CESTAT Rules Processed Milk Is Not an Exempted Final Product
On September 18, 2026, the Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal held that processed milk used within confectionery manufacturing does not qualify as an “exempted final product” under Rule 6 of the CENVAT Credit Rules, 2004. Technical Member M. Ajit Kumar delivered the ruling in an appeal brought by Lotte India Corporation Ltd.
The dispute concerned the production of sugar-boiled confectionery. Liquid milk was subjected to thermal and mechanical treatment at the company’s facility before being added to the finished sweets or sent to job workers for further specialised processing. The department argued that this processed milk was a separate commodity cleared without excise duty.
Liquid and processed milk were covered by an excise exemption under Notification No. 03/2006-CE. Revenue authorities therefore alleged that Lotte had used common input services for both dutiable confectionery and exempted processed milk. They invoked Rule 6(3) and sought reversal of CENVAT credit, together with interest and penalties.
Lotte told the tribunal that the milk was not cleared, marketed or sold as an independent product to outside buyers. Its processing formed part of a continuous manufacturing formula and was required before the milk could be incorporated into the confectionery. The company argued that Rule 6 applied to factories producing and clearing separate dutiable and exempt finished goods, rather than to an integrated production sequence.
CESTAT accepted that position. It said an intermediate operation does not become an exempted final product simply because no excise duty is charged at that stage. The tribunal referred to Supreme Court decisions including Union of India v. Hindustan Zinc Ltd. and Rallis India Ltd. v. Union of India, which it cited in support of assessing manufacturing stages as part of an integrated commercial process.
The tribunal added that goods consumed within the same factory or sent to job workers retain their character as inputs when they are necessary for producing the eventual finished goods. It consequently annulled the department’s demand and removed the associated penalties. The ruling covers the treatment of intermediate dairy stages in confectionery production; the source also identified comparable uses of condensed milk, pasteurised blends and milk solids in chocolate, candy and biscuit manufacturing.
