CESTAT quashes Excise Duty demand against Pepsico on Scrap-Veg-Refuse from Manufacture of Exempted Goods [Read Order]

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) quashed excise duty demand against Pepsico on scrap-veg-refuse from manufacture of exempted goods.

The Appellant No.1 is engaged in the manufacturing of Potato Chips, Kurkure and Namkeens etc. On gathering the intelligence that the Appellant No.1 is evading central excise duty in respect of ‘potato starch’ classifiable under Tariff Item No. 11083100 of the Tariff by manufacturing and clearing the same clandestinely under the garb of scrap-veg-refuse without payment of appropriate duty and without reflecting the same in their monthly ER-1 returns, the unit was visited by the Central Excise Officers and after the detailed investigation, show cause notices were issued and after following the due process, the Adjudicating Authority confirmed the demand and also imposed penalties.

The only issue involved in all these appeals is whether the impugned goods ‘scrap-veg-refuse’ is classifiable under Chapter Heading 23080000 as vegetable waste as claimed by the Appellant or potato starch classifiable under Chapter Heading 1108 as claimed by the Department.

The Counsel for the Appellants submitted that the impugned orders are not sustainable in law and are liable to be set aside as the same have been passed without properly appreciating the facts and the law and binding judicial precedents.

It was further submitted that the impugned goods were not manufactured product in terms of provisions of Central Excise Act and that the product ‘scrap-veg-refuse’ came into existence pursuant to process of recycling of waste water, which was not undertaken for manufacturing of ‘scrap-veg-refuse’. Such process was undertaken only to reuse the reusable water content in the waste water.

The counsel also pointed out that the impugned goods is not classifiable as ‘potato starch’ under Chapter Heading 11081300 as the said product does not meet the criteria as provided in the HSN explanatory notes for the Chapter 1108. The HSN explanatory notes clearly states that the potato starch falling under Chapter 1108 shall be physically in white powdered form, however, in the present case, the ‘scrap-veg-refuse’ is physically in the form of a wet paste.

A Two-Member Bench comprising SS Garg, Judicial Member and P Anjani Kumar, Technical Member observed that “The Appellant No.1 effectively does not take any process to extract the potato starch from the potatoes except for extraction of water for reuse. The Appellant No.1 has also placed the literature explaining the process of potato starch extraction explained by the International Institute of Starch, Denmark and also filed an affidavit of their Associate Director of Research & Development Division clarifying the difference between ‘potato starch’ and ‘scrap-veg-refuse’.”

“We find also find that the impugned goods are also exempted from payment of excise duty under the Notification No. 89/1995-CE dt. 18.05.1995 and Notification No. 27/2011-CE dt. 24.03.2011 as applicable during the relevant period and as per the said notifications, waste pairing and scrap arising during the manufacture of exempted goods were exempt from the payment of excise duty. It is seen that the Appellant No.1’s case is squarely covered by the decisions relied upon by the Appellant cited supra in this regard” the Bench noted.

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