2018 (5) TMI 1665 - AT - Central Excise

Reversal of Cenvat Credit - electricity generated from by-products, i.e. bagass - electricity generated is partly used for the manufacturing process within the factory and partly sold out to Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) - The case of the department is that the electricity sold out to the electricity company is liable to payment of 6% amount in terms of Rule 6 (3) (i) of CCR 2004. Held that - Though electricity can be considered as exempted goods as non-excisable but the facts of the present case is that the electricity is generated from by-products, i.e. bagass, which is neither a dutiable goods nor liable for payment of 6% in terms of Hon ble Supreme Court judgement in the case of DSCL Sugar Ltd. 2015 (10) TMI 566 - SUPREME COURT . Rule 6 (3) (i) is applicable only when a common input, on which cannot availed is used in the manufacture of exempted and dutiable goods - For the generation of electricity, except the use of bagasee no any cenvatable input is used. Therefore, the Rule 6 does not come into play. The electrical energy is neither excisable under Section 2 (b) of the Central Excise Act, nor exempted goods. Hence, Rule 6 is not applicable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether electricity generated from bagasse and sold to a distribution company is liable for payment of 6% under Rule 6 (3) (i) of Cenvat Credit Rules, 2004.

Analysis:
The case involved the appellants engaged in the manufacture of sugar and molasses, generating bagasse during the process. The generated bagasse was used for captive electricity generation within the factory, with surplus electricity sold to a distribution company. The department argued that the electricity sold was liable for a 6% payment under Rule 6 (3) (i) of Cenvat Credit Rules, 2004. The Revenue contended that electricity supplied out of the factory is considered exempted goods, making Rule 6 applicable for payment. However, the Tribunal noted that the electricity generated was from by-products, specifically bagasse, which was neither dutiable nor subject to the 6% payment as per a Supreme Court judgment. The Tribunal referenced a High Court ruling emphasizing that bagasse is not a manufactured good but a waste product, and electricity generated from it does not fall under excisable goods.

The Tribunal highlighted that no cenvatable input was used for the generation of electricity from bagasse, thus rendering Rule 6 inapplicable. The judgment further clarified that the conditions for goods to be considered excisable were not met in this case, as electrical energy from bagasse did not fall under the Central Excise Tariff Act's specified categories. The Tribunal emphasized that Rule 6 of the Cenvat Credit Rules, 2004, applies when a manufacturer produces both dutiable and exempted goods, requiring separate accounts, which was not the scenario in the present case. It was established that the electricity generated from bagasse and sold did not qualify as excisable goods, making Rule 6 inapplicable as per the Supreme Court's precedent.

Based on the legal analysis and the precedents cited, the Tribunal concluded that since no other inputs or input services were used in the generation of electricity from bagasse, the electrical energy did not fall under excisable goods nor exempted goods. Therefore, Rule 6 was deemed inapplicable, and the impugned order was set aside, allowing the appeal in favor of the appellants.