2025 (8) TMI 163 - AT - Central Excise

Spent solvents in bulk drug manufacturing are excisable goods under Section 2(f) of CEA and liable for excise duty

The CESTAT Bangalore held that spent solvents generated during the manufacture of bulk drugs qualify as excisable goods under Section 2(f) of the CEA and ... Manufacture - Arising of distinct and excisable goods - clearance of solvents manufactured by them in the Domestic Tariff Area (DTA) availing wrongly the benefit of N/N. 23/2003-CE dated 31.03.2003 as amended - spent solvents generated during the course of manufacture of bulk drugs - manufacture u/S 2(f) of CEA and an excisable product leviable to duty - HELD THAT:- This issue has already been addressed by the Tribunal in the case of CCE Vs. Aurobindo Pharma Ltd. [2009 (3) TMI 455 - CESTAT, BANGALORE] wherein on more or less similar facts, observed that 'the excisability in the product goods would decide the leviability of excise duty. If product ‘spent solvents’ are considered as non-excisable, the question of discharge of excise duty on them does not arise.' The impugned order is set aside and the appeals are allowed. ISSUES: Whether spent solvents generated during the manufacture of bulk drugs constitute 'manufacture' under Section 2(f) of the Central Excise Act, 1944 (CEA) and are excisable goods leviable to duty.Whether the benefit of Notification No.23/2003-CE dated 31.03.2003, providing concessional duty rates for DTA clearances, is available for cleared processed/recovered solvents classified under Chapter sub-heading 29420090 of the Central Excise Tariff Act, 1985 (CETA).Whether the process of recovery and purification of solvents from mother liquor amounts to manufacture under Section 2(f) of the CEA.Whether penalty and interest imposed on the appellant for alleged suppression of facts and duty short-payment are sustainable. RULINGS / HOLDINGS: The Tribunal held that spent solvents generated during the manufacture of bulk drugs do not amount to 'manufacture' under Section 2(f) of the CEA, and thus are not excisable goods leviable to duty, as the process involved is merely removal of impurities and not manufacture of a new product.The benefit of Notification No.23/2003-CE is not available if the goods cleared are not similar to the exported goods; however, since spent solvents are not excisable goods, the demand for duty on such clearances is unsustainable.The process of recovery of solvents from mother liquor is not manufacture within the meaning of Section 2(f) of the CEA, supported by authoritative judicial pronouncements including the Tribunal's decision in Aurobindo Pharma Ltd. and subsequent affirmations by High Courts and the Supreme Court.Penalty and interest imposed for alleged suppression of facts are not sustainable as all facts were disclosed to the Department. RATIONALE: The legal framework applied includes Sections 2(d) (definition of excisable goods) and 2(f) (definition of manufacture) of the Central Excise Act, 1944, as amended in 2008, and Notification No.23/2003-CE.The Tribunal relied heavily on precedent, particularly the decision in CCE Vs. Aurobindo Pharma Ltd., where it was held that spent solvents are not excisable goods since the process of recovery does not amount to manufacture, a position upheld by the High Court and Supreme Court.The Tribunal distinguished the period prior to and post the 2008 amendment to Section 2(d) and 2(f), concluding that even after amendment, the show cause notices did not invoke Section 2(d), and the process did not satisfy the definition of manufacture under Section 2(f).The Supreme Court's ruling in UOI Vs. DSCL Sugar Ltd. was cited to clarify that for goods to be excisable under the amended Section 2(d), the process must qualify as manufacture under Section 2(f), which was not the case for spent solvents.The Tribunal noted that the solvents cleared are residues after repeated reuse and purification within factory premises, and such clearances do not create a new excisable product.The Tribunal also referred to consistent judicial authority holding that spent solvents are hazardous waste and not marketable goods, thus non-excisable.The penalty was found unjustified due to full disclosure and absence of suppression of facts.