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2022 (4) TMI 363 - AT - Central ExciseLevy of duty of excise - Valuation - captive consumption of by-production - Carbon Dioxide (CO2) gas - manufacture of Beer - non-excisable goods or otherwise? - period from March, 2010 to December 2014 and from January 2015 to June 2015 - denial of benefit under N/N. 67/1995 dated 16.03.1995 - Liability of duty of intermediate goods - Rule 9 of Central Excise Rules - marketability of goods - HELD THAT - The appellants, admittedly, are engaged in manufacture of alcoholic liquor for human consumption namely Beer excisable under Rajasthan State Excise Act. The duty has been demanded on Carbon Dioxide gas which evolves during the process of manufacture of Beer at fermentation stage which is a separate good under Central Excise Tariff Sub Heading No.28112190 of the First Schedule to Central Excise Tariff Act, 1985. The appellant is manufacturing an alcoholic drink i.e. Beer which is not excisable under Central Excise Act but is excisable under Rajasthan State Excise Act. The show cause notices have been issued under Central Excise Act. This Act is a central legislation enacted pursuant to the legislative power conferred on the Parliament in terms of Article 246 read with Entry 84 of List-I of the Seventh Schedule to the Constitution during the relevant Entry No.84 - perusal makes it ample clear that alcoholic liquors for human consumption as that of Beer are out of the scope of Central Excise Act. Though the goods which are specified in First and Second Schedule to Central Excise Tariff Act, 1985 only are excisable goods But alcoholic liquors including Beer find no mention in the said Schedules of Central Excise Tariff Act, 1985 because of the above Entry No.84. There is no denial that such alcoholic liquors are subject to Excise Duty under State Excise Law. Since the manufactured good in question is Beer, an alcoholic liquor for human consumption, the manufacturing process is out of the purview of Central Excise Act. Question of any intermediate product arising during such manufacturing process, irrespective find mentioned under Central Excise Tariff, cannot be made liable for Excise Duty under Central Excise Act. Whether the Carbon Dioxide (CO2) evolved herein confirms the double standard test of manufacture and marketability? - HELD THAT - It is observed that CO2 herein is produced in the fermentation tank during fermentation of a mixture called wort which ultimately ferments to Beer, the final product however with the simultaneous inevitable emission of CO2 gas. This particular observation is sufficient to hold that formation of CO2 cannot be called as manufacture - no separate treatment is given to wort mixture for emission of CO2 which is inevitable consequence of fermentation of said wort mixture into Beer that CO2 in the present facts and circumstances cannot be held to have been manufactured product which is excisable. In the present case, CO2 has emerged in the manufacturing process of such product to which Central Excise Act does not apply. For this reason also Excise Duty cannot be levied upon so emitted CO2 irrespective it has been captively used in further process for manufacturing the impugned alcoholic liquor. Marketability of goods - HELD THAT - Any good which is known to market attracts Excise Duty when cleared provided it has been manufactured. As already held above CO2 herein was not the product of manufacturing process. However, it is an admitted case that the appellants in addition of using CO2 captively were also purchasing CO2 for the same purpose of giving effervescence to the manufactured Beer. The marketability cannot be denied. Also Carbon Dioxide has a specific Tariff Entry under Central Excise Act cannot be denied. But the fact remains is that impugned CO2 is not a manufactured product, as held above, it fails to satisfy the dual test. Question of levy of Excise even under Central Excise Act does not arise. Applicability of Notification No.67/95 dated 16.03.1995 - HELD THAT - The Carbon Dioxide irrespective of being an independent product under Central Excise Tariff but in the present case, it is a product that has arisen inevitably in such a manufacturing process that does not attract the levy of Central Excise Duty under Central Excise Act question of imposing demand and confirmation of duty on Carbon Dioxide in given circumstances is highly unsustainable. The captive consumption of such CO2 was only to efficiently manufacture the non-excisable Beer/the final product. The orders confirming duty on the quantity of CO2 being captively used by the appellant is therefore liable to be set aside. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Applicability of Central Excise Duty on Carbon Dioxide (CO2) generated during the manufacture of Beer. 2. Eligibility for exemption under Notification No.67/1995 dated 16.03.1995. 3. Jurisdictional conflict between Central Excise Act and State Excise Act. Issue-wise Detailed Analysis: 1. Applicability of Central Excise Duty on Carbon Dioxide (CO2) Generated During the Manufacture of Beer: The appellant, engaged in the manufacture of Beer, which is non-excisable under the Central Excise Act but excisable under the Rajasthan State Excise Act, was alleged to have contravened the Central Excise Rules by not paying duty on CO2 generated during the Beer manufacturing process. The CO2, classified under Tariff Sub Heading No.28112190, was captively consumed in further manufacturing processes. The Department demanded duty on this CO2 based on its classification as an excisable commodity. However, the Tribunal held that since Beer is not covered under the Central Excise Tariff Act, 1985, the manufacturing process of Beer, including the generation of CO2, is outside the purview of the Central Excise Act. The Tribunal emphasized that the term "manufacture" implies a change resulting from treatment, labor, and manipulation, leading to a new and different article. Since CO2 is an inevitable by-product of Beer fermentation and not a result of a distinct manufacturing process, it cannot be considered a manufactured product subject to excise duty. 2. Eligibility for Exemption Under Notification No.67/1995 Dated 16.03.1995: The Department argued that the exemption under Notification No.67/1995 was not applicable because the CO2 was used in the production of a non-excisable final product (Beer). The Tribunal clarified that the notification was intended to exempt manufacturers from paying duty on intermediate products used in the production of dutiable final products. Since Beer is non-excisable under the Central Excise Act, the notification does not apply. The Tribunal further noted that the CO2 generated during Beer production is not an exempted product or a product with a Nil rate of duty under the Central Excise Act, as Beer itself is non-excisable under this Act. Therefore, the demand for duty on CO2 was deemed unsustainable. 3. Jurisdictional Conflict Between Central Excise Act and State Excise Act: The appellant argued that their operations are governed by the Rajasthan State Excise Act, not the Central Excise Act, as Beer is subject to state excise duty under Entry 8 and 15, List 2 of the Seventh Schedule of the Constitution of India. The Tribunal supported this view, citing Article 246 and Entry 84 of List-I of the Seventh Schedule, which excludes alcoholic liquors for human consumption from the scope of the Central Excise Act. The Tribunal referred to the Kerala High Court's decision, which stayed similar proceedings and held that CO2 generated during Beer production is not subject to Central Excise Duty. The Tribunal concluded that the Central Excise Act does not apply to the manufacturing process of Beer, and any intermediate product arising during such a process cannot be subjected to excise duty under this Act. Conclusion: The Tribunal set aside the orders confirming the excise duty demand on CO2 generated during Beer production. It held that the manufacturing process of Beer is outside the purview of the Central Excise Act, and the CO2 generated is not a manufactured product subject to excise duty. The Tribunal also found that the exemption under Notification No.67/1995 does not apply to the appellant's case. The appeal was allowed, and the demand for duty on CO2 was dismissed.
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