having not conducted any tests to prove the fructose content of the sugar syrup, the above decision would apply to hold that the sugar syrup manufactured by appellants is not a marketable commodity.
9. Further, the issue as to the eligibility of notification 67/1995 as well as demand of excise duty on the sugar syrup was analyzed by the Tribunal in the case of Lucky Biscuits Company (supra). The demand was set aside observing that department has failed to adduce evidence as to the marketability of sugar syrup manufactured as intermediary product. Similar decision was taken in Parle Biscuits Pvt Ltd (supra). It is the burden of the department to establish the marketability as well as the excisability of a product while demanding duty. In the present case, the department has miserably failed to establish marketability or the classification of the said sugar syrup. In the decision cited above, the Tribunals have analyzed very same point and held that demand of duty on intermediary product viz., sugar syrup cannot sustain. Following said decisions, we are of the view that the demand has no legal or factual basis and is required to be set aside which we hereby do.
10. The impugned order is set aside. The appeal is allowed with consequential relief, if any.
(Operative part of this order was pronounced in the open court on conclusion of hearing)