Eighty Percent Sugar, No Marketability Defence: CESTAT Holds Captively Consumed Sugar Syrup Dutiable Even Though the Biscuits It Went Into Were Exempt

Quick answer: In M/s ETC Agro Processing (India) Pvt. Ltd. v. Commissioner of Central Goods and Service Tax and Central Excise, Gandhinagar, decided on 31 August 2026, a Division Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), West Zonal Bench at Ahmedabad, held that “sugar syrup” manufactured in-house and captively consumed to make Parle-brand biscuits — themselves exempt from excise duty — was nonetheless excisable goods under Section 2(d) of the Central Excise Act, 1944, because a sugar concentration of 80% by weight made it marketable regardless of whether it was ever actually bought or sold. The Tribunal confirmed a central excise duty demand of Rs. 49,68,469 for the period September 2009 to 11 September 2011, together with interest and an equal penalty under Section 11AC, and upheld invocation of the extended, suppression-based period of limitation. It allowed the appeal only in part, remanding the matter so the manufacturer could claim Cenvat credit on the duty paid on the sugar consumed to make the syrup, subject to verification of its invoices.

Key Takeaways

• An intermediate product captively consumed in the manufacture of an exempt final product does not escape excise duty merely because it is never sold — the test is whether the product is capable of being bought and sold, not whether it actually was, following Karnataka Soaps & Detergents Ltd. and Escorts Ltd., both of the Supreme Court.
• A sugar concentration of 65% or more by weight is treated by tribunal precedent as a bright-line indicator that a sugar syrup is marketable and hence dutiable, regardless of the manufacturer’s own specifications or its intended exclusive use for a single customer’s product.
• A general description of ingredients in an early correspondence with the department, or a duty-free clearance shown in ER-1 returns, is not the same as disclosing the manufacture and captive consumption of a separately dutiable intermediate good — the Tribunal treated the gap as suppression sufficient to sustain the extended period of limitation.
• A demand confirmed on the intermediate product does not extinguish a manufacturer’s right to Cenvat credit on the inputs consumed to make it — the Tribunal remanded specifically to let the manufacturer establish that credit, on production of duty-paying documents.
• Precedent in marketability disputes turns tightly on facts, particularly on whether a laboratory test established the sugar (or fructose) content of the specific product in dispute; decisions favourable to other manufacturers on lower-concentration syrups did not assist an appellant whose own reply to the show cause notice admitted an 80% concentration.

1. Introduction

Central excise duty on goods manufactured for a taxpayer’s own consumption — rather than for sale — has generated a body of litigation stretching back decades, built around a single recurring question: is the intermediate product “goods” at all, in the sense the Central Excise Act, 1944 requires, if it never reaches a market? The Customs, Excise and Service Tax Appellate Tribunal’s order in ETC Agro Processing answers that question for one of the most common examples in the food-processing sector — sugar syrup prepared in-house and used to manufacture biscuits — and does so on facts that make the case a useful test of where the line actually falls.

The appellant manufactured biscuits under an arrangement with a well-known brand, using its own formula for sugar syrup as an intermediate stage. The biscuits themselves were exempt from duty. The department’s case was that the syrup, made to an 80%-sugar specification, was a distinct excisable product in its own right, and that the appellant owed duty on it regardless of what became of the finished biscuits. Decided nearly fifteen years after the disputed period and thirteen years after the appeal was filed, the order works through three issues that recur across manufacturing sectors well beyond biscuits: whether an intermediate product made to a captive specification and never offered for sale can still be “marketable”; whether the extended, fraud-based period of limitation was rightly invoked against a manufacturer that had made some disclosure to the department, if not the specific disclosure the law required; and, once duty is confirmed on an intermediate product, whether the manufacturer may still claim credit on the inputs consumed to produce it.

2. Case summary and background

2.1 The transaction and the demand

The appellant, M/s ETC Agro Processing (India) Pvt. Ltd. of Mehemadabad, Kheda district, Gujarat, manufactured biscuits falling under Central Excise Tariff Heading 1905 9020, exempt from duty under Notification No. 03/2006-CE dated 1 March 2006. As part of that process, between September 2009 and 11 September 2011, it also manufactured “sugar syrup” — prepared by mixing 800 grams of sugar with 200 millilitres of water and a small quantity of citric acid per kilogram, heated to 118°C and then cooled — and consumed the syrup captively, without payment of duty, on the view that it was an unmarketable intermediate product made to its own specification for exclusive use in Parle-brand biscuits.

