CESTAT Hyderabad Sets Aside Excise Duty on Sugar Syrup Used in Biscuit Production: Fructose Below 50% and Non-Marketability Are Decisive Factors

Case Overview

Case: Sumo Foods Pvt Ltd. Vs Commissioner of Central Excise
Forum: CESTAT Hyderabad
Appeals: E/28086/2013 and E/31109/2017
Periods in Dispute: 01.07.2008 to 31.03.2011 and 01.04.2011 to 11.09.2011
Decision Date: 04.05.2026

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) delivered a significant ruling in favour of a biscuit manufacturer by setting aside central excise duty demands on sugar syrup that was prepared and entirely consumed within the factory premises. The Tribunal concluded that the syrup in question was neither correctly classifiable under tariff heading 17029090 nor commercially marketable in the form in which it was generated during the production process, and accordingly allowed both appeals filed by the assessee.

Background and Facts of the Case

The assessee, M/s Sumo Foods Pvt Ltd., operated as a job-work manufacturer of biscuits for M/s Parle Products Pvt Ltd. at its facility in Hyderabad. As part of the biscuit manufacturing process, the assessee prepared sugar syrup within the factory by combining sugar and water with a minimal amount of citric acid. This mixture was then heated and subsequently cooled before being directly and exclusively used in the production of biscuits bearing the Parle brand.

The Revenue authorities treated this intermediate sugar syrup as an independently excisable product, classifying it under tariff item 17029090 of the Central Excise Tariff Act. Based on this classification, excise duty demands along with applicable interest were confirmed, and penalties were imposed through two separate Orders-in-Original:

  • Order-in-Original No. 101/2012-CEx dated 24.12.2012 — covering the period 01.07.2008 to 31.03.2011, confirming a duty demand of Rs. 19,24,935/- and imposing a penalty of Rs. 12,00,000/- under Rule 25 of the Central Excise Rules, 2002
  • Order-in-Original No. 18/2016 dated 28.07.2016 — covering the period 01.04.2011 to 11.09.2011, confirming a duty demand of Rs. 2,18,826/- and imposing a penalty of Rs. 25,000/- under Rule 25 of the Central Excise Rules, 2002

The Commissioner (Appeals) upheld both demands while partially reducing the penalties — from Rs. 12,00,000/- to Rs. 2,50,000/- in the first appeal and from Rs. 25,000/- to Rs. 5,500/- in the second. Aggrieved by these orders, the assessee approached CESTAT Hyderabad.

The following core questions were placed before the Tribunal for adjudication:

  1. Whether the sugar syrup prepared and captively consumed by the assessee in biscuit manufacturing constituted "excisable goods" within the meaning of Section 2(d) of the Central Excise Act, 1944
  2. Whether such syrup was correctly classifiable under tariff heading 17029090 as "invert sugar" or "sugar syrup blends"
  3. Whether the syrup satisfied the test of marketability required for attracting central excise duty liability
  4. Whether the chemical examiner's report relied upon by the department was adequate to establish fructose content or commercial viability of the product

Arguments Advanced by the Assessee

The assessee's counsel presented a multi-pronged challenge to the department's excise demand:

On Marketability