2008 (7) TMI 309 - AT - Central Excise

Rectified spirit which is used in mfg. of country liquor (exempted good) as well as in denatured spirit - Demand for reversal of credit availed on molasses which is used in manufacture of rectified spirit since appellants have reversed 8% of the price of rectified spirit - there is no sale of rectified spirit from the factory premises of the appellant, the clearance of such goods for captive consumption would amount to deemed sales demand for reversal of credit not sustainable

Summary

Issues:
- Appeal against Order-in-Appeal and Order-in-Original regarding reversal of Modvat/Cenvat credit on molasses used in manufacturing rectified spirit for country liquor.

Analysis:
1. The case involved two appeals against Order-in-Appeal and Order-in-Original regarding the reversal of Modvat/Cenvat credit availed on molasses used in manufacturing rectified spirit for country liquor. The appellant, a manufacturer of various spirits, was accused of not maintaining separate accounts for the duty paid molasses used in the production process, leading to a show cause notice and subsequent confirmation of demand and penalty by the adjudicating authority and Commissioner (Appeals).

2. The appellant's counsel argued that the credit on molasses was utilized in the manufacture of rectified spirit, which was further used for country liquor production. They contended that despite not selling rectified spirit directly, they had reversed 8% of its price, following a comparable pricing method. Citing legal precedents, including a Supreme Court ruling and a decision by the Bombay High Court, the appellant's counsel asserted that the issue had already been settled by previous tribunal judgments.

3. On the other hand, the SDR argued that Rule 57CC applied as rectified spirit was made from duty paid molasses, emphasizing that no direct sale of rectified spirit occurred from the factory premises. The SDR supported the detailed impugned order, stating that the appellant was not entitled to credit on molasses used for both rectified spirit and country liquor production.

4. After considering both parties' arguments and examining the records, the Tribunal found that the appellant had indeed used molasses for manufacturing rectified spirit and availed credit on it. Despite no direct sale of rectified spirit, the appellant had reversed 8% of its price, which was deemed sufficient. Referring to legal interpretations and the Supreme Court's ruling, the Tribunal concluded that clearances within the factory premises for captive consumption constituted deemed sales, aligning with the appellant's actions.

5. The Tribunal's decision was based on the understanding that in the absence of a direct sale, clearances for captive consumption were deemed sales, supported by the appellant's voluntary reversal of 8% of the rectified spirit's price. Consequently, the Tribunal held that the lower authorities' orders demanding the reversal of Modvat credit were unsustainable, leading to the allowance of the appeals and disposal of the cross-objection in favor of the appellant.