2017 (11) TMI 1506 - AT - Central Excise

Remission of duty - by-product, molasses - deterioration due to storage in earthen pits and passage of time - Rule 9A(5) of Central Excise Rules, 1944 - Held that - Admittedly, the molasses from earthen pits are unfit for marketing. Admittedly, the rate of duty based on a rule, which is not available in 2006 cannot be legally tenable - similar issue decided in the case of Chengalrayan Co-op. Sugar Mills Ltd. Vs. CESTAT & Anr. 2017 (8) TMI 310 - MADRAS HIGH COURT , where it was held that without clearance of excisable goods, there can be no duty liability on the assesee - In the present case, there is no clearance of excisable goods - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Appeal against order of Commissioner of Central Excise, Chennai -III regarding remission of duty on stored molasses
- Liability of Central Excise duty on stored molasses
- Penalty imposed under Rule 173Q of Central Excise Rules, 1944

Analysis:
1. The appellants, engaged in sugar manufacturing, stored molasses in earthen pits due to lack of storage. The deterioration of stored molasses led to a remission request rejected by the Commissioner, resulting in a demand for Central Excise duty of ?52,53,309. A penalty of ?5,00,000 was imposed under Rule 173Q of Central Excise Rules, 1944.

2. The appellants argued that since the deteriorated molasses were not cleared from the factory premises, there should be no Central Excise duty liability. They also highlighted their inability to manage additional storage due to excess production, resulting in loss and requested remission. Citing a decision of the Madras High Court, they contended against the penalty imposition.

3. The Authorized Representative reiterated the original authority's findings supporting the duty demand and penalty imposition.

4. After hearing both sides and examining the records, the Tribunal noted that the molasses stored in earthen pits were unfit for marketing and there was no evidence of clearance without accounting or payment of excise duty.

5. The Tribunal observed that the demand was based on unapproved storage resulting in revenue loss, invoking Rule 9A(5) of Central Excise Rules, 1944. However, the Tribunal found the demand legally untenable as the duty rate was based on a rule not available in 2006. Referring to a Madras High Court decision, the Tribunal emphasized that duty liability arises only upon clearance of excisable goods, which did not occur in this case.

6. Citing the Madras High Court's ruling that storing molasses in earthen pits within factory premises does not attract duty liability, the Tribunal set aside the impugned order, allowing the appeal.