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2016 (11) TMI 994 - AT - Central ExciseCENVAT credit - molasses - Denatured spirit - utilization of credit taken on the input under CENVAT Credit Rules, 2004 and the non-compliance with the conditions governing the Rules when exempted goods are manufactured using duty paid inputs on which credit has been taken - whether denial of credit of duty paid on molasses during this period and to seek recovery of credit utilized for clearance of denatured rectified spirit justified? - Held that - The molasses was eligible for exemption from duty upon being captively consumed for manufacture of de-natured spirits under N/N. 67/95-CE dated 16th March 1995. No separate accounts were being maintained even though the molasses was also used to manufacture and clear rectified spirit which is non-excisable - reliance placed on the decision of the case Godavary Sugar Mills Ltd and Others v Commissioner of Central Excise 2006 (11) TMI 497 - CESTAT, BANGALORE where it was held that Where the final product is ethyl alcohol and other spirits denature of any strength, it is sufficient if the Cenvat credit attributable to inputs in the exempted product is reversed or paid Therefore, the appellants are entitled to the benefit of Notification No. 67/95 in respect of molasses used captively for manufacture of Rectified Spirit and Denatured Spirit - There is an option for the manufacturer not to maintain two separate accounts. The denatured alcohol is acknowledged as an excisable good and output in terms of CENVAT Credit Rules, 2004. There cannot be discriminatory treatment in the treatment accorded to two manufacturers of the same product merely on the ground that one uses captively produced molasses and the other procures from external sources - rectified spirit is an exempt goods and as the appellants do manufacture dutiable goods also, CENVAT Credit Rules does permit them to take credit of duty paid on molasses subject to compliance with Rule 6 of CENVAT Credit Rules, 2004. There is no finding that they have not reversed the CENVAT Credit taken on inputs that have gone into the exempt goods. This is sufficient compliance of Rule 6. They are, consequently, not required to be subject to recovery of duty on goods cleared by utilization of CENVAT Credit and not required to make good the credit taken on inputs. Appeal allowed.
Issues Involved:
1. Eligibility to take CENVAT credit on inputs. 2. Compliance with Rule 6 of CENVAT Credit Rules, 2004. 3. Classification of rectified spirit and denatured spirit. 4. Imposition of penalty. Detailed Analysis: 1. Eligibility to Take CENVAT Credit on Inputs: The appellants, distilleries sourcing molasses, took CENVAT credit under CENVAT Credit Rules, 2004 upon receipt of inputs. The credit taken was reversed proportionately upon clearance of rectified spirit chargeable to state excise duty. The manufacturing process involves converting molasses into raw ethyl alcohol and carbon dioxide, with the latter being sold. The raw ethyl alcohol is distilled to produce rectified spirit, which is used for producing alcohol for human consumption or denatured for industrial use. Denatured spirit is subject to central excise duties, while potable alcohol is outside the purview of excise duty. 2. Compliance with Rule 6 of CENVAT Credit Rules, 2004: The appellants reversed credit taken on inputs at the time of clearance of rectified spirit, adhering to Rule 6(3)(a) until 31st March 2008, and thereafter followed Rule 6(3A). Rule 6(1) forbids using credit on inputs for manufacturing and clearing exempted goods unless separate accounts are maintained. If not, manufacturers must pay an amount equal to 6% of the value of exempted goods or an amount determined under Rule 6(3A). 3. Classification of Rectified Spirit and Denatured Spirit: The original authority found that rectified spirit was non-excisable from 28th February 2005 due to tariff entry changes. Denatured spirit, however, remained excisable. The appellants argued that ethyl alcohol continued in the tariff and was not exempt, supported by exemption notifications and Tribunal decisions. The Tribunal observed that rectified spirit, even if non-excisable, exists and is classified in the tariff. Denaturing ethyl alcohol is part of manufacturing dutiable products, and the appellants complied with Rule 6 by reversing credit on inputs used in exempt goods. 4. Imposition of Penalty: The appellants challenged the imposition of penalties, arguing no evidence of mens rea. The Tribunal noted that the appellants followed Rule 6 of CENVAT Credit Rules, 2004, and there was no finding of non-compliance. Therefore, penalties were unwarranted. Conclusion: The Tribunal consistently held that compliance with Rule 6 of CENVAT Credit Rules, 2004, is sufficient for allowing proportionate credit of duty paid on inputs used for manufacturing both exempted and dutiable goods. The Hon'ble Supreme Court's approval of the Tribunal's decision in similar cases reinforced this position. The appellants were found to have complied with Rule 6 by reversing CENVAT credit on inputs used for exempt goods. Consequently, the appeals were allowed, and the impugned orders were set aside. The demand for recovery of duty on goods cleared using CENVAT credit and the penalties imposed were annulled. Pronouncement: The judgment was pronounced in court on 15/04/2016.
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