1987 (10) TMI 304 - AT - Central Excise

Summary

Issues:
Interpretation of Notification No. 118/75 for exemption on goods under Tariff Item 68 used in the factory premises.
Leviability of duty on molasses as an excisable good for the production of alcohol.
Definition of "factory" under the Central Excises and Salt Act, 1944.
Applicability of excise duty exemption on goods not directly used in the manufacture of excisable goods.

Detailed Analysis:

The case involved the appellants, who manufactured sugar, alcohol, fusel oil, and ice in the same factory premises covered by a single license under the Factories Act. The appellants held a Central Excise license for sugar and other excisable goods under different tariff items. Molasses, a by-product in sugar production, were used in the manufacture of alcohol and fusel oil in the same factory. The issue arose when the definition of Tariff Item 68 was amended in the 1979 Budget, leading the department to demand duty on molasses used for alcohol production as alcohol was not excisable under CET Item 68.

The appellants contended that molasses should not be considered an excisable good as they were a waste product from sugar production. They also argued that the factory premises, where molasses were used for alcohol and fusel oil production, were entitled to exemption under Notification No. 118/75. However, the lower appellate authority rejected these arguments, stating that molasses were commercially distinct and used in manufacturing alcohol, making them liable for duty under Tariff Item 68.

The lower authority further held that the factory mentioned in the exemption notification should be producing excisable items to qualify for the exemption. The clearance of molasses for alcohol production did not meet this criterion. Despite the appellants' emphasis on the factory's coverage under the Central Excises and Salt Act, the lower authority upheld the duty demands on molasses.

Upon review, the appellate tribunal found that the factory premises, where various goods were manufactured, met the definition of a factory under the Central Excises and Salt Act, 1944. The tribunal noted that the exemption notification did not specify that the goods must be used in the production of excisable goods. Therefore, the tribunal set aside the lower authority's decision and allowed the appeals, providing relief to the appellants.