2025 (1) TMI 1253 - AT - Central Excise

Intermediate product PPFMY during fabric manufacture not marketable hence not excisable but finished goods attract duty

M/s Asma Traders Versus Commissioner, CGST & Central Excise, Kanpur

CESTAT Allahabad held that intermediate product PPFMY arising during manufacture of Narrow Woven Fabric is not marketable and hence not excisable goods. ... Recovery of Central excise Duty with interest and penalty - duty on intermediate product PPFMY which arises during the course of manufacture of the finished products - confirmation of duty with interest and penalty - HELD THAT:- As the Tribunal has in Appellant’s own case M/S ASMA TRADERS VERSUS CCE&ST, KANPUR [2018 (1) TMI 1535 - CESTAT ALLAHABAD] held that PPMFY arises during the continuous manufacturing process of Narrow Woven Fabric is not marketable and hence no goods/excisable goods comes into existence. The claim of the Appellant in the present proceedings that they were paying duty on the intermediate product goes contrary to this order as Appellant can pay duty only on the goods/ excisable goods which come into existence and are subject to duty. Undisputedly the Appellant has taken a cenvat credit on inputs used in the manufacture of finished goods. In terms of the condition of Exemption N/N. 30/2004-Central Excise the benefit of said Notification would not be available to them, and they are required to pay central excise duty on the finished goods - the demand has been confirmed against the Appellant without allowing the benefit of the duty already paid by them by treating PPMFY as excisable goods. The quantum demand confirmed needs to be worked out after making adjustment for the duty already paid. Conclusion - The demand for excise duty on the final product, Narrow Woven Fabric, due to the appellant's availing of CENVAT credit on inputs upheld. The penalty imposed under Section 11AC(1)(a) was set aside. Matter is remanded for re-quantification of the demand of duty, giving credit of the duty already paid - appeal allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether an intermediate product arising in a continuous/composite manufacturing process (Polypropylene Multifilament Yarn - PPMFY) constitutes excisable/marketable goods liable to central excise duty. 2. Whether claim to exemption under an exemption notification for the finished product (Narrow Woven Fabric) is barred where CENVAT credit on inputs used in the manufacture of the finished goods has been availed. 3. Whether duty already paid on the intermediate product (PPMFY) must be adjusted against a re-quantified demand for duty on the finished product when the intermediate product is held non-excisable. 4. Whether penalty under Section 11AC(1)(a) is sustainable where the demand confirmed is remitted for re-quantification and earlier adjudications/tribunal orders had held the intermediate product non-excisable. ISSUE-WISE DETAILED ANALYSIS Issue 1: Marketability/excisability of intermediate product generated in a continuous/composite manufacturing process Legal framework: Central Excise levies apply to goods that come into existence as excisable goods; test of marketability is central to whether an intermediate product is a marketable excisable good. Concepts of continuous/composite unit and nascent/intermediate products are relevant. Precedent Treatment: The Tribunal's earlier final order in the appellant's own case held that PPMFY generated in the continuous process was not marketable and, therefore, not liable to duty; Supreme Court precedents (e.g., Bata India) and Tribunal decisions support that integrated/inert-winded intermediate products failing the marketability test are not excisable. Interpretation and reasoning: The Court accepted factual findings that PPMFY at the stage generated is semi-finished, inert-winded, oil-coated, bound in loose bobbins, not coned or prepared for sale and intended only for internal subsequent processing. Such characteristics render it non-marketable; thus no excisable goods come into existence at that stage. Ratio vs. Obiter: Ratio - intermediate product that is integrally produced, not fit for sale and intended only for further internal processing in a continuous composite unit is not an excisable/marketable good. Obiter - references to specific manufacturing steps and physical descriptions supporting marketability are fact-specific guidance. Conclusion: PPMFY, as generated in the appellant's continuous process, fails the marketability test and is not liable to central excise duty as an intermediate excisable good. Issue 2: Effect of availing CENVAT credit on entitlement to exemption under the exemption notification for finished goods Legal framework: Exemption notifications (provisos) expressly disapply exemption where credit of duty on inputs or capital goods has been taken under the CENVAT Credit Rules. Procedural conditions in notifications and Rule/Chapter X/Rule 56A-type requirements (as applicable) are mandatory for claiming exemption benefits. Precedent Treatment: Supreme Court and Tribunal authorities (Cadila Laboratories; Eagle Flask; PAM Instruments; Saboo Cylinders; State of Jharkhand v. Amey Cements) establish that exemption conditions and prescribed procedures are mandatory, and failure to comply or taking credit where the proviso disallows