No Excise Duty On Waste from bulk drugs: CESTAT

The Ahmedabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Sun Pharmaceuticals is not liable to pay excise duty on waste arising during manufacturing of bulk drugs.

The bench of Ramesh Nair (Judicial Member) and C.L. Mahar (Technical Member) has observed that order is legally not sustainable as the spent solvent is not a by-product but is merely a waste which emerges during the process of manufacturing of bulk drugs and the same cannot be further used in the manufacturing process by the appellant. The spent solvent is neither excisable nor is dutiable as per Central Excise Act.

Background

The appellant/assessee is 100% EOU engaged in the manufacturing of bulk drugs falling under Chapter heading No. 29 of Central Excise Tariff Act, 1985. For manufacturing of bulk drugs the appellant procured imported raw materials as well as indigenous raw material without payment of Customs/ Central Excise duty for manufacturing the finished goods for exporting the same or for sale in Domestic Tariff Area as per existing Export Import policy.

During the course of manufacturing final products, various inputs are used and all these inputs get integrated with each other during the manufacturing process and as a result thereof a concentrated solvent emerges which is called Mother Liquor. The Mother Liquor so emerged is further processed for purification, in this process it gets segregated in usable solvent and non-usable solvent.

The usable solvent is further used in the manufacturing of bulk drugs of various batches and non-usable solvent. The non-usable solvent is further cleared by the appellant in Domestic Tariff Area on payment of applicable rate of duty.

The department during the course of audit entertained a view that the appellant cleared by-product (spent solvent) in Domestic Tariff Area at concessional rate of duty by availing benefit of Notification No. 23/2003-CE dated 31.03.2003. A show cause notice dated 25.09.2015 came to be issued demanding Central Excise duty for the period 2009-10 to 2013-14. The provisions with regard to penalty and interest have also been invoked in the show cause notice.

Arguments

The department contended that the spent solvent emerging during the manufacturing process of bulk drugs is a by-product and not a waste and scrap and therefore, the appellant has wrongly availed the benefit of exemption Notification No. 23/2003-CE dated 31.03.2003. The notification lays down various conditions.

Firstly, the goods being cleared in the Domestic Tariff Area, other than scrap, waste or remnants are similar to the goods which are exported or expected to be exported from the units during specified period of such clearances.

Secondly, the total value of such goods being cleared into the Domestic Tariff Area from the unit does not exceed 50% of the free Board Value of exports made during the year (starting from 1st April of the year and ending with 31st March of next year by the said unit.

Lastly, the balance of the production of the goods which are similar to such goods under clearance into Domestic Tariff Area, is exported out of India or disposed of in Domestic Tariff Area in terms of Paragraph 6.9 of the Export and Import Policy.

The assessee contended that the order is legally not sustainable as the spent solvent is not a by-product but is merely a waste which emerges during the process of manufacturing of bulk drugs and the same cannot be further used in the manufacturing process by the appellant. It has further been argued that such spent solvent is neither excisable nor is dutiable as per Central Excise Act.