2019 (11) TMI 558 - HC - Central Excise

Court quashes erroneous excise duty demand on captively consumed carbon dioxide in beer production

The Court held that the show cause notice demanding Central Excise duty on carbon dioxide captively consumed during beer production was jurisdictionally ... Captively consumed goods - levy of Central Excise duty - excisable goods - Notification No. 67/95-C.E. - exemption for captive consumption - non-excisable final product - jurisdiction to issue show cause notice - constitutional legislative competence under Entry 84 of List ICaptively consumed goods - Notification No. 67/95-C.E. - exemption for captive consumption - non-excisable final product - levy of Central Excise duty - jurisdiction to issue show cause notice - Ext.P1 show cause notice demanding duty on carbon dioxide captively consumed in manufacture of beer was issued without jurisdiction and is liable to be quashed. - HELD THAT: - The charging provision of the Central Excise Act applies to excisable goods ''produced or manufactured'' where the manufacturing process results in excisable goods. In the present case the final product manufactured is beer, which is an alcoholic liquor for human consumption and therefore non-excisable under Entry 84 of List I; accordingly the manufacturing process does not fall within the purview of the Central Excise levy. The concept of captive consumption ensures duty on intermediate dutiable products where the final product is dutiable; Notification No. 67/95-C.E. was framed to exempt duty on captively consumed products provided duty is paid on the final product cleared from the factory. The proviso to the Notification excludes cases where the final product is exempt or attracts a Nil rate, but does not contemplate levy at the captive stage where the final product is non-excisable. Where a by-product (here carbon dioxide) arises only in the process of manufacturing a non-excisable final product and is used internally to enable efficient manufacture, the levy of Central Excise duty is not attracted and a show cause notice premised on liability to pay such duty is beyond the authority's jurisdiction. For these reasons Ext.P1 is founded on an erroneous premise and is without jurisdiction. [Paras 6, 7, 8]Ext.P1 show cause notice quashed as one issued without jurisdiction.Final Conclusion: Writ petition allowed; Ext.P1 show cause notice dated 5-8-2014 (relating to the period July, 2009 to January, 2014) quashed as issued without jurisdiction, with consequential reliefs to the petitioner. Issues:1. Impugning show cause notice for Central Excise duty on captively consumed carbon dioxide.2. Jurisdiction of High Court to entertain Writ Petition without exhausting statutory remedies.Analysis:1. The petitioner, a beer manufacturing company, challenged a show cause notice demanding Central Excise duty on carbon dioxide captively consumed during beer production. The notice was based on the premise that carbon dioxide, as an excisable commodity, generated during fermentation is used in further manufacturing. The petitioner argued against jurisdiction of the notice due to non-payment of duty on the final product, alcoholic liquor. The respondents contended that carbon dioxide is an independent excisable product, and captive consumption attracts duty under Central Excise Rules. The Court considered the jurisdictional aspect as the notice was issued under the Central Excise Act.2. The Central Excise Act mandates duty on excisable goods produced in India. The Act applies to goods specified in the Central Excise Tariff Act. The manufacturing process leading to non-excisable products like beer falls outside the Central Excise Act's purview. Captive consumption ensures duty payment on all dutiable products, but the MODVAT/CENVAT Scheme allows set-off against final product duty. Notification No. 67/95 exempts duty on captively consumed products if duty is paid on the final product. The Court noted that duty levy at captive consumption stage was not intended for non-excisable final products. As beer is non-excisable, the show cause notice was deemed jurisdictionally erroneous, and the Court quashed it.This detailed analysis covers the issues involved in the legal judgment, highlighting the key arguments, legal provisions, and the Court's reasoning for each issue.