By TIOL News Service

MUMBAI, APRIL 12, 2017: THE appellant is a manufacturer of bulk drugs falling and imports various solvents like acetone, ethyl acetate, methanol, toluene, tetrahydrofuron, dimethyl formamide, acetonitrile etc. and also procures the same indigenously without payment of duty. At the end of the manufacturing process, the said solvents come out as an admixture of solvents in impure form. This admixture is purified by the appellant and cleared in the market as mixture of solvents without payment of duty by taking a stand that the goods are not excisable since not manufactured.

Revenue is of the view that the spent solvents or admixture solvents appear to be liable to duty as per the definition of "manufacture" as provided in Section 2(f) of the Central Excise Act, 1944 and Note 1 to Chapter 29 of the Central Excise Tariff Act, 1985.

Periodical SCNs were issued and confirmed by the original and lower appellate authority.

The appellant is before the CESTAT and submits that an identical issue was decided in favour of the assessee in the case of Aurobindo Pharma Ltd. - 2010-TIOL-424-CESTAT-BANG and this order was upheld by the apex Court. Reliance is also placed on the apex court decision in DSCL Sugar Ltd. - 2015-TIOL-240-SC-CX for the proposition that post 10.5.2008, the provisions of Section 2(d) of the CEA, 1944 may also not apply.

The AR while reiterating the submissions of the lower authorities sought support from the decisions in Keti Chemicals - 2002-TIOL-351-CESTAT-DEL-LB, Nirma Chemical Works Ltd. - 2002-TIOL-528-SC-CX, Amrit Agro Industries Ltd. - 2007-TIOL-244-SC-CX to negate the plea made by the appellant.

The Bench observed -

Demand prior to 10.05.2008

+ It is undisputed that the appellant was discharging duty liability on this mixture/spent solvents prior to September 2006 but subsequently did not discharge the central excise duty by relying upon the judgment of the Tribunal in the case of Aurobindo Pharma Pvt. Ltd.

+ The goods which are cleared by the appellant are mixture of solvents which have been reused in the factory premises over a period of time for manufacturing of final products i.e. bulk drugs. It is also not disputed by the Revenue in the impugned orders that the solvents are repeatedly used after purification within the factory premises and they get mixed up with various impurities and at a stage when they cannot be reused, they are cleared by the assessee for a consideration.

+ In short, clearances of the mixed solvent, which is done from the factory premises, is the residue, which gets retained after the manufacturing of final products by repeated use of the solvents during the course of manufacturing of final products. The appellant's claim that these goods are not excisable is supported by the judgment of the Tribunal in the case of CCE, Hyderabad v. Aurobindo Pharma Ltd. - 2010-TIOL-424-CESTAT-BANG…

+ …the issue involved in the case in hand and in the case of Aurobindo Pharma Ltd., is the same. At least upto 10.5.2008, the question of excisability of the mixed solvent that arises during the course of manufacturing of bulk drugs, does not arise as it does not get covered in the provisions of Section 2 (f) of the Central Excise Act, 1944. This judgment of the Tribunal having been affirmed by the Hon'ble High Court and maintained by the Hon'ble Supreme Court, the ratio would apply in the case in hand and the demands raised prior to 10.5.2008 needs to be set aside.

Demand post 10.05.2008

+ Even with the enactment of provisions of Section 2(d) of the Central Excise Act, 1944, the demand raised on the appellant does not get fastened for the simple reason that the show cause notice does not invoke the provisions of Section 2(d) of the Central Excise Act, 1944. All the show cause notices are alleging that the process that is carried out for the purification of the mixed solvents amounts to manufacture as per the provisions of Section 2(f) of the Central Excise Act, 1944. Since the said proposition is already decided by the Tribunal in the case of Aurobindo Pharma Ltd.…, the question of demanding any duty form the appellant on this invocation of the provisions of Section 2(f) does not arise.

+ Be that as it may, the apex court was considering the provisions of Section 2(d) of the Central Excise Act read with Section 2(f) of the Central Excise Act in the case of DSCL Sugar Ltd. - 2015-TIOL-240-SC-CX. The ratio of the judgment would apply in the case in hand squarely.

Holding that the impugned orders are unsustainable in view of the authoritative judicial pronouncements, the same were set aside and the appeals were allowed.

(See 2017-TIOL-1216-CESTAT-MUM)