The department took the opposite view. A show cause notice dated 29 November 2011 proposed recovery of central excise duty of Rs. 49,68,469 on the syrup under Section 11A(4) of the Central Excise Act, 1944, with interest under Section 11AB (renumbered Section 11AA) and penalty under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Act. The Additional Commissioner confirmed the demand by order dated 28 February 2012 — invoking the proviso to Section 11A(1) for the period before 7 April 2011 and Section 11A(4) for the period after — together with interest and a penalty equal to the duty, Rs. 49,68,469. The Commissioner (Appeals) upheld that order on 27 February 2013, and the appellant carried the matter to CESTAT the same year, where it was finally heard on 16 July 2026 and decided six weeks later.

2.2 Issues framed and the appellant’s case

The appellant argued, first, that sugar syrup made to its own specification, with no independent shelf life or market identity, was not “goods” within Section 2(d) of the Central Excise Act, 1944, relying on the Supreme Court’s test in Union of India v. Delhi Cloth & General Mills Co. Ltd. that an article must be known in the market as such before it can be excisable, and on a body of tribunal decisions holding comparable sugar syrups non-marketable where the department had not tested and established their sugar or fructose content. Three trade letters were produced stating that such syrup, given its short shelf life and bespoke specification, could not be sold to third parties. Second, the appellant argued that it had disclosed its position to the department by a letter of 22 April 2009, predating the dispute period, and that the extended period of limitation could not be invoked in the face of that disclosure — and, in the alternative, that Notification No. 39/2011-CE, which from 12 September 2011 exempted captively consumed sugar syrup used in biscuit manufacture, showed that the government itself had not intended to tax such syrup. Third, in the alternative, it claimed Cenvat credit of Rs. 19,21,481 on the duty-paid sugar consumed to make the syrup, should the duty demand be upheld.

2.3 Holding

The Tribunal held that the syrup, admitted by the appellant’s own reply to the show cause notice to contain 80% sugar by weight, was marketable and hence excisable, distinguishing the appellant’s authorities as resting on syrups whose sugar or fructose content had not been shown to cross the threshold tribunals have treated as decisive. It upheld the extended period of limitation, finding the 2009 letter and the appellant’s ER-1 returns did not disclose the manufacture or captive consumption of the syrup. It confirmed the duty demand, interest and equal penalty in full, but allowed the appeal in part by remanding the Cenvat credit claim for verification, directing the original authority to allow the credit if the appellant’s duty-paying documents were found in order within four months.

3. Legal analysis

3.1 Marketability, not actual sale, is the test of excisability

The Tribunal’s central holding rests on Section 2(d) of the Central Excise Act, 1944, and specifically on the explanation inserted by the Finance Act, 2008, which provides that “for the purposes of this clause, ‘goods’ include any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.” Applying that standard, the Tribunal relied on the Supreme Court’s holdings in CCE, Bangalore v. Karnataka Soaps & Detergents Ltd. and Escorts Ltd. v. Commissioner of Central Excise, Faridabad — both quoted at length in the order — for the proposition that actual marketing of a product is not necessary for it to be dutiable; capability of being bought and sold suffices, and it is irrelevant that the goods in fact come from only one source or are never in fact traded. The Tribunal treated this as settled doctrine rather than a point requiring fresh justification, and used it to frame the entire dispute as a question of fact about the syrup’s composition rather than a question of law about whether captive, single-customer production can ever attract duty.

On that factual question, the Tribunal followed CCE, Belgaum v. M/s Vijaynagar Food Products Pvt. Ltd., a CESTAT Bangalore decision it reproduced extensively, which had itself synthesised earlier tribunal authority — including Mysore Sugar Company Ltd. v. Commissioner of Central Excise, Mangalore — into a working threshold: sugar syrup with a sugar concentration of 65% or more by weight is marketable and dutiable, because at that concentration the syrup resists microbial growth and acquires a shelf life without added preservative, a conclusion traced to a 1996 opinion of the Central Revenues Control Laboratory reproduced in Central Board of Indirect Taxes and Customs Circular No. 780/13/2004-CX. Since the appellant’s own reply to the show cause notice described a syrup made from 800 grams of sugar per kilogram — an 80% concentration — the Tribunal found the case “no more res-integra,” squarely above the threshold and squarely within Vijaynagar Food Products.

The appellant’s authorities were not rejected on any broader principle but distinguished on this narrow factual ground: in each of the tribunal decisions it cited — including Shiv Shakti Processed Foods, Venugopal Foods Pvt. Ltd. and Disha Foods Pvt. Ltd. — relief had turned on the department’s failure to test or establish the syrup’s fructose or sugar content, or on a content below the 65% threshold. Here, by contrast, the concentration came from the appellant’s own admission. For that distinguishing method the Tribunal invoked the Supreme Court’s guidance in Collector of C. Ex., Calcutta v. Alnoori Tobacco Products that “disposal of cases by blindly placing reliance on a decision is not proper” and that “a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect.” The three trade letters attesting that the syrup could not be sold were not separately addressed in the Tribunal’s reasoning once the sugar-content threshold was found crossed — a gap this article returns to below.

The order does not engage the appellant’s argument drawn from Notification No. 39/2011-CE, which exempted captively consumed sugar syrup for biscuit manufacture from 12 September 2011 — one day after the disputed period closed. Read as evidence of legislative or executive intent that such syrup ought not to have been dutiable even earlier, the argument had some rhetorical force; but a prospective exemption is, on ordinary principles of tax interpretation, evidence of a policy change from its effective date, not of what the law already meant before it. The Tribunal’s silence on the point is best read as an implicit rejection on that basis rather than an oversight, though a more explicit disposal would have closed off the argument more cleanly for future litigants relying on the same notification.

3.2 Extended period: a general disclosure is not disclosure of the taxable event

Central excise duty demands beyond the ordinary limitation period require the department to establish fraud, collusion, wilful misstatement or suppression of facts with intent to evade duty. The appellant’s defence was that it had already alerted the department to its position by a letter dated 22 April 2009 — before the disputed period even began — and that having made that disclosure, it could not be said to have suppressed anything. The Tribunal examined the letter itself and found that it listed the ingredients used in biscuit manufacture, apparently for registration purposes, but did not disclose that the appellant was manufacturing sugar syrup as a separate intermediate product and consuming it without payment of duty. It further found that the appellant’s ER-1 returns for September 2009 — the first month of the disputed period — recorded only the duty-free clearance of biscuits under the exemption notification, with no reference to the production or captive consumption of sugar syrup, so that “it was not possible for the department to verify” what was actually happening on the shop floor. On that basis the Tribunal rejected the limitation defence and upheld the extended period, together with the consequential penalty under Section 11AC.

This holding illustrates a distinction that recurs across excise, service tax and now GST limitation disputes: a general disclosure made for an unrelated purpose (here, apparently, factory registration) is not equivalent to disclosure of the specific fact the department needed to assess duty correctly — the existence of a separately manufactured, separately dutiable intermediate product. The standard the Tribunal applied looks to what a return or communication actually conveyed to the department, not to whether the assessee could point to some prior correspondence in a general sense. That approach tracks the same discipline the Supreme Court has more recently applied to extended-period notices under the CGST Act, 2017, where a bare invocation of the statutory formula without particularised facts of concealment has been held insufficient — though here the Tribunal found the opposite result on the facts, since the department’s own investigation traced a specific and identifiable gap between what was returned and what was manufactured.

3.3 A duty demand on an intermediate product does not defeat credit on its inputs

The Tribunal’s third holding, reached with comparatively little discussion, nonetheless matters as much as the first two for manufacturers facing comparable demands: once duty is confirmed on sugar syrup as a dutiable intermediate product, the manufacturer becomes entitled, in principle, to credit on the duty paid on the sugar and other inputs consumed to produce that syrup, under the Cenvat credit scheme then governed by the Cenvat Credit Rules, 2004. The Tribunal accepted this alternate submission “in case duty liability on sugar syrup is held,” and remanded the matter to the original adjudicating authority for the limited purpose of verifying the appellant’s duty-paying invoices and allowing credit of Rs. 19,21,481 if those documents were found in order, within four months. The appeal was accordingly “partially allowed by way of remand” rather than dismissed outright — the duty, interest and penalty on the syrup stand confirmed, but the net liability the appellant ultimately pays will depend on how much of that alternate credit claim survives verification.

4. Practical significance

For manufacturers in the food-processing, beverage and confectionery sectors — where intermediate products such as syrups, purées, batters and flavoured bases are routinely made in-house to a proprietary specification and consumed in a single production line — this order is a reminder that a captive, single-use intermediate is not insulated from duty by the fact that it was never intended for sale. The relevant question is compositional: does the product cross whatever concentration or quality threshold tribunal precedent treats as marking marketability for that class of goods, regardless of the manufacturer’s own commercial intentions. Businesses relying on an intermediate product’s bespoke formulation as a defence should test and document its composition contemporaneously, since a later admission in a reply to a show cause notice — as happened here — can foreclose the defence far more effectively than the department’s own evidence could.

The limitation holding carries a distinct compliance lesson: returns and departmental correspondence should be read for what they actually disclose about a specific taxable event, not merely for whether some communication exists in the file. A manufacturer that has genuinely and specifically flagged an issue to the department in writing has a real limitation defence; one that has only described its general operations, or cleared unrelated goods without reference to the disputed product, does not, however long ago that correspondence was sent. Businesses under audit or investigation should reconstruct precisely what their historical filings said about the specific product now in dispute before relying on limitation as a first line of defence.

The Cenvat credit outcome is worth flagging separately for anyone advising on a live central excise or legacy CENVAT dispute: a demand confirmed on an intermediate product is not the end of the calculation. Manufacturers facing or defending such demands should identify, and be prepared to substantiate with invoices, any duty already paid on inputs consumed to produce the now-dutiable intermediate, since a tribunal willing to confirm the principal demand may equally be willing to direct that the corresponding credit be examined and allowed. Finally, the thirteen-year gap between the appeal being filed in 2013 and its final disposal in 2026 is itself a practical data point: businesses carrying old CESTAT appeals on their books, whether as contingent liabilities or contingent assets, should not assume stale matters will not resurface, and should keep the underlying record — invoices, test reports, correspondence — available for a very long window.

5. Conclusion

ETC Agro Processing does not announce new doctrine; it applies, carefully and at some length, a marketability test and a sugar-content threshold that tribunals have used for years, to a set of facts that happened to fall squarely against the appellant once its own admission of an 80% sugar concentration was on the record. Its value for practitioners lies in the clarity with which it separates three questions that are often blurred together in captive-consumption disputes — whether the product is marketable at all, whether the department was genuinely kept in the dark about it, and what follows for credit once duty is confirmed — and in showing that a favourable answer on one question, here the alternate Cenvat credit claim, can survive an unfavourable answer on the others.

Manufacturers of comparable intermediate products — syrups, batters, purées and similar captive preparations across the food and beverage industry — should treat the 65% concentration threshold as a working compliance benchmark rather than a formality, and should recognise that captive use for a single customer’s product is, on this reasoning, no defence in itself. Equally, the order is a caution against treating a general disclosure to the department as a shield against the extended period: what matters is whether the specific taxable fact was conveyed, not whether some correspondence exists in the file. For businesses still carrying legacy central excise or CENVAT disputes on old show cause notices, the thirteen-year path this appeal travelled from filing to final disposal is itself a reason to keep the documentary record — test reports, invoices, correspondence — in a state that can withstand scrutiny whenever the matter is finally heard.

Authorities

Applied by the Tribunal

Cited by the parties, distinguished or not adopted

Legislation considered

Judgment

M/s ETC Agro Processing (India) Pvt. Ltd. v. Commissioner of Central Goods and Service Tax and Central Excise, Gandhinagar, Excise Appeal No. 11396 of 2013-DB, Final Order No. 10598/2026, CESTAT West Zonal Bench at Ahmedabad (Somesh Arora, Member (Judicial), and Satendra Vikram Singh, Member (Technical)), decided 31 August 2026 — https://indiankanoon.org/doc/98426312/

FAQ

If my company manufactures an intermediate product only for its own use, and never sells it, can it still attract excise duty? Yes, if the product is capable of being bought and sold, even if it never actually is. Following Karnataka Soaps & Detergents Ltd. and Escorts Ltd., both of the Supreme Court, marketability — not actual sale — is the test, and captive, single-customer use does not itself defeat that test.

Is there a fixed threshold for when a sugar syrup counts as marketable? Tribunal precedent, applied in this order, treats a sugar concentration of 65% or more by weight as indicating marketability, tracing that figure to a Central Revenues Control Laboratory opinion reproduced in a CBIC circular. Below that threshold, marketability requires separate factual proof.

Does confirming duty on an intermediate product mean I lose credit on the inputs I used to make it? No. This order confirmed the duty on the sugar syrup but separately remanded the manufacturer’s claim for Cenvat credit on the sugar consumed to produce it, directing that the credit be allowed once the duty-paying documents are verified.

This article is not legal advice and does not create an attorney–client relationship. Readers should verify the certified copy of the judgment and any subsequent clarificatory orders before relying on it, and consult a qualified advocate on the facts of their matter.