Tribunal rules CO2 from Beer production not subject to excise duty

The Tribunal ruled in favor of the appellant, holding that the manufacturing process of Beer, including the generation of CO2, is outside the purview of the Central Excise Act. It determined that CO2, being an inevitable by-product of Beer fermentation and not a distinct manufactured product, is not subject to excise duty. Additionally, the exemption under Notification No.67/1995 was deemed inapplicable as Beer itself is non-excisable under the Central Excise Act. The appeal was allowed, and the demand for duty on CO2 generated during Beer production was dismissed.

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Issues Involved:
1. Applicability of Central Excise Duty on Carbon Dioxide (CO2) generated during the manufacture of Beer.
2. Eligibility for exemption under Notification No.67/1995 dated 16.03.1995.
3. Jurisdictional conflict between Central Excise Act and State Excise Act.

Issue-wise Detailed Analysis:

1. Applicability of Central Excise Duty on Carbon Dioxide (CO2) Generated During the Manufacture of Beer:

The appellant, engaged in the manufacture of Beer, which is non-excisable under the Central Excise Act but excisable under the Rajasthan State Excise Act, was alleged to have contravened the Central Excise Rules by not paying duty on CO2 generated during the Beer manufacturing process. The CO2, classified under Tariff Sub Heading No.28112190, was captively consumed in further manufacturing processes. The Department demanded duty on this CO2 based on its classification as an excisable commodity. However, the Tribunal held that since Beer is not covered under the Central Excise Tariff Act, 1985, the manufacturing process of Beer, including the generation of CO2, is outside the purview of the Central Excise Act. The Tribunal emphasized that the term "manufacture" implies a change resulting from treatment, labor, and manipulation, leading to a new and different article. Since CO2 is an inevitable by-product of Beer fermentation and not a result of a distinct manufacturing process, it cannot be considered a manufactured product subject to excise duty.

2. Eligibility for Exemption Under Notification No.67/1995 Dated 16.03.1995:

The Department argued that the exemption under Notification No.67/1995 was not applicable because the CO2 was used in the production of a non-excisable final product (Beer). The Tribunal clarified that the notification was intended to exempt manufacturers from paying duty on intermediate products used in the production of dutiable final products. Since Beer is non-excisable under the Central Excise Act, the notification does not apply. The Tribunal further noted that the CO2 generated during Beer production is not an exempted product or a product with a Nil rate of duty under the Central Excise Act, as Beer itself is non-excisable under this Act. Therefore, the demand for duty on CO2 was deemed unsustainable.

3. Jurisdictional Conflict Between Central Excise Act and State Excise Act:

The appellant argued that their operations are governed by the Rajasthan State Excise Act, not the Central Excise Act, as Beer is subject to state excise duty under Entry 8 and 15, List 2 of the Seventh Schedule of the Constitution of India. The Tribunal supported this view, citing Article 246 and Entry 84 of List-I of the Seventh Schedule, which excludes alcoholic liquors for human consumption from the scope of the Central Excise Act. The Tribunal referred to the Kerala High Court's decision, which stayed similar proceedings and held that CO2 generated during Beer production is not subject to Central Excise Duty. The Tribunal concluded that the Central Excise Act does not apply to the manufacturing process of Beer, and any intermediate product arising during such a process cannot be subjected to excise duty under this Act.

Conclusion:

The Tribunal set aside the orders confirming the excise duty demand on CO2 generated during Beer production. It held that the manufacturing process of Beer is outside the purview of the Central Excise Act, and the CO2 generated is not a manufactured product subject to excise duty. The Tribunal also found that the exemption under Notification No.67/1995 does not apply to the appellant's case. The appeal was allowed, and the demand for duty on CO2 was dismissed.

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