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2025 (5) TMI 1528 - AT - Central ExciseLiability to pay CENVAT on the edible lactose - Demand of duty along with interest and penalty - availing credit of CENVAT on the inputs and input services - HELD THAT - Duties can be charged if excisable goods are manufactured or produced in India. According to the appellant as recorded in the impugned order it had no manufacturing facility to manufacture edible lactose at all. It had imported edible lactose took it into its factory and availed CENVAT credit of the Additional Duty of Customs paid in the Bills of Entry. The assessee got part of the edible lactose processed into pharma grade lactose through a job worker and cleared the rest of the edible lactose as such after reversing the CENVAT credit which it had taken. In the first round of litigation this Tribunal wanted this fact checked- whether it had imported edible grade lactose. The reason is that the charge against the appellant is that it cleared edible grade lactose. If it had imported edible grade lactose took it into its factory and later cleared edible grade lactose it can only be clearance of the input which it had imported. As can be seen from Section 3 of the Act the charge of duty of excise (CENVAT) is on manufacture or production of excisable goods and not merely on clearing them (i.e. taking goods out of the factory which it had not manufactured). The Commissioner lost sight of the charging section of the Act and confirmed the demand without establishing through any evidence that the appellant had manufactured edible grade lactose. Thus the impugned order cannot be sustained and needs to be set aside. The appeal is allowed and the impugned order is set aside with consequential relief to the appellant.
The core legal question presented for consideration is whether the appellant was liable to pay Central Excise duty (CENVAT) on edible lactose cleared from its factory, given that it had imported the lactose and did not manufacture it. This central issue involves interpretation of the charging section under the Central Excise Act, 1944, specifically whether the duty applies to goods merely cleared from the factory or only to goods manufactured or produced in India.
Additional relevant questions include:
Issue-wise detailed analysis: 1. Nature of the lactose cleared - whether edible lactose or not The Tribunal had earlier remanded the matter to the Commissioner to examine the nature of the lactose imported by the appellant. The Commissioner, after review, confirmed that the appellant had imported edible lactose as per the Bills of Entry submitted. This was not disputed by the appellant. The Commissioner relied on documentary evidence (Bills of Entry) to establish that 1567.320 MT of edible lactose was imported during the relevant period. This finding was crucial because the Revenue's demand was premised on the clearance of edible lactose without payment of duty, which is an excisable good under the Act. 2. Whether the appellant manufactured edible lactose or merely cleared imported edible lactose The appellant contended that it did not manufacture edible lactose at all, having no manufacturing facilities for either edible or pharma grade lactose. Instead, it imported edible lactose, availed CENVAT credit on the customs duty paid, and sent part of the imported lactose to a job worker for conversion into pharma grade lactose. The processed pharma grade lactose was received back, while the unprocessed edible lactose was cleared after reversal of CENVAT credit. The Commissioner did not find or produce any evidence to contradict the appellant's claim of non-manufacture. The impugned order acknowledged the appellant's lack of manufacturing facilities and accepted that part of the lactose was processed externally. However, the Commissioner confirmed the demand on the basis that edible lactose was cleared from the factory without payment of duty, equating clearance with manufacture for the purpose of duty liability. 3. Interpretation of the charging section of the Central Excise Act, 1944 Section 3(1) of the Act provides that Central Excise duty (CENVAT) shall be levied on all excisable goods "which are produced or manufactured in India." The proviso clarifies duty on goods produced or manufactured by hundred percent export oriented undertakings but does not alter the fundamental requirement of manufacture or production within India for duty liability. The Court emphasized that the charge of duty is on manufacture or production, not merely on clearance (removal from factory premises). Therefore, if the appellant had only imported edible lactose and cleared it without manufacturing it, no excise duty would be leviable on such clearance. 4. Application of law to facts and evidence The Commissioner's order confirmed import of edible lactose and accepted the appellant's claim of no manufacture. However, the Commissioner failed to establish any manufacturing activity on the part of the appellant. The demand was confirmed on the basis of clearance of edible lactose from the factory, treating it as manufacture, which the Court found to be a fundamental error. The appellant's reversal of CENVAT credit on the cleared edible lactose further indicated recognition of the input nature of the goods cleared. The loss of lactose during processing by the job worker was also recorded but did not affect the core issue of manufacture versus clearance. 5. Treatment of competing arguments The Revenue relied on the premise that clearance of edible lactose without payment of duty amounted to evasion under the proviso to section 11A(1) and justified penalty under section 11AC. The appellant argued that no manufacture had taken place and therefore no duty was payable on clearance of imported edible lactose. The Court found the Revenue's argument untenable in the absence of any evidence of manufacture. The charging section's clear language was decisive in favor of the appellant. The penalty and interest demands were thus unsustainable. 6. Conclusions on issues The Court concluded that the appellant was not liable to pay Central Excise duty on edible lactose cleared from its factory, as it had not manufactured the lactose but merely imported and cleared it after processing part through a job worker. The impugned order confirming demand and penalty was set aside. Significant holdings include the following verbatim reasoning: "...the charge of duty of excise (known as CENVAT) is on manufacture or production of excisable goods and not merely on clearing them (i.e., taking goods out of the factory which it had not manufactured). The Commissioner lost sight of the charging section of the Act and confirmed the demand without establishing through any evidence that the appellant had manufactured edible grade lactose." Core principles established:
Final determinations:
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