2014 (11) TMI 919 - AT - Central Excise

Captive Consumption of Molasses - Manufacturing of Rectified Spirit and ENA - According to Revenue, Rectified Spirit and ENA are non-excisable goods with effect from 1.3.2005 and therefore, the appellants are not eligible to avail benefit of exemption Notification No. 67/95-CE on Molasses captively used in the manufacture of Rectified Spirit and ENA. - Held that - Prior to 28.2.2005, Rectified Spirit and ENA manufactured by the appellant were covered under sub-heading No. 2204.90, NIL rate of duty. After amendment of Tariff (8 Digit Classification Code), Heading 22.04 would correspond to Heading No. 22.07. In the above Board Circular, it has been clarified that Notification No. 3/2005-CE dated 24.2.2005 was issued to preserve the existing duty rate. So, it is clearly evident that the Rectified Spirit existing NIL rate of duty under Sub-heading No. 2204.90 has been covered under Serial No. 14 of the Table appended to Notification 3/2005-CE. In view of the above Board Circular, we find merit in the submission of the learned Advocate that with effect from 28.2.2005, Rectified Spirit and ENA are exempted goods, covered under Notification No.3/2005-CE. After re-structuring of Central Excise Tariff from 6 Digit to 8 Digit with effect from 1.3.2005, Rectified Spirit and ENA are exempted by Notification No. 3/2005-CE (supra) and the appellant discharged the obligations under Rule 6 of the CENVAT Credit Rules, 2004 in respect of clearance of Rectified Spirit and ENA and therefore denial of exemption Notification No. 67/95-CE (supra) on Molasses captively consumed in Rectified Spirit and ENA cannot be sustained. Accordingly, denial of CENVAT credit on the Molasses purchased from other sugar mill used in the manufacture of Rectified Spirit and ENA are also liable to be set aside. We have also noted that inputs and input service are not exclusively used for generation of electricity and therefore CENVAT credit cannot be denied. - Decided in favour of assessee.

Issues Involved:
1. Eligibility for exemption under Notification No. 67/95-CE on molasses captively used in the manufacture of Rectified Spirit and Extra Neutral Alcohol (ENA).
2. Denial of CENVAT credit on molasses purchased from outside.
3. Denial of CENVAT credit on inputs, input services, and capital goods used in the generation of electricity and in the distillery for manufacture of both dutiable and exempted products.

Issue-wise Detailed Analysis:

1. Eligibility for exemption under Notification No. 67/95-CE on molasses captively used in the manufacture of Rectified Spirit and ENA:

The appellants are engaged in manufacturing various products including sugar, molasses, electricity, and ethyl alcohol. They claimed the benefit of exemption Notification No. 67/95-CE for molasses used captively in the manufacture of Rectified Spirit and ENA. The Revenue contended that after restructuring the Central Excise Tariff from 6-digit to 8-digit with effect from 1.3.2005, Rectified Spirit and ENA became non-excisable, and thus, the appellants were not eligible for the exemption.

The Tribunal noted that prior to 1.3.2005, Rectified Spirit and ENA were classified under sub-heading 2204.90 with NIL duty. Post-restructuring, these products were not explicitly mentioned in the new tariff but were covered under sub-heading 2207 2000, which includes ethyl alcohol and other spirits, denatured, of any strength. The Tribunal referred to various judicial precedents and Board Circular No. 808/5/2005-CX, which clarified that the restructuring did not involve substantive changes but merely technical adjustments. Consequently, Rectified Spirit and ENA continued to be exempt under Notification No. 3/2005-CE and Notification No. 12/2012-CE.

The Tribunal concluded that the exemption under Notification No. 67/95-CE is applicable to molasses used in the manufacture of Rectified Spirit and ENA, as these products are considered exempted goods post-restructuring.

2. Denial of CENVAT credit on molasses purchased from outside:

The adjudicating authority had denied CENVAT credit on molasses purchased from other sugar mills, used in the manufacture of Rectified Spirit and ENA. The Tribunal found that the appellants had discharged their obligations under Rule 6 of the CENVAT Credit Rules by paying the required percentage of the value of exempted goods at the time of clearance. Therefore, there was no basis for denying CENVAT credit on molasses purchased from outside.

3. Denial of CENVAT credit on inputs, input services, and capital goods used in the generation of electricity and in the distillery for manufacture of both dutiable and exempted products:

In the case of Dharani Sugars, the adjudicating authority had denied CENVAT credit on inputs, input services, and capital goods used in the generation of electricity and in the distillery for manufacturing both dutiable and exempted products. The Tribunal held that these inputs and services were not exclusively used for the generation of electricity or exempted products. Consequently, CENVAT credit could not be denied.

Conclusion:

The Tribunal set aside the impugned orders, allowing the appeals with consequential relief. It held that the appellants were eligible for the benefit of exemption Notification No. 67/95-CE on molasses used in the manufacture of Rectified Spirit and ENA. Additionally, the denial of CENVAT credit on molasses purchased from other sugar mills, as well as on inputs, input services, and capital goods used in the generation of electricity and in the distillery, was found to be unsustainable.

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