Excise Duty Not Leviable on Imported Edible Lactose Cleared Without Manufacture: CESTAT Sets Aside Duty Demand [Read Order]

The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal(CESTAT) sets aside excise duty demand on imported edible lactose cleared without manufacture.

Rajasthan Antibiotics Ltd..appellant-assessee,was engaged in manufacturing pharmaceutical products and was registered with the Central Excise department. It paid Central Excise duty and availed CENVAT credit on inputs and input services.

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Based on an audit, a show cause notice dated 3.6.2013 was issued for the period September 2009 to May 2010, demanding duty on edible lactose cleared by the assessee, along with interest and penalties. The proposals were confirmed by the Commissioner through an order dated 27.8.2014.

The assessee challenged the order, stating that the edible lactose was imported, not manufactured. It had availed CENVAT credit on the imported lactose, sent it to a job worker for processing, and later sold it after reversing the credit.

The tribunal, through its order dated 21.11.2017, set aside the earlier order and asked the Commissioner to verify if the imported lactose was edible and decide the matter again after hearing the assessee.

The Commissioner confirmed that the assessee had imported 1567.320 MT of edible lactose between August and December 2009. It was found that 1456.75 MT of edible lactose, worth ₹6.49 crore, was cleared without paying duty between September 2009 and May 2010 by wrongly treating it as ‘inputs cleared as such’.

The assessee stated that it had no facility to manufacture lactose and had sent 340 MT to a job worker. Only 131.5 MT was received after processing, and 208.5 MT was lost.

Despite these submissions, the Commissioner confirmed a duty demand of ₹60.95 lakh.

The two member bench comprising Justice Dilip Gupta(President) and P.V.Subba Rao(Technical Member) heard both sides and reviewed the records.The main issue was whether the assessee had to pay CENVAT duty on edible lactose. As per Section 3 of the Central Excise Act, duty applies only to goods that are manufactured or produced in India.

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The assessee had imported edible lactose, taken credit of the duty paid, sent some of it for processing to a job worker, and later cleared the remaining quantity after reversing the credit. In an earlier round, the tribunal had asked the Commissioner to check if the lactose was imported.

The Commissioner confirmed that the assessee had imported edible lactose but did not show any evidence that it had manufactured it. Still, he confirmed the demand just because the goods were cleared from the factory.

The appellate tribunal noted that excise duty could only be charged if the goods were manufactured. Since there was no proof of manufacture, the demand was not valid.

The CESTAT, therefore, set aside the order and allowed the appeal.

To Read the full text of the Order CLICK HERE

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