The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that excise exemption on captively consumed packaging materials cannot be entirely denied when some portion is used for traded goods.
Budge Budge Refineries Ltd., the appellant, is engaged in the manufacture of Refined Palm Oil (RPO), Interesterified Vegetable Fat (IVF), and Fatty Acid as a by-product. The appellant also manufactures tin containers and poly jars for packaging its products and availed excise duty exemption under Notification No. 10/96-CE.
The Central Excise Department alleged that the appellant misused the exemption benefit, as the packaging materials were also used for traded goods instead of being exclusively used for the company’s own manufactured products. The department issued a Show Cause Notice (SCN) dated 06.05.2011, contending that since the company failed to maintain separate accounts, the exemption should be denied entirely.
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The order confirmed the duty demand of Rs. 27,92,810 on poly jars and Rs. 50,95,061 on tin containers, along with interest and penalty. The department relied on a statement given by Sri Deepak Keshan (Director) on 10.12.2008, in which he admitted that traded RPO was stored in the same tanks as manufactured RPO.
Aggrieved by the order, the appellant approached the CESTAT arguing that the excise exemption should not be entirely denied merely because some packaging materials were used for traded goods. The appellant argued that it only used its own brand names (Sathi Gold, Supriya Bhojan, and Sarona), contrary to the department’s claim that it packaged goods under third-party brands.
The department failed to determine the actual quantity of packaging materials used for traded goods, making the complete denial of exemption arbitrary. The appellant’s counsel argued that there was no conclusive evidence of duty evasion and that the denial of exemption was based on assumptions rather than factual segregation of manufactured and traded goods.
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The revenue countered that the appellant failed to maintain separate accounts to differentiate between packaging materials used for captive consumption and traded goods. The mixing of traded and manufactured RPO in the same tanks violated the conditions of Notification No. 10/96-CE, which mandates exclusive use of exempted materials for captive production. The appellant did not meet the exemption conditions so the revenue argued that it was not entitled to any benefit under the notification.
The two-member bench comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that the complete denial of excise exemption was unjustified. Instead, the exemption should be denied only to the extent of packaging materials used for traded goods.
The tribunal found that the department failed to quantify the proportion of traded goods packaged, making a blanket rejection of exemption legally unsustainable. The tribunal remanded the matter back to the adjudicating authority for reassessment to determine the actual proportion of traded goods packaged and deny exemption only to that extent.
The tribunal set aside the full duty demand and directed the adjudicating authority to conduct a proportionate reassessment. The appeal was allowed.
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