2024 (6) TMI 577 - AT - Central Excise

Dutiability of 'molasses' used in the manufacture of non-excisable goods - captive consumption - negation of N/N. 67/95-CE dated 16th March 1995 on goods manufactured - wrongful availment of CENVAT Credit - HELD THAT - The impugned notification is intended to facilitate captive consumption which, particularly in a continuous integrated manufacturing process, would have involved assessment to duty of central excise at several stages with its own controversies over rate of duty and value that are not exactly not superfluous as the chain of value addition ensures that duty is, in any case, charged on the final value of the goods from the factory of production. Furthermore, the availability of credit of duties paid at each stage neutralizes intermediate assessment including ascertainment of classification and value. Spirits are denatured to render unfit for human consumption; levy of commodity taxation in the constitutional scheme excludes the jurisdiction of the Union on spirits intended for human consumption. Central Excise law is this applicable to all, and any spirit, that is not intended for human consumption. Denaturing is only the mark of that intention as it does not alter the product for further use except in human consumption. Therefore, the intermediate product that emerges, and to the extent that it is not intended for human consumption, is not marketable as such and all the indicators of goods adheres to it upon denaturing. There is no dispute that denatured spirits are manufactured, are excisable and are not exempt. Consequently, the molasses that have been deployed captively for the purpose are exempted from duty. The order of Commissioner of Central Excise is set aside to allow appeal of assessee.

Issues Involved:
1. Dutiability of 'molasses' used in the manufacture of non-excisable goods.
2. Wrongful availment of CENVAT credit.
3. Interpretation of tariff structure post-1st March 2005.
4. Applicability of notification no. 67/95-CE dated 16th March 1995.

Summary:

1. Dutiability of 'molasses' used in the manufacture of non-excisable goods:
The central excise authorities contended that 'ethyl alcohol or rectified spirit' comes into existence before denaturing, which are either sold without payment of duty or used for clearance as 'denatured spirits'. This rendered the 'molasses' liable to duty. The Tribunal noted that the impugned notification is intended to facilitate 'captive consumption' and concluded that the 'molasses' used in the manufacture of 'denatured spirits' are exempt from duty. The demand of duty on 'molasses' in the order of Commissioner of Central Excise fails to survive along with attendant detriments.

2. Wrongful availment of CENVAT credit:
The appellant had utilized Rs. 22,05,112 of credit under CENVAT Credit Rules, 2004, of duty paid on 'molasses' procured by them to discharge duty liability on 'denatured ethyl alcohol' while reversing the credit attributable to clearance of 'rectified spirit'. The Tribunal found that the appellant has reversed credit taken on 'molasses' procured from elsewhere and adhered to the injunction on retention of credit of duty paid on goods deployed in the manufacture of 'exempted goods'. Thus, negating the demand on that count in the order of Commissioner of Central Excise along with appended detriments.

3. Interpretation of tariff structure post-1st March 2005:
The Tribunal noted that the tariff structure appended to Central Excise Tariff Act, 1985 underwent alteration for alignment with the Schedule appended to Customs Tariff Act, 1975. The revised tariff item 2207 2000 of First Schedule includes 'Ethyl alcohol and other spirits, denatured, of any strength'. The Tribunal held that 'rectified spirit' is not chargeable to duty and, therefore, 'molasses' should bear the burden of duty. However, the Tribunal found no evidence of any goods having come into existence at the intermediate stage except by presumption.

4. Applicability of notification no. 67/95-CE dated 16th March 1995:
The Tribunal concluded that the impugned notification intended to preclude scrutiny of a process that the said notification intended to facilitate. The 'proviso' would come into play only upon a claim of exemption from duty of central excise, which was not preferred in relation to the goods that were yet in the manufacturing process. The Tribunal found that the error in the order of the Commissioner of Central Excise was in contriving to scrutinize a process that the notification intended to preclude.

Conclusion:
The order of Commissioner of Central Excise is set aside, allowing the appeal of the assessee. The appeal of the assessee impugning the order of Commissioner of Central Excise (Appeals) is dismissed as infructuous.

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