exemption disentitles the assessee to the notification benefit. Interpretation and reasoning: The Court found on record that the appellant had availed CENVAT credit on inputs used in manufacturing the finished goods. The exemption notification expressly excludes goods for which input/capital goods credit has been taken. The proviso is mandatory; therefore entitlement to exemption cannot be extended despite any contention about intermediate-product duty payment. The Court rejected the appellant's attempt to treat nascent intermediate product credit as permitting exemption for final goods. Ratio vs. Obiter: Ratio - taking CENVAT credit on inputs used in manufacture of goods precludes applicability of the exemption notification for those goods; procedural/conditional requirements of exemption notifications must be strictly complied with. Obiter - references to stretching the meaning of a notification or characterizing intent are supportive but fact-specific. Conclusion: Availing CENVAT credit on inputs disbars the appellant from claiming exemption under the notification for the finished goods; therefore duty is payable on the finished goods notwithstanding arguments about the intermediate product. Issue 3: Adjustment of duty already paid on non-excisable intermediate product against demand on finished product Legal framework: Where an adjudication confirms demand on finished goods but duty has already been paid on inputs or on intermediate stages under protest, principles of equity and assessment practice require computation/quantification to account for duty already discharged; statutory machinery permits re-quantification/re-computation. Precedent Treatment: The impugned tribunal judgment relies on earlier findings and principles that duty cannot be demanded twice on the same value chain; the record supports allowing credit of duty already paid, subject to proper computation. Interpretation and reasoning: Even though PPMFY is not excisable, the appellant in practice paid duty on PPMFY under protest. The Tribunal observed that while the exemption cannot be allowed (because of CENVAT credit), the demand confirming duty on finished goods must be re-worked after allowing the benefit/adjustment for duty already paid on PPMFY. The Court remanded the matter to original authority for re-quantification to avoid double recovery and to reflect payments already made. Ratio vs. Obiter: Ratio - where duty already paid on an intermediate product (even if later held non-excisable) is demonstrably paid, an assessing authority must allow adjustment/credit against a re-quantified demand on finished goods to prevent double recovery; remand for computation is appropriate. Obiter - specific methods of computation were not prescribed and remain for the original authority. Conclusion: Demand for duty on finished goods is sustainable (given disallowance of exemption) but must be re-quantified after giving credit/adjustment for duty already paid on the intermediate product; matter remitted for re-computation accordingly. Issue 4: Sustainability of penalty under Section 11AC(1)(a) where demand is re-quantified and prior tribunal order held intermediate product non-excisable Legal framework: Penalty under the Central Excise Act is tied to the confirmed duty demand and the culpability in not paying/delaying payment. Penalty assessment must be consistent with the final quantification of duty and relevant adjudications. Precedent Treatment: Where a substantial part of the demand is affected by subsequent tribunal/authority decisions or where the demand itself requires re-quantification, courts/tribunals have set aside penalties that cannot be sustained on the altered factual/legal position. Interpretation and reasoning: The Tribunal noted that because the intermediate product had earlier been adjudicated by the Tribunal as non-excisable in the appellant's own case, and because the present confirmation requires re-quantification to account for duty already paid, the penalty imposed could not be sustained in its present form. Given the altered assessment landscape and remand for re-quantification, the Tribunal set aside the penalty since it depended on an unadjusted demand. Ratio vs. Obiter: Ratio - penalty based on a demand that is to be re-quantified or undermined by earlier tribunal findings cannot be sustained and may be set aside; finality of penalty depends on final duty determination. Obiter - suggestions about future penalty assessment after recomputation are left to the adjudicating authority. Conclusion: Penalty under Section 11AC(1)(a) is not sustainable in the present form and is set aside; penalty liability, if any, must await final re-quantified determination of duty. Cross-References and Overall Disposition The issues are interlinked: (i) PPMFY is not excisable (Issue 1) but the appellant's prior availing of CENVAT credit bars the exemption claim on the finished goods (Issue 2); (ii) duty payable on finished goods must be recomputed allowing credit for duty already paid on PPMFY (Issue 3); and (iii) because the demand requires re-quantification and prior tribunal findings impact liability, the penalty is set aside (Issue 4). The matter is remanded to the original authority solely for re-quantification of duty after adjustment for duty already paid; penalty is vacated.