No Excise Duty on Goods Removed for Repacking Within Factory: CESTAT Grants Relief to ITC Ltd [Read Order]

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal(CESTAT) held that repacking of goods within the factory after removal from the Daily Stock Account and before final clearance on payment of duty, does not attract excise duty at that intermediate stage.

ITCLtd., the appellant, manufactures paper and paperboards at its Tribeni factory. In certain cases, goods entered in the Daily Stock Account were taken out for repacking or rectification. This was done when customers required customized packing or when goods were packed with the wrong customer name due to booking errors.

After repacking or rectification, the goods were re-entered into the Daily Stock Account and later cleared on payment of applicable duty. The appellant argued detailed records in its ERP system and reflected the transactions in monthly returns.

Following an audit, a show cause notice dated 29.07.2016 was issued for the period October 2015 to May 2016. The department alleged that the appellant had removed goods from the Daily Stock Account without payment of duty in the guise of reprocessing. It was alleged that no invoices were issued and remission under Rule 21 of the Central Excise Rules, 2002 was not obtained. A demand of Rs. 22,93,955 along with interest and penalty was confirmed.

The Commissioner (Appeals) upheld the order. Aggrieved, the appellant approached the Tribunal. The appellant’s counsel argued that the goods were never removed from the factory and were only taken out of the Daily Stock Account for repacking within the factory. After repacking, the goods were re-entered and cleared on payment of duty.

They submitted that there was no evidence that goods were cleared without payment of duty. The counsel relied on an earlier decision of the Tribunal in the appellant’s own case where a similar issue was decided in their favour.

The revenue supported the impugned order and argued that packed goods were marketable and duty was payable when removed from the Daily Stock Account.

The two-member bench comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that the issue was already decided in the appellant’s own case. The tribunal observed that the goods were taken out of the Daily Stock Account, repacked, re-entered in the records and finally cleared on payment of duty.

It found no evidence of revenue loss. The tribunal explained that the procedure adopted by the appellant was in line with the relevant Board Circular permitting transfer of goods within the factory for reprocessing without payment of duty. It also pointed out that all transactions were recorded in the returns and there was no suppression of facts.

Holding that the demand, interest and penalty were not sustainable, the Tribunal set aside the impugned order and allowed the appeal with consequential relief.

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