Excise Dept Erred by Ignoring Gherkins in Brine While Computing SION: CESTAT Deletes Duty Demand on alleged Excess Vinegar Consumption [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) Bench at Chennai, has granted substantial relief by setting aside the Customs and Central Excise duty demand raised on the allegation of vinegar consumption in excess of the Standard Input Output Norms (SION).

The Bench held that the Department’s computation was fundamentally flawed, as it considered only exports of “gherkins in vinegar” while completely ignoring “gherkins in brine,” even though SION norms do not distinguish between the two categories.

Shruthika Greenss, a 100% Export Oriented Unit engaged in the manufacture of gherkins, had procured vinegar duty-free under Notification No. 52/2003-Cus and Notification No. 22/2003-CE.

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

During audit, the Department noted apparent excess consumption beyond the SION ratio of 0.4 litre per kilogram and issued a show cause notice demanding over ₹15.50 lakh in Customs duty, ₹1.05 lakh in Excise duty and imposing penalties. The Commissioner (Appeals) upheld most of the demand, leading the assessee to approach the Tribunal.

The appellant argued that vinegar is used as a preservative in both product categories i.e., gherkins in vinegar and gherkins in brine, which are exported. Because pickled gherkins have a short shelf life of about two months, additional vinegar must be added when export orders get delayed.

The appellant also highlighted that all details of vinegar procurement, consumption and stock were fully disclosed through monthly ER-2 returns, and there was no allegation of misuse, diversion or clandestine removals. According to the assessee, when total exports are considered, their consumption of 3,69,080 litres was within the permissible 4,25,890 litres as per SION.

The Tribunal, comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member), agreed and observed that the Department had selectively excluded “gherkins in brine” from its calculations without providing any justification.

SION norms for gherkins prescribe a uniform ratio of 0.4 litre of vinegar per kilogram without differentiating between varieties, and the Department did not dispute that vinegar is also used for brine-packed gherkins. The Bench also noted that there was no evidence of diversion of inputs or unaccounted production and that the EOU operated under departmental supervision.

CESTAT further reiterated that SION norms represent average consumption standards and cannot automatically justify duty demands merely because a manufacturer’s consumption appears higher. In the absence of any allegation of misuse, the Tribunal relied on earlier decisions to hold that duty cannot be demanded solely on the basis of excess consumption when inputs are used in the manufacture of exported goods.

Holding that the consumption was well within permissible norms when computed correctly, the Tribunal set aside the demand of duty, interest and penalties relating to the alleged excess vinegar usage.

The matters concerning crate trolleys and HDPE barrels were left undisturbed as they had never been contested by the appellant. Since the main demand itself failed on merits, the Tribunal found it unnecessary to consider the issue of limitation.

As a result, the appeal was accordingly modified and partly allowed, granting complete relief on the principal allegation of excess vinegar consumption.

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) Bench at Chennai, has granted substantial relief by setting aside the Customs and Central Excise duty demand raised on the allegation of vinegar consumption in excess of the Standard Input Output Norms (SION).

The Bench held that the Department’s computation was fundamentally flawed, as it considered only exports of “gherkins in vinegar” while completely ignoring “gherkins in brine,” even though SION norms do not distinguish between the two categories.

Shruthika Greenss, a 100% Export Oriented Unit engaged in the manufacture of gherkins, had procured vinegar duty-free under Notification No. 52/2003-Cus and Notification No. 22/2003-CE.

During audit, the Department noted apparent excess consumption beyond the SION ratio of 0.4 litre per kilogram and issued a show cause notice demanding over ₹15.50 lakh in Customs duty, ₹1.05 lakh in Excise duty and imposing penalties. The Commissioner (Appeals) upheld most of the demand, leading the assessee to approach the Tribunal.

The appellant argued that vinegar is used as a preservative in both product categories i.e., gherkins in vinegar and gherkins in brine, which are exported. Because pickled gherkins have a short shelf life of about two months, additional vinegar must be added when export orders get delayed.

The appellant also highlighted that all details of vinegar procurement, consumption and stock were fully disclosed through monthly ER-2 returns, and there was no allegation of misuse, diversion or clandestine removals. According to the assessee, when total exports are considered, their consumption of 3,69,080 litres was within the permissible 4,25,890 litres as per SION.

The Tribunal, comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member), agreed and observed that the Department had selectively excluded “gherkins in brine” from its calculations without providing any justification.

SION norms for gherkins prescribe a uniform ratio of 0.4 litre of vinegar per kilogram without differentiating between varieties, and the Department did not dispute that vinegar is also used for brine-packed gherkins. The Bench also noted that there was no evidence of diversion of inputs or unaccounted production and that the EOU operated under departmental supervision.

CESTAT further reiterated that SION norms represent average consumption standards and cannot automatically justify duty demands merely because a manufacturer’s consumption appears higher. In the absence of any allegation of misuse, the Tribunal relied on earlier decisions to hold that duty cannot be demanded solely on the basis of excess consumption when inputs are used in the manufacture of exported goods.

Holding that the consumption was well within permissible norms when computed correctly, the Tribunal set aside the demand of duty, interest and penalties relating to the alleged excess vinegar usage.

The matters concerning crate trolleys and HDPE barrels were left undisturbed as they had never been contested by the appellant. Since the main demand itself failed on merits, the Tribunal found it unnecessary to consider the issue of limitation.

As a result, the appeal was accordingly modified and partly allowed, granting complete relief on the principal allegation of excess vinegar consumption.

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) Bench at Chennai, has granted substantial relief by setting aside the Customs and Central Excise duty demand raised on the allegation of vinegar consumption in excess of the Standard Input Output Norms (SION).

The Bench held that the Department’s computation was fundamentally flawed, as it considered only exports of “gherkins in vinegar” while completely ignoring “gherkins in brine,” even though SION norms do not distinguish between the two categories.

Shruthika Greenss, a 100% Export Oriented Unit engaged in the manufacture of gherkins, had procured vinegar duty-free under Notification No. 52/2003-Cus and Notification No. 22/2003-CE.

During audit, the Department noted apparent excess consumption beyond the SION ratio of 0.4 litre per kilogram and issued a show cause notice demanding over ₹15.50 lakh in Customs duty, ₹1.05 lakh in Excise duty and imposing penalties. The Commissioner (Appeals) upheld most of the demand, leading the assessee to approach the Tribunal.

The appellant argued that vinegar is used as a preservative in both product categories i.e., gherkins in vinegar and gherkins in brine, which are exported. Because pickled gherkins have a short shelf life of about two months, additional vinegar must be added when export orders get delayed.

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

The appellant also highlighted that all details of vinegar procurement, consumption and stock were fully disclosed through monthly ER-2 returns, and there was no allegation of misuse, diversion or clandestine removals. According to the assessee, when total exports are considered, their consumption of 3,69,080 litres was within the permissible 4,25,890 litres as per SION.

The Tribunal, comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member), agreed and observed that the Department had selectively excluded “gherkins in brine” from its calculations without providing any justification.

SION norms for gherkins prescribe a uniform ratio of 0.4 litre of vinegar per kilogram without differentiating between varieties, and the Department did not dispute that vinegar is also used for brine-packed gherkins. The Bench also noted that there was no evidence of diversion of inputs or unaccounted production and that the EOU operated under departmental supervision.

CESTAT further reiterated that SION norms represent average consumption standards and cannot automatically justify duty demands merely because a manufacturer’s consumption appears higher. In the absence of any allegation of misuse, the Tribunal relied on earlier decisions to hold that duty cannot be demanded solely on the basis of excess consumption when inputs are used in the manufacture of exported goods.

Holding that the consumption was well within permissible norms when computed correctly, the Tribunal set aside the demand of duty, interest and penalties relating to the alleged excess vinegar usage.

The matters concerning crate trolleys and HDPE barrels were left undisturbed as they had never been contested by the appellant. Since the main demand itself failed on merits, the Tribunal found it unnecessary to consider the issue of limitation.

As a result, the appeal was accordingly modified and partly allowed, granting complete relief on the principal allegation of excess vinegar consumption.

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) Bench at Chennai, has granted substantial relief by setting aside the Customs and Central Excise duty demand raised on the allegation of vinegar consumption in excess of the Standard Input Output Norms (SION).

The Bench held that the Department’s computation was fundamentally flawed, as it considered only exports of “gherkins in vinegar” while completely ignoring “gherkins in brine,” even though SION norms do not distinguish between the two categories.

Shruthika Greenss, a 100% Export Oriented Unit engaged in the manufacture of gherkins, had procured vinegar duty-free under Notification No. 52/2003-Cus and Notification No. 22/2003-CE.

During audit, the Department noted apparent excess consumption beyond the SION ratio of 0.4 litre per kilogram and issued a show cause notice demanding over ₹15.50 lakh in Customs duty, ₹1.05 lakh in Excise duty and imposing penalties. The Commissioner (Appeals) upheld most of the demand, leading the assessee to approach the Tribunal.

The appellant argued that vinegar is used as a preservative in both product categories i.e., gherkins in vinegar and gherkins in brine, which are exported. Because pickled gherkins have a short shelf life of about two months, additional vinegar must be added when export orders get delayed.

The appellant also highlighted that all details of vinegar procurement, consumption and stock were fully disclosed through monthly ER-2 returns, and there was no allegation of misuse, diversion or clandestine removals. According to the assessee, when total exports are considered, their consumption of 3,69,080 litres was within the permissible 4,25,890 litres as per SION.

The Tribunal, comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member), agreed and observed that the Department had selectively excluded “gherkins in brine” from its calculations without providing any justification.

SION norms for gherkins prescribe a uniform ratio of 0.4 litre of vinegar per kilogram without differentiating between varieties, and the Department did not dispute that vinegar is also used for brine-packed gherkins. The Bench also noted that there was no evidence of diversion of inputs or unaccounted production and that the EOU operated under departmental supervision.

CESTAT further reiterated that SION norms represent average consumption standards and cannot automatically justify duty demands merely because a manufacturer’s consumption appears higher. In the absence of any allegation of misuse, the Tribunal relied on earlier decisions to hold that duty cannot be demanded solely on the basis of excess consumption when inputs are used in the manufacture of exported goods.

Holding that the consumption was well within permissible norms when computed correctly, the Tribunal set aside the demand of duty, interest and penalties relating to the alleged excess vinegar usage.

The matters concerning crate trolleys and HDPE barrels were left undisturbed as they had never been contested by the appellant. Since the main demand itself failed on merits, the Tribunal found it unnecessary to consider the issue of limitation.

As a result, the appeal was accordingly modified and partly allowed, granting complete relief on the principal allegation of excess vinegar consumption.