No Excise Duty Payable On Empty Barrels Used Only For Packing Material: CESTAT

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no excise duty is payable on empty barrels used only for packing material.

The two-member bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has observed that the empty barrels are only packing materials in which the inputs are received, and these barrels are not generated during the process of manufacture. Therefore, no excise duty can be charged even on that scrap.

The appellant/assessee claims to produce oil by drilling. In the process of manufacturing or producing oil, plastic barrels in which the input chemicals are procured arise as scrap. Due to wear and tear, the pipes used in the production of oil have to be replaced at times. At times, the residuary portion of tubes or pipes after cutting and fitting, etc., also arise as waste or scrap. The appellant sells this waste and scrap to third parties.

The appellant submitted that waste and scrap in the form of pipes and barrels only arise in the process of producing oil, and this waste and scrap is not manufactured by the appellant. Unless the goods are manufactured, no central excise duty can be levied. The waste and scrap that are not generated as a result of manufacture are not subject to excise duty.

The tribunal ruled that the pipes do not get consumed and do not get transformed into oil. They are used to manufacture or produce oil. Regardless of the fact that the use of pipes is essential for the production of oil, the pipes by themselves are capital goods and not inputs. When pipes need repair or replacement and waste is generated in the process, it is waste generated during the repair or maintenance of capital goods, not during the production of oil or any other process incidental or ancillary to it. Pipe scrap cannot be subject to excise duty.

Case Title: M/s Cairn India Limited Versus Assistant Commissioner

Citation: Excise Appeal No. 53258 Of 2018

Date: 17.02.2023

Counsel For Appellant: Kumar Visalaksh, Archit Gupta

Counsel For Respondent: Rakesh Agarwal

Click Here To Read The Order