Sugar Syrup Used In Biscuit Manufacturing Not Marketable, No Excise Duty Payable: CESTAT Hyderabad

The Hyderabad Customs, Excise & Service Tax Appellate Tribunal (CESTAT) on 4 May held that sugar syrup prepared and used captively in the manufacture of biscuits is not marketable in the form in which it emerges and is therefore not eligible for central excise duty.

The Bench comprising Technical Member A.K. Jyotishi and Judicial Member Angad Prasad allowed the appeals filed by Sumo Foods Pvt. Ltd. and set aside the demand confirmed by the Department. It observed:

“the sugar syrup manufactured by the appellant has been consumed by them captively within the factory premises. The sugar syrup manufacture by the appellant is specific to their own requirement the same could not be equated with any other sugar syrup. It is generally available in the market, wherein, preservatives are used for longer shelf life.”

The dispute related to two periods between July 2008 and September 2011, during which the appellant undertook job-work manufacturing of biscuits for Parle Products Pvt. Ltd. During this process, it prepared sugar syrup within its factory by mixing sugar, water, and small quantities of citric acid for captive consumption in biscuit manufacture.

The Department treated the syrup as an excisable product classifiable under tariff heading 1702 90 90 and confirmed duty demands along with penalties, which were upheld by the Commissioner (Appeals).

The appellant contended that the syrup was only an intermediate in-process material with no independent shelf life, not capable of being marketed, and used exclusively within the factory for biscuit production. It further argued that the Department failed to establish marketability or demonstrate that the product satisfied the classification requirement of at least 50% fructose content.

The Revenue submitted that a distinct product emerged from the process and that actual sale was not necessary to establish marketability. It also argued that similar products like invert sugar syrup are available in the market, supporting its classification and dutiability.

Rejecting the Department's stand, the Tribunal held that marketability must be assessed based on the condition in which the product emerges and cannot be presumed merely because similar products exist in the market.

The Bench also found that classification under tariff heading 1702 90 90 requires a minimum of 50% fructose content in dry form, whereas the appellant's syrup contained only about 31% fructose, as certified by the Shriram Institute for Industrial Research.In the absence of any contrary evidence from the Department, the claimed classification was held to be unsustainable. It held:

“the fructose content 31% as certified by Shriram Institute for Industrial Research. Therefore, the said syrup cannot be covered under SH No. 1702 90 of CETA as SH No. 1702 90 covers only such syrup blends which contains 50% fructose by weight in dry stage. The demand of duty is on the sugar syrup which is manufactured and captively consumed by the appellant who is clearly exempted goods are biscuit.”

The Tribunal reiterated that the product was neither marketable in its captive-use form nor classifiable under the heading invoked by the Department.

It held that the Department's reliance on market availability of similar syrups was misplaced, as classification and marketability must be determined with reference to the actual product as manufactured.

Accordingly, the CESTAT set aside the impugned orders and allowed the appeals with consequential relief.

For Appellant: Padmavati Patil, Advocate

For Respondent: V.R. Pavan Kumar, Authorized Representative