The Customs, Excise & Service Tax Appellate Tribunal has clarified that sugar cess is not leviable on sugar exported out of India, affirming the primacy of a specific exemption notification issued in 1993 over general circulars. This decision resolves a long-standing ambiguity in export-related excise compliance and provides critical relief to sugar manufacturers.
Background & Facts
The Dispute
Shree Chalthan Vibhag Khand Udyog Sahakari Mandli Ltd., a sugar manufacturer based in Surat, Gujarat, cleared 62,500 quintals of V.P. Sugar for export to merchant exporters between October 2016 and June 2017 under CT-1 certificates, without paying sugar cess. The Revenue Department later contended that the appellant was liable to pay sugar cess at Rs.124 per quintal under the Sugar Cess Act, 1982, resulting in a demand of Rs.77,50,000 along with interest and penalty.
Key Facts
- The appellant manufactured V.P. Sugar falling under CTH 1701 of the Central Excise Tariff Act, 1985
- Export clearance occurred under CT-1 certificates between October 2016 and June 2017
- Total quantity exported: 62,500 quintals
- Sugar cess rate applicable during the period: Rs.124 per quintal
- Total demand raised: Rs.77,50,000 (62,500 x Rs.124)
- Appellant claimed exemption under Notification No. SO.585(E) dated 30.07.1993 issued by the Ministry of Food
- Appellant relied on a prior favorable order dated 27.03.2015 in the case of Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd.
- Appellant also cited the Karnataka High Court judgment in Shree Renuka Sugars Ltd. v. UOI (2014) (302) ELT 33 (KAR)
Procedural History
- 12.02.2018: Show cause notice issued under Section 11A of the Central Excise Act, 1944 demanding sugar cess of Rs.77,50,000, interest under Section 11AA, and penalty under Rule 25 of the Central Excise Rules, 2002
- 10.06.2019: Joint Commissioner adjudicated the notice and confirmed the demand
- 30.08.2019: Commissioner (Appeals) upheld the demand, rejecting the appellant’s appeal
- 28.04.2026: Hearing before CETAT West Zonal Bench, Ahmedabad
- 17.06.2026: Final order passed by the Tribunal
Relief Sought
The appellant sought:
- Setting aside of the Commissioner (Appeals) order dated 30.08.2019
- Cancellation of the sugar cess demand of Rs.77,50,000
- Cancellation of interest and penalty
- Declaration that sugar cess is not payable on exported sugar under Notification No. SO.585(E) dated 30.07.1993
The Legal Issue
The central question was whether sugar cess is payable on sugar exported out of India, despite the existence of Notification No. SO.585(E) dated 30.07.1993 exempting such exports, and whether CBIC Circular No. 262/01/2007-Cx-8 can override this specific exemption.
Arguments Presented
For the Appellant
The appellant argued that Notification No. SO.585(E) dated 30.07.1993 issued by the Ministry of Food explicitly exempted sugar exported out of India from the whole of the sugar cess. They further relied on Appendix III of the Central Excise Tariff Act, 1985, which for the relevant period (including 2015-16) contained an entry exempting exported sugar from cess. The appellant cited the Karnataka High Court’s holding in Shree Renuka Sugars Ltd. that sugar cess is a duty of excise and therefore subject to the same exemptions as excise duty. They also relied on the Tribunal’s own prior decision in M/s. Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd. (Final Order No. A/11367/2018) which had settled the same issue in their favor. The appellant contended that CBIC Circular No. 262/2007 merely clarified that cess is payable unless exempted by notification, and since a specific exemption existed, the circular did not apply.
For the Respondent
The Revenue contended that Notification No. 42/2001-CE(NT) dated 26.06.2001, which exempts duties and cesses on exported goods, does not list sugar cess among the exempted levies. They argued that sugar cess is a separate statutory levy under the Sugar Cess Act, 1982, and not a duty of excise under the Central Excise Act, 1944. They relied on CBIC Circular No. 262/2007, which states that cess is payable on goods exported under bond unless specifically exempted by notification. The Revenue further argued that the Karnataka High Court judgment was not binding and that the earlier Tribunal decision in Indian Sugar Exim Corporation (2009) was distinguishable as it involved diversion to the domestic market.
The Court's Analysis
The Tribunal undertook a detailed examination of statutory provisions, notifications, and circulars. It noted that Notification No. SO.585(E) dated 30.07.1993, issued under Section 3(4) of the Sugar Cess Act, 1982, explicitly exempted sugar exported out of India from the whole of the cess. This notification was not revoked or amended. The Tribunal further observed that Appendix III of the Central Excise Tariff Act, 1985, for the relevant financial years, consistently included an exemption for exported sugar, confirming legislative intent.
"We find that Ministry of Consumer Affairs, Food and Public Distribution Department vide Notification No. SO.585(E) dated 30.07.1993 has exempted sugar cess on sugar exported out of India."
The Tribunal rejected the Revenue’s reliance on CBIC Circular No. 262/2007, holding that circulars cannot override statutory notifications. It emphasized that the circular merely states that cess is payable unless exempted by notification, and since a valid exemption exists, the circular is inapplicable. The Tribunal also noted that the Indian Sugar Exim Corporation case involved domestic diversion, a materially different factual matrix.
The Tribunal further affirmed its own prior decision in Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd. (Final Order No. A/11367/2018), which had held the same issue in favor of the taxpayer. It held that the matter was no longer res integra and that the department had accepted the earlier favorable order, indicating consistency in administrative practice.
The Verdict
The appeal was allowed. The Tribunal set aside the order dated 30.08.2019 of the Commissioner (Appeals) and the show cause notice dated 12.02.2018. The demand for sugar cess of Rs.77,50,000, interest under Section 11AA, and penalty under Rule 25 of the Central Excise Rules, 2002, were cancelled. The Tribunal directed that all proceedings arising from the impugned demand be closed. The order was pronounced on 17.06.2026.
What This Means For Similar Cases
Exemption Notifications Override General Circulars
- Practitioners must prioritize statutory notifications over CBIC circulars when assessing liability
- Circulars are interpretative and cannot create or negate exemptions
- Any demand based solely on a circular, in the face of a specific exemption, is legally unsustainable
Sugar Cess Is a Duty of Excise for Exemption Purposes
- Sugar cess, though levied under a separate Act, is treated as an excise duty for exemption purposes under the Central Excise Tariff Act
- Exemptions granted to excise duties under Notification No. 42/2001-CE(NT) are not the only route to exemption
- Specific exemptions under the Sugar Cess Act itself, such as Notification No. SO.585(E), prevail
Export Documentation Must Be Maintained
- Exporters must retain CT-1 certificates and shipping documents to substantiate export claims
- The Tribunal accepted the appellant’s claim based on documentary evidence of export, not mere assertion
- Taxpayers should proactively cite relevant notifications and prior tribunal decisions in their submissions
