No Excise Duty Can Be Demanded On Semi-Finished Goods Lying At The Time Of Debonding Of 100% EOU: CESTAT

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that excise duty cannot be demanded on semi-finished goods or work in process lying at the time of debonding of 100% Export Oriented Units (EOU).

The two-member bench of Ramesh Nair (Judicial Member) and Raju (Technical Member) has observed that at the intermediate stage when the goods are not fully manufactured, the excise duty is not payable at the time of debonding, particularly when the goods have not been cleared from the factory and are in the process of manufacturing.

The appellant/assessee is engaged in the manufacturing of bulk drugs and intermediates classifiable under Chapter Heading 29 of the Central Excise Tariff Act. The appellant was registered as a 100% EOU and applied for exit from the said EOU status, i.e., conversion of a 100% EOU to a normal DTA Unit, on March 2, 2010.

The appellant had informed the central excise department about the stock of input, input contained in work in process, and input contained in finished goods lying with the department as of March 31, 2010. The appellant also worked out the duty payable on inputs lying as such, input contained in work in process and input contained in finished goods and paid the duty.

The jurisdictional superintendent informed the appellant that the payment of duty on raw material contained in finished goods is not correct and duty is required to be paid on the finished goods lying on the date of debonding. The appellant paid the differential duty along with interest.

The Superintendent informed that, even in respect of semi-finished goods, the duty is required to be paid on the value of semi-finished goods under Section 3(1) of the Central Excise Act.

The appellant submitted that the duty was not payable on work-in-process or semi-finished goods at the time of debonding. As per 6.18 (a) of Foreign Trade Policy 2009–2014, the customs and excise duties for the purpose of debonding should be paid on the imported and indigenous capital goods, raw materials, components, consumables, spares, and finished goods in stock. As per the policy, there is no condition to paying the duty on semi-finished goods or work in progress.

The CESTAT has stated that the goods are not marketable and are subjected to various other processes to reach the stage for a final product. Therefore, at the semi-finished stage, where no excisable goods came into existence, the demand of duty at the time of debonding is incorrect in law. The semi-finished goods or work in process will reach the stage of a final product, and it is liable for duty at the time of clearance from the factory.

Case Title: IPCA Laboratories Ltd. Versus C.C.E

Citation: Excise Appeal No. 10104 Of 2013

Date: 04.11.2022

Counsel For Appellant: CA Mehul Jiwani

Counsel For Respondent: K.P. Shah

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