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Commissioner of Central Excise v. M/s Nestle India Ltd.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 951 of 2008)Decided 24 Nov 2015
Civil Appeal No. 951 of 2008
Justice A.K. Sikri · Justice Rohinton Fali Nariman

Background

Nestle India is a 100% export-oriented unit that makes instant tea. It transferred tea to two sister units of the same company without any sale, and the excise department valued that tea at the export price rather than under the cost-based rule. The department confirmed duty, interest and penalty. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside that order, and the department appealed to the Supreme Court.

Decision Breakdown

The Court dismissed the department's appeal. Two exemption notifications (8/97-CE and 23/2003-CE) exempt goods made in a 100% EOU from indigenous raw materials, if they are "allowed to be sold" in India, from any excise duty above what would be payable on similar goods made by ordinary domestic units. The Court held that "allowed to be sold" does not require an actual sale, so the notifications applied even though the tea was captively consumed. Duty on such captively used goods must therefore be computed under Rule 8 (115% of cost of production), not the export price. The show cause notice rested on a customs valuation circular that did not apply to this excise computation, which made the whole demand flawed.

Lesson Learnt

Exemption wording must be read exactly as written: "allowed to be sold" is broader than "sold", so an exemption can apply even without an actual sale. A tax demand that rests on the wrong legal provision fails, even if the amount looks plausible.

Official source (sci.gov.in)View Judgment (PDF)

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