2018 (11) TMI 1513 - AT - Central Excise

CENVAT Credit - waste - electricity sold by the appellant that was being generated from bagasse, a waste product of sugar manufacturing - invocation of Rule 6(3A) of Cenvat Credit Rules 2004 - Held that - Admittedly electricity, though not found in tangible form, is classifiable under Tariff item no. 27160000 of Central Excise Tariff Act, 1985. But it is a non-excisable goods and the process of generation of electricity though a manufacturing process is dutiable if it is generated from mineral oils, bitumen substance, mineral waxes etc. and electricity generated from bagasse is not covered under Chapter 27 like electricity generated through solar power, hydro power, wind power etc. For post amendment period it can be said that the duty demand made against such sale of surplus electricity manufactured through waste product