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2025 (3) TMI 897 - AT - Central ExciseLiability of Central Excise Duty - appellants used aromatic compounds captively within the factory - benefit provided under N/N. 67/95-C.E. dated 01.03.1995 is applicable to the intermediate product - HELD THAT - The CBEC vide Circular No. 495/61/99-CX.3 dated 22.11.1999 has clarified that manufacturing activity undertaken by the Agarbatti producers are a trade secret and composition contained therein are never disclosed to outside parties. The said Circular dated 22.11.1999 was further clarified by the CBEC vide subsequent Circular No. 989/13/2014 dated 07.11.2014 clarifying that in cases where on the basis of evidence it is established that such intermediate compounds are capable of being marketed the same will be excisable irrespective of whether the compound is actually marketed or otherwise. In the case in hand the Department has relied upon certain invoices to demonstrate that the aromatic compound is capable of being bought and sold in the open market for a consideration. However on perusal of sample copy of the invoices relied upon by the Revenue we find that chemical composition of aromatic compound was not mentioned in those invoices and also the composition of such intermediate product used by the appellants was also not considered by the Department in order to conclude that the self-same aromatic compounds used by the appellants for the intended purpose is marketable. Since the aromatic compound used by other Agarbatti manufacturers and those used by the appellants were not examined by the Department to ascertain the chemical composition and other parameters the Department s stand in demanding the Central Excise duty on such intermediate goods i.e. aromatic compound cannot be sustained inasmuch as it cannot be said that such use of aromatic compounds by the appellants captively are capable of being marketed. Conclusion - i) The aromatic compounds used by the appellants within their factory for manufacturing Agarbatties are not liable for Central Excise duty. ii) The benefit under N/N. 67/95-C.E. is applicable to the aromatic compounds used captively. iii) The aromatic compounds do not qualify as manufacture under Section 2(f) of the Central Excise Act 1944 for the purpose of excisability. iv) The Department failed to demonstrate the marketability of the aromatic compounds used by the appellants thus they are not excisable. The impugned order is set aside and the appeal is allowed in favor of the appellants.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment were:
ISSUE-WISE DETAILED ANALYSIS Relevant legal framework and precedents: The relevant legal framework involves Section 2(f) of the Central Excise Act, 1944, which defines 'manufacture' and the applicability of Notification No. 67/95-C.E. dated 01.03.1995. The CBEC Circulars Nos. 495/61/99-CX.3 dated 22.11.1999 and 989/13/2014 dated 07.11.2014 provide guidance on the excisability of intermediate products. Court's interpretation and reasoning: The Court analyzed whether the aromatic compounds used in the manufacture of Agarbatties within the factory premises qualify as 'manufacture' under the Central Excise Act. The Court referred to the CBEC Circular dated 22.11.1999, which clarified that odoriferous compounds not capable of being bought or sold in the market are not excisable. Furthermore, the subsequent Circular dated 07.11.2014 was considered, which states that intermediate compounds are excisable if they are capable of being marketed. Key evidence and findings: The Department relied on invoices from other Agarbatti manufacturers to demonstrate the marketability of the aromatic compounds. However, the Court found that these invoices did not specify the chemical composition of the aromatic compounds, nor did they establish that the compounds used by the appellants were the same as those in the invoices. Application of law to facts: The Court applied the legal framework and found that the aromatic compounds used by the appellants were not marketed or sold outside the factory. The lack of evidence regarding the marketability of these specific compounds led to the conclusion that they were not excisable. Treatment of competing arguments: The appellants argued that the aromatic compounds were exclusively used within the factory and were not marketable. The Department contended that the compounds were capable of being marketed, as evidenced by invoices from other manufacturers. The Court sided with the appellants, emphasizing the absence of evidence proving the marketability of the specific compounds used by them. Conclusions: The Court concluded that the aromatic compounds used by the appellants were not excisable, as they were not proven to be marketable. The benefit of Notification No. 67/95-C.E. was applicable, and the demand for excise duty was not sustainable. SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: The Court emphasized: "It cannot be said that such use of aromatic compounds by the appellants captively, are capable of being marketed." Core principles established: The judgment reinforced the principle that intermediate products are not excisable unless they are proven to be marketable. The burden of proof lies with the Department to establish the marketability of the specific compounds in question. Final determinations on each issue:
The impugned order was set aside, and the appeal was allowed in favor of the appellants.
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