2009 (7) TMI 622 - AT - Central Excise

Cenvat Credit- Inputs- Appellant M/s. Vishwanath Sugars Ltd. Belgaum (VSL) were engaged in the manufacture of Rectified Spirit and Denatured Ethyl Alcohol. Pursuant to a visit to the premises of the appellant s factory on 14-5-2004, officers of the department observed that VSL were engaged in the manufacture of rectified spirit and had availed inadmissible input credit of duty paid on Molasses, Furnace oil and Yeast. After due process of law, the Commissioner adjudicated the show cause notice issued to them and disallowed Cenvat credit under Rule 12 of Cenvat Credit Rules, 2001/2002. As the appellant had already reversed an amount of Rs.1,45,29,161/- (Rupees one crore forty-five lakh twenty-nine thousand one hundred and sixty-one only) on clearance of rectified spirit, the Commissioner appropriated the balance credit of Rs.83,56,155/- (Rupees Eighty-three lakh fifty-six thousand one hundred and fifty-five only). The period of dispute is September 2001 to 14th May, 2004. held that- The Commissioner held that such procedure prescribed under Rule 6 of CCR did not apply to the appellants as it had manufactured only rectified spirit, for in his view, denatured spirit came into existence by the sole process of mixing rectified spirit with toxin. We are unable to agree with the Commissioner that the appellants had not manufactured denatured spirit, a dutiable item along with rectified spirit both of which were cleared by the appellants. In these circumstances, we hold that the impugned order denying Cenvat credit availed on inputs received by the appellants in terms of Rule 6 of CCR is in accordance with law. In these circumstances, we find the impugned order to be contrary to legal provisions. The same is set aside and this appeal allowed

Summary

Issues:
1. Denial of Cenvat credit on duty paid on inputs by the Commissioner.
2. Manufacture and clearance of denatured spirit by the appellant.
3. Applicability of Rule 6 of Cenvat Credit Rules, 2001.
4. Interpretation of the process of manufacturing denatured spirit.

Issue 1: Denial of Cenvat credit on duty paid on inputs by the Commissioner:
The Appellant, engaged in the manufacture of Rectified Spirit and Denatured Ethyl Alcohol, was found to have availed inadmissible input credit of duty paid on Molasses, Furnace oil, and Yeast. The Commissioner disallowed Cenvat credit of Rs.2,28,85,316/- under Rule 12 of Cenvat Credit Rules, 2001/2002. The Commissioner appropriated the balance credit of Rs.83,56,155/- as the Appellant had already reversed a portion of the credit. The Tribunal found that the denial of credit by the Commissioner was incorrect as the Appellant had followed the prescribed procedures and had manufactured both exempted and dutiable products, thus entitling them to avail Cenvat credit.

Issue 2: Manufacture and clearance of denatured spirit by the appellant:
The Commissioner held that the denatured spirit cleared by the Appellant was not manufactured by them as it involved mixing rectified spirit with toxin in the buyer's tanker. However, the Tribunal disagreed with this finding, noting that the Appellant had indeed manufactured and cleared denatured spirit along with rectified spirit. The Tribunal observed that the process of manufacturing denatured spirit involves more than just mixing toxin with rectified spirit and that the Appellant followed the necessary procedures for availing Cenvat credit on inputs used in the production of both exempted and dutiable products.

Issue 3: Applicability of Rule 6 of Cenvat Credit Rules, 2001:
The Tribunal analyzed the applicability of Rule 6 of the Cenvat Credit Rules, 2001, which permits the availing of credit on common inputs used in the manufacture of dutiable and exempted final products. The Tribunal found that the Appellant had complied with the provisions of Rule 6 by reversing the credit relatable to exempted goods at the time of clearance, as required by the rules. The Tribunal held that the denial of Cenvat credit by the Commissioner was unjustified as the Appellant had followed the prescribed rules and procedures.

Issue 4: Interpretation of the process of manufacturing denatured spirit:
The Commissioner's interpretation that the process of mixing toxin with rectified spirit in the tanker did not amount to manufacturing denatured spirit was contested by the Tribunal. The Tribunal held that the production of denatured spirit involves the production of Ethyl Alcohol and is not solely the result of mixing toxin with rectified spirit. The Tribunal found that the Appellant had indeed manufactured denatured spirit, a dutiable item, along with rectified spirit, and therefore, the denial of Cenvat credit on inputs was contrary to legal provisions. The Tribunal set aside the impugned order and allowed the appeal.

This detailed analysis of the judgment highlights the key issues involved and the Tribunal's findings on each aspect of the case.