2019 (11) TMI 558 - HC - Central Excise

Captive Consumption - manufacture of non-excisable goods - Exemption under N/N. 67/95-C.E., dated 16-3-1995 - by-product - carbon dioxide generated as a by-product in the manufacture of alcoholic liquor - petitioner uses the said carbon dioxide in the further manufacturing process to produce alcoholic liquor for human consumption (beer) - it is also alleged that SCN issued without jurisdiction - HELD THAT - While it is trite that this Court would not normally entertain a Writ Petition impugning a show cause notice issued under a taxing statute, the exceptional cases in which this Court would interfere would include instances where the statutory authority is seen transgressing the limits of its jurisdiction while issuing a show cause notice. The contention of the Learned Senior Counsel for the petitioner being that the show cause notice is issued without jurisdiction, the matter needs to be examined in that light. In the instant case, the final product manufactured by the petitioner company being beer, which is an alcoholic liquor for human consumption, the manufacturing process cannot be seen as coming under the purview of the Central Excise Act. The levy of Central Excise duty is not attracted in such cases, where a by-product emerges in the course of manufacture of non-excisable products and the captive consumption of the said byproduct is only intended to efficiently manufacture a non-excisable product - Inasmuch as the final product emerging from the factory of the manufacturer is not excisable (as opposed to exempt or cleared at Nil rate of duty), Ext. P1 show cause notice has been issued on an erroneous premise and without jurisdiction. The Writ Petition is therefore allowed by quashing Ext. P1 notice as one issued without jurisdiction.

Summary

Issues:
1. Impugning show cause notice for Central Excise duty on captively consumed carbon dioxide.
2. Jurisdiction of High Court to entertain Writ Petition without exhausting statutory remedies.

Analysis:
1. The petitioner, a beer manufacturing company, challenged a show cause notice demanding Central Excise duty on carbon dioxide captively consumed during beer production. The notice was based on the premise that carbon dioxide, as an excisable commodity, generated during fermentation is used in further manufacturing. The petitioner argued against jurisdiction of the notice due to non-payment of duty on the final product, alcoholic liquor. The respondents contended that carbon dioxide is an independent excisable product, and captive consumption attracts duty under Central Excise Rules. The Court considered the jurisdictional aspect as the notice was issued under the Central Excise Act.

2. The Central Excise Act mandates duty on excisable goods produced in India. The Act applies to goods specified in the Central Excise Tariff Act. The manufacturing process leading to non-excisable products like beer falls outside the Central Excise Act's purview. Captive consumption ensures duty payment on all dutiable products, but the MODVAT/CENVAT Scheme allows set-off against final product duty. Notification No. 67/95 exempts duty on captively consumed products if duty is paid on the final product. The Court noted that duty levy at captive consumption stage was not intended for non-excisable final products. As beer is non-excisable, the show cause notice was deemed jurisdictionally erroneous, and the Court quashed it.

This detailed analysis covers the issues involved in the legal judgment, highlighting the key arguments, legal provisions, and the Court's reasoning for each issue.