2009 (8) TMI 1045 - Commissioner - Central Excise

Issues Involved:
1. Whether electricity is an excisable commodity under Chapter Heading No. 2716 of the Central Excise Tariff Act.
2. Applicability of Rule 6 of the Cenvat Credit Rules, 2004 to the appellant's use of inputs and input services.
3. Validity of the demand for 10% of the price of electricity as exempted product.
4. Imposition of penalty and interest under Section 11AC of the Central Excise Act, 1944.

Detailed Analysis:

1. Excisability of Electricity:
The central issue is whether electricity, mentioned under Chapter Heading No. 2716 with effect from 28-2-2005, is an excisable commodity. The adjudicating authority held that electricity, being listed in the Central Excise Tariff, is an excisable commodity, and the blank entry for the rate of duty should be treated as "NIL" rate of duty. Consequently, electricity was considered an exempted final product, making the appellant liable to pay an amount equal to 10% of the total price of the exempted product (electricity) under Rule 6(3)(b) of the Cenvat Credit Rules, 2004.

The appellant argued that the inclusion of electricity in the Central Excise Tariff was a technical move, not intended to make it excisable. They contended that a blank entry does not equate to "NIL" rate of duty and cited the Tribunal's decision in CCE v. Ramesh Flowers Pvt. Ltd. and the Apex Court's decision in CCE v. Solaris Chemtech Ltd., which held that electricity is non-excisable.

The judgment concluded that since there is no duty specified for electricity in the Central Excise Tariff, it cannot be considered excisable or exempted. The mention of electricity in the tariff is a technical alignment with the Customs Tariff Act and not an intention to impose duty.

2. Applicability of Rule 6 of Cenvat Credit Rules, 2004:
The appellant did not maintain separate accounts for inputs and input services used for manufacturing both dutiable and exempted products. The adjudicating authority demanded 10% of the price of electricity, treating it as an exempted product under Rule 6(3)(b).

The appellant argued that Rule 6 does not apply since electricity is non-excisable. They further contended that inputs like sulphur and input services like inward transportation of sugarcane are exclusively used for manufacturing sugar and molasses, which are dutiable products. The judgment agreed, stating that the demand for 10% of the price of electricity is unsustainable as electricity is non-excisable.

3. Demand for 10% of the Price of Electricity:
The adjudicating authority's demand for 10% of the price of electricity was based on the assumption that electricity is an exempted product. The appellant argued that when it is impossible to keep separate records of common inputs, the department should only ask to reverse the actual amount of credit attributable to the inputs used for exempted products, citing Esab India Ltd. v. CCE and CCE v. Solaris Chemtech Ltd..

The judgment held that the department should have asked the appellant to reverse the actual credit attributable to the production of electricity, rather than demanding 10% of the price. This view is supported by the Apex Court's decision in CCE v. Solaris Chemtech Ltd..

4. Imposition of Penalty and Interest:
The adjudicating authority imposed equal penalties and interest, alleging suppression of facts by the appellant. The appellant contended that there is no requirement under the Act to declare the use of common inputs, and suppression cannot be invoked based on publicly available documents like the Balance Sheet.

The judgment agreed, stating that suppression of facts is not sustainable as the Balance Sheet is a public document. Additionally, it held that in cases of demand under Rule 6(3)(b), Section 11AB is not applicable, citing Eastern Medikit Ltd. v. CCE, Gurgaon.

Conclusion:
The judgment allowed all four appeals, setting aside the impugned orders. It concluded that electricity is non-excisable, Rule 6 of the Cenvat Credit Rules does not apply, the demand for 10% of the price is unsustainable, and no penalties or interest are imposable.

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