The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that sugar cess is not payable on sugar exported out of India and consequently quashed a demand of ₹77.50 lakh along with interest and penalty raised against a Surat-based sugar cooperative society. 

The Bench of Dr. Ajaya Krishna Vishvesha (Judicial Member) and Satendra Vikram Singh (Technical Member) observed that the department never disputed the fact that the entire quantity of 62,500 quintals had actually been exported. Since the exports were genuine and covered by the exemption notifications, the demand could not survive. 

The appellant is engaged in the manufacture of V.P. Sugar falling under Chapter Heading 1701 of the Central Excise Tariff Act, 1985. During the period from October 2016 to June 2017, the cooperative society cleared 62,500 quintals of sugar to merchant exporters under CT-1 certificates for export without payment of central excise duty and sugar cess. 

Following an investigation, the department took the view that sugar cess at the rate of ₹124 per quintal was payable on the exported sugar. Consequently, a show cause notice dated February 12, 2018 demanded sugar cess amounting to ₹77.50 lakh along with interest and penalty. 

The adjudicating authority confirmed the demand, imposed interest liability and levied a penalty of ₹7.75 lakh. The Commissioner (Appeals) subsequently upheld the order, prompting the assessee to approach the Tribunal. 

The appellant argued that sugar exported outside India has been specifically exempted from sugar cess through Notification No. S.O. 585(E) dated July 30, 1993 issued by the Ministry of Food. It contended that the authorities had wrongly ignored this exemption while confirming the demand. 

The cooperative society also relied on The Karnataka High Court judgment in Shree Renuka Sugars Ltd., which held that sugar cess is in the nature of an excise duty. Earlier Tribunal decisions, including the ruling in Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd., where similar demands had been set aside. CBIC Circular No. 262/01/2007-CX-8, which clarifies that cess is payable on exports under bond only when no exemption notification exists. 

The department argued that Notification No. 42/2001-CE (NT), which grants export-related exemptions, does not specifically mention sugar cess among the duties and cesses exempted on exported goods. Therefore, according to the department, sugar cess remained payable even when sugar was exported. 

The department further relied upon CBIC’s circular clarifying that cess is payable on exports under bond unless specifically exempted by a notification. 

After examining the statutory provisions and notifications, the Tribunal found that the Ministry of Consumer Affairs, Food and Public Distribution had issued Notification No. S.O. 585(E) dated July 30, 1993 specifically exempting sugar exported out of India from the whole of the sugar cess. 

The Bench observed that Appendix III of the Central Excise Tariff Act consistently provided exemption from sugar cess on sugar exported outside India, even though cess remained payable on domestic clearances. 

The Tribunal also noted that CBIC Circular No. 10/93-CX.8 dated September 1, 1993 expressly clarified that the duty of excise leviable under the Sugar Cess Act, 1982 stood exempted on sugar exported out of India. 

The Tribunal also relied upon its earlier decision in Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd., where it had categorically held that sugar cess is not payable on sugar exported out of India due to the exemption granted under the 1993 notification. 

According to the Bench, the issue was no longer res integra and stood settled in favour of exporters. 

The CESTAT Ahmedabad set aside the impugned order and quashed the demand of ₹77.50 lakh in sugar cess along with the consequential interest and penalty. The Tribunal held that sugar exported out of India enjoys complete exemption from sugar cess under the applicable notifications and circulars.

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