2025 (9) TMI 1401 - AT - Central Excise

Sugar invert syrup incidentally produced during biscuit making not liable to central excise without proof of marketability; appeal allowed

CESTAT CHENNAI - AT held that sugar invert syrup produced incidentally during biscuit manufacture is not exigible to central excise duty because the ... Exigibility of sugar syrup that emerges during the manufacture of biscuits - marketibility of goods - burden of proof - wilful suppression of facts - HELD THAT:- An assessee pays duty on the manufacture of a product as per his knowledge of law. He is not expected to be an expert on classification matters and whenever he discovers that the goods are not exigible to duty he can legitimately change his stand, so long as no fraud is involved. In Nirmala L. Mehta Vs A. Balasubramaniam [2004 (4) TMI 43 - BOMBAY HIGH COURT], the Hon’ble Bombay High Court emphasized that no ‘estoppel’ can arise against the statute. Acquiescence cannot deprive a party of rightful relief when taxes are levied or collected without legal authority. However, in such a situation it would always be prudent for the assessee to also inform the department of the reasons for his change in stance. This would discourage a charge of willful suppression being laid at his door by the department, on the ground that ordinary prudence of full disclosure has not been exercised by the appellant according to the standards of a reasonable man. The burden of showing that the goods are marketable is on the department. No samples have been tested to determine the shelf life of the impugned goods, nor has a study of its marketability been done. The Hon’ble Supreme Court in Bhor Industries Ltd. Vs Collector of Central Excise [1989 (1) TMI 128 - SUPREME COURT] held that simply because a certain article falls within the CETA it would not be dutiable under excise law if the said article is not “goods” known to the market. “Marketability, therefore, is an essential ingredient in order to be dutiable under the Schedule to Central Excise Tariff Act, 1985.” - the department has not discharged its burden of showing that the goods were marketable and hence the ‘sugar invert syrup’ manufactured by the appellant is not exigible to Central Excise duty. The impugned order is set aside and the appeal is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an intermediate product (sugar invert syrup) captively consumed in the manufacture of an exempt final product is exigible to Central Excise duty by virtue of its inclusion in the Central Excise Tariff if the department has not established marketability. 2. Whether prior payment of duty by an assessee on the same product can estop the assessee or otherwise render the product dutiable where the assessee subsequently contends the product is non-exigible. 3. Burden of proof and evidentiary standard required to establish 'marketability' for purposes of exigibility under the Central Excise Tariff. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Exigibility of intermediate product (sugar invert syrup) captively consumed: Legal framework The statutory scheme requires that an item be 'goods' known to the market (i.e., marketable) in order to be exigible under the Central Excise Tariff; mere inclusion of an item in the Tariff does not automatically render it dutiable if it is not marketable or is only an intermediate captively consumed product. Issue 1 - Precedent Treatment The Tribunal followed established authority holding that marketability is an essential ingredient for exigibility and that mere classification within the Tariff is insufficient if the article is not known to the market. Earlier Tribunal decisions on materially identical facts were relied upon as directly applicable. Issue 1 - Interpretation and reasoning The Tribunal examined whether the department had independently established marketability of the sugar invert syrup produced during job work. The department had not produced test results, market studies, or other evidence demonstrating shelf life or market recognition of the product. The Tribunal rejected the Original Authority's reasoning that prior payment of duty by the assessee equated to proof of marketability. The Tribunal emphasised that marketability must be independently proved by the revenue; the absence of any sample testing or market study means the statutory requirement of being 'goods known to the market' was not satisfied. Issue 1 - Ratio vs. Obiter Ratio: Where an intermediate product is captively consumed and the department fails to demonstrate marketability by evidence (e.g., testing, market study, samples), the product is not exigible under the Tariff despite its entry in the Tariff schedule. Obiter: Observations on the propriety of lengthy compilations of precedents and procedural admonitions regarding reliance on multiple uncited authorities (procedural guidance rather than core tax law ratio). Issue 1 - Conclusion The Tribunal concluded that sugar invert syrup manufactured and captively consumed was not exigible to Central Excise duty because the revenue did not discharge the burden of proving marketability; consequently, the impugned demand was set aside. Issue 2 - Effect of prior payment of duty by the assessee: Legal framework The constitutional principle that no tax can be levied or collected except by authority of law (Article 265) and the settled principle that acquiescence or prior payment does not estop a party from claiming lawful relief where taxes were levied or collected without legal authority govern the issue. Issue 2 - Precedent Treatment The Tribunal relied on authority holding that acquiescence in past payments does not create an estoppel against statutory rights and that no estoppel can be permitted to override the statute; however, prudent practice suggests disclosure to the department when changing position to avoid allegations of suppression. Issue 2 - Interpretation and reasoning The Tribunal held that an assessee's earlier payment of duty does not, by itself, transform a non-exigible product into an exigible one. An assessee may legitimately change legal position on classification or exigibility where no fraud is involved. The Original Authority's reliance on prior payment as conclusive proof of marketability was rejected. The Tribunal noted the prudential point that an assessee should, when changing stance, inform the department to reduce the risk of charges of willful suppression, but absence of such communication does not override statutory requirements for tax levies. Issue 2 - Ratio vs. Obiter Ratio: Prior voluntary payment of duty does not bind the assessee where the tax is not lawfully due; estoppel cannot be used to uphold an unlawful levy. Obiter: Practical advice that notifying the department of a change in position is prudent to avoid allegations of concealment. Issue 2 - Conclusion The Tribunal concluded that prior payment was not determinative of exigibility and could not substitute for the department's duty to prove marketability; therefore prior payment did not sustain the demand. Issue 3 - Burden of proof and evidentiary standard for marketability: Legal framework The burden lies on the revenue to show that an item is marketable; proof may require testing, market surveys, samples, or other objective evidence demonstrating that the item is known and sold in the market. Issue 3 - Precedent Treatment The Tribunal applied settled jurisprudence that marketability is an essential ingredient for excisability and that the revenue must discharge this burden by producing relevant evidence; Tribunal precedents where department failed to conduct tests or produce market evidence were treated as controlling. Issue 3 - Interpretation and reasoning The Tribunal observed absence of departmental action to test shelf life, fructose content, or market existence of the sugar invert syrup. Given that no such evidence was placed on record in the Show Cause Notice or Order-in-Original, the revenue failed its evidentiary obligation. The Tribunal emphasised that the mere presence of an item in the Tariff and the assessee's earlier treatment are insufficient substitutes for independent proof of marketability by the revenue. Issue 3 - Ratio vs. Obiter Ratio: Revenue must adducespecific evidence demonstrating marketability (e.g., tests, market studies, samples) for an item to be exigible; absent such proof, the item cannot be held dutiable merely by virtue of Tariff classification. Issue 3 - Conclusion The Tribunal concluded that because the department did not discharge the burden of proof or produce evidence of marketability, the demand for duty on the sugar invert syrup could not be sustained and the impugned order was set aside; consequential relief was directed to be granted as per law. Cross-references and ancillary observations The Tribunal noted that the principal issue was already adjudicated by a prior Tribunal order on identical facts and that judicial discipline requires following that ratio in absence of reversal by a higher forum. The Tribunal also admonished the practice of filing voluminous uncited authorities and directed reliance on a few pertinent precedents with copies furnished to the bench.