No Excise Duty on Cutting Marble Blocks and Limited Customs Demand: CESTAT Delhi Ruling in Abhishek Exporters

1. Background of the Dispute

M/s. Abhishek Exports, a 100% Export Oriented Unit (EOU), imported rough white marble blocks without payment of customs duty by availing exemptions under Notification No. 53/97-Cus. dated 03.06.1997 and Notification No. 52/2003-Cus. dated 31.03.2003. Parallelly, it procured serpentine stone blocks from domestic sources on which no central excise duty was chargeable.

During the period from 2002 to August 2005 (the “disputed period”):

  • Imported marble blocks were cut into slabs and tiles.
  • These marble slabs/tiles were:
    • Exported, and
    • Cleared in the Domestic Tariff Area (DTA) with permission from the Development Commissioner, on payment of excise duty at concessional rates under Notification Nos. 02/95-CE and 23/2003-CE (i.e., 50% of customs duty on like imported goods).
  • Domestically procured serpentine blocks were also cut into slabs/tiles and almost entirely exported.

The Department took the view that:

  • Export obligation linked to duty-free imported marble blocks was not satisfied by exports of serpentine products;
  • Duty-free benefit under the EOU customs notifications was wrongly availed;
  • Customs duty was recoverable by invoking the extended period under Section 28(1) of the Customs Act, 1962;
  • Excise duty was additionally payable on DTA clearances of marble slabs/tiles;
  • Imported marble blocks were liable to confiscation, with redemption fine; and
  • Penalties were imposable on the assessee and its partners/directors.

This culminated in a common Order-in-Original No. UDZ-EXCUS-0000-COM-47&48-2024-25 dated 28.01.2025 by the Commissioner, Central Excise & CGST, Udaipur, against which multiple customs and excise appeals were filed before CESTAT Delhi.

2. Procedural History and Earlier Litigation

The controversy has a long history, heavily interlinked with the decision in Jain Grani Marmo Pvt. Ltd. vs. CCE, Jaipur-II (“Jain Grani”). Key milestones are:

  • 2005 – Two show cause notices (SCNs) dated 16.05.2005 and 08.11.2005 were issued covering 2002–2005 and April 2005–August 2005. The allegations focused on:

    • Wrongful availing of customs and excise notifications on imported marble blocks;
    • Alleged violation of EXIM Policy 2002–2007 and FTP 2004–2009.

  • 2006 –

    • The assessee filed detailed replies, pointing out that:
      • All DTA clearances of marble slabs/tiles were made with Development Commissioner’s permission;
      • Applicable excise duty had been paid on DTA clearances;
      • No contravention of customs or excise notifications existed.
    • Order-in-Original No. 12-13/CE/JP-II/2006 dated 24.04.2006 confirmed the SCNs.
    • Appeals were filed before CESTAT, New Delhi.

  • 2009 – Jain Grani decision –
    In Final Order Nos. C/84-85/2009 dated 17.02.2009, CESTAT in Jain Grani held, inter alia:

    • Cutting marble blocks into slabs/tiles did not amount to “manufacture” for excise purposes;
    • Extended period under the proviso to Section 28(1) of the Customs Act was not invocable.

  • 2010 – Remand in Abhishek Exports –
    In Abhishek Exports vs. Commissioner of Central Excise, Jaipur-II, Final Order Nos. C/86-88/2010 and Misc. Order No. C/81/2010 dated 10.06.2010, CESTAT:

    • Remanded the matter for fresh adjudication, directing the authority to consider:
      1. The ratio in Jain Grani; and
      2. The additional plea that excise duty already paid on DTA clearances must be adjusted against any customs duty payable.

  • Call Book and Supreme Court outcome –

    • The SCNs were kept in the call book pending the Department’s appeal in Commissioner of Central Excise, Jaipur-II vs. Jain Grani Marmo Pvt Ltd, Civil Appeal Nos. 255-256/2010.
    • On 02.08.2023, the Hon’ble Supreme Court dismissed the Department’s appeal because of low tax effect, explicitly leaving the question of law open.

  • 2024–2025 – Fresh adjudication –

    • After retrieval from call book, the Commissioner, Udaipur, again confirmed customs and excise demands (including penalties and fine) in the common order dated 28.01.2025.
    • The assessee contested this order through a batch of excise and customs appeals before CESTAT Delhi.

3. Scope of Demands Raised in the Impugned Order

3.1 Excise Demands

The order fastened, inter alia, the following liability under the Central Excise Act, 1944:

  • On Abhishek Exports:

    • Rs. 96,53,506 and Rs. 58,82,329 as excise duty using the proviso to Section 11A(1) (extended period).
    • Equivalent penalties under Section 11AC.

  • On co-appellants (individuals associated with the unit):

    • Penalties of Rs. 2,50,000 each under Rule 26 of the Central Excise Rules, across both SCNs.

3.2 Customs Demands

Under the Customs Act, 1962:

  • On Abhishek Exports:

    • Customs duty demand of Rs. 2,13,87,141 (of which Rs. 1,75,37,719 was attributed to the extended period) under the proviso to Section 28(1).
    • Equal penalties under Section 114A.
    • Redemption fine of Rs. 50,00,000 under Section 125.

  • On co-appellants:

    • Penalties of Rs. 2,50,000 each under Section 112 of the Customs Act in both SCN streams.

4. Assessee’s Core Arguments Before CESTAT

4.1 No “Manufacture” – Excise Duty Not Payable

The assessee argued that for the disputed period: