Intermediate sugar product not dutiable as syrup without proof of marketability, required solids, and valid suppression allegations.

An intermediate product is not dutiable as sugar syrup unless the department proves that it satisfies the recognised characteristics of syrup and is marketable. The laboratory report showed soluble solids below the level indicated in the Board circular and Chief Chemist's view, and no fresh test was obtained to displace that report, so the product was treated as a non-dutiable sugar solution. Suppression was also not established because the show cause notices did not allege the material facts later relied on, and the department already knew of the manufacturing activity. On that basis, the duty demand and penalty could not be sustained.

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Issues: (i) Whether the intermediate product prepared in the course of manufacture was sugar syrup exigible to duty under Heading 1702.30, or merely a non-dutiable sugar solution lacking marketability and requisite soluble solid content; (ii) whether suppression of material facts was established so as to sustain the duty demand and penalty.

Issue (i): Whether the intermediate product prepared in the course of manufacture was sugar syrup exigible to duty under Heading 1702.30, or merely a non-dutiable sugar solution lacking marketability and requisite soluble solid content.

Analysis: The duty demand rested on Board circulars treating sugar syrup as excisable only where the product answered that description and possessed marketability. The later circular, read with the Chief Chemist's view, indicated that synthetic syrup should have solid contents of at least 65% by weight. The laboratory report on the sample drawn from the respondent's product showed soluble solids below that level, and the department did not challenge that report by obtaining a fresh test from the Chief Chemist. On that material, the intermediate product could not be treated as sugar syrup; it remained only a sugar solution and was not shown to be marketable as such.

Conclusion: The demand on the footing that the intermediate product was dutiable sugar syrup was not sustainable, and the finding was in favour of the assessee.

Issue (ii): Whether suppression of material facts was established so as to sustain the duty demand and penalty.

Analysis: The show cause notices did not allege that citric acid was used as a preservative or that the product had the requisite solid content for sugar syrup. The department sought to rely on additional material and a later letter, but no new case could be introduced beyond the scope of the notices, and in any event the alleged admission related to a later period. The record also showed that the department had prior knowledge of the assessee's manufacturing activity and the intermediate product, which negatived suppression.

Conclusion: Suppression was not proved, and the penalty and demand could not be sustained on that ground either.

Final Conclusion: The Revenue's challenge failed because the intermediate product was not established to be excisable sugar syrup and the allegation of suppression was not proved.

Ratio Decidendi: An intermediate product is not dutiable as sugar syrup unless the department proves, on reliable evidence, that it satisfies the recognised characteristics of syrup and marketability, and a demand cannot be sustained on allegations or materials beyond the scope of the show cause notice.

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