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2017 (10) TMI 644 - AT - Central ExciseCENVAT credit - Excisability - Ethyl alcohol - N/N. 3/2005-CE (Serial No. 14) - case of Revenue is that the said product is not at all covered for Central Excise levy and hence, the Cenvat Credit Scheme itself is not available to the appellant - Held that - similar matter came up for discussion by the Tribunal in the case of Rajshree Sugars 2014 (11) TMI 919 - CESTAT CHENNAI , where it was held that rectified spirit and extra neutral alcohol are non-excisable goods w.e.f. 01.03.2005, and therefore, the appellants are not eligible to avail the benefit of exemption N/N. 67/1995-CE on the molasses captively used in the manufacture of the said goods - The Tribunal held that after restructuring of Central Excise Tariff from 6 digit to 8 digit w.e.f. 01.03.2005, rectified spirit and extra neutral alcohol are exempted by Notification 3/2005-CE and the appellants had correctly discharged their obligation under Rule 6 of Cenvat Credit Rules, 2004. The reliance placed by the Revenue on the entries made in HSN in order to understand the scope of Central Excise Tariff is not proper in the context of the present case. It is clear that in Central Excise levy, there are certain restrictions placed by the Constitution with reference to the powers of Union Govt. to tax on alcohol for human consumption. With this background, the Central Excise Tariff is structured and it is not equivalent or comparable to the HSN to that extent - as such there is no dispute about the nature of product cleared by the appellant. The reliance by original authority on the comparison with HSN is misplaced. The finding that the entry 2207.20 does not cover undenatured ethyl alcohol having strength at 80% and above and hence the same is non-excisable, is not legally and factually sustainable. Ethyl alcohol/ rectified spirit which is not for human consumption is finding place in tariff item 2207 2000. The impugned order holding ethyl alcohol as non excisable product is not legally sustainable - appeal allowed - decided in favor of appellant.
Issues Involved:
1. Whether Ethyl alcohol/Rectified Spirit is an excisable item under Central Excise Tariff. 2. Whether the appellant is eligible for Cenvat credit on molasses used in the manufacture of Ethyl alcohol/Rectified Spirit. 3. Applicability of Rule 6(3) of Cenvat Credit Rules, 2004. 4. Interpretation of exemption Notification No. 3/2005-CE. Issue-wise Detailed Analysis: 1. Whether Ethyl alcohol/Rectified Spirit is an excisable item under Central Excise Tariff: The core issue revolves around whether Ethyl alcohol/Rectified Spirit, manufactured by the appellant, is considered an excisable item. The Department contended that Ethyl alcohol/Rectified Spirit is a non-excisable item as it is not mentioned in the Central Excise Tariff during the relevant period. The original authority supported this view, stating that only denatured Ethyl alcohol is covered under Central Excise Tariff Heading 2207 2000, and the exemption under Notification 3/2005-CE applies only to excisable goods, not to non-excisable goods like Ethyl alcohol. However, the Tribunal referred to previous cases, such as Rajshree Sugars & Chemicals Ltd. and Ugar Sugar Works Ltd., which concluded that the restructuring of the tariff from 6-digit to 8-digit did not substantively change the existing rules and that Ethyl alcohol, including Rectified Spirit, remains covered under Heading 2207. 2. Whether the appellant is eligible for Cenvat credit on molasses used in the manufacture of Ethyl alcohol/Rectified Spirit: The Department argued that since Ethyl alcohol/Rectified Spirit is non-excisable, the appellant cannot avail of Cenvat credit on molasses used in its manufacture. The Tribunal, however, found that the appellant had correctly availed of the exemption and followed the procedure under Rule 6(3) of Cenvat Credit Rules, 2004. The Tribunal cited multiple decisions, including Ugar Sugar Works Ltd. and Bajaj Hindustan Sugar Ltd., which supported the view that Rectified Spirit and denatured Ethyl alcohol are covered under the same tariff heading and that the appellant's actions were consistent with the rules. 3. Applicability of Rule 6(3) of Cenvat Credit Rules, 2004: The appellant had followed Rule 6(3) of Cenvat Credit Rules, 2004, by paying 5% of the value of exempted goods. The Tribunal noted that the appellant had discharged their obligation under this rule, which was a key point in their favor. The Tribunal referenced decisions like Ugar Sugar Works Ltd., which held that if the credit on molasses used in the manufacture of Rectified Spirit is reversed, there is no violation of any provisions of law. 4. Interpretation of exemption Notification No. 3/2005-CE: The appellant argued that the exemption Notification No. 3/2005-CE (Serial No. 14) includes Ethyl alcohol, and they had correctly availed of the exemption. The Tribunal agreed, stating that the words "all spirits" in the notification have a wide amplitude, including both denatured and undenatured Ethyl alcohol. The Tribunal's findings were supported by previous decisions and the Hon’ble Supreme Court's ruling in Modi Distillery, which clarified that Ethyl alcohol is not an alcoholic liquor for human consumption and is thus not subject to state excise duty. Conclusion: The Tribunal concluded that the impugned order holding Ethyl alcohol as a non-excisable product was not legally sustainable. The Tribunal set aside the impugned order and allowed the appeals, affirming that Ethyl alcohol/Rectified Spirit is covered under the Central Excise Tariff and the appellant is eligible for Cenvat credit on molasses used in its manufacture. The Tribunal's decision was pronounced in open court on 09.02.2017.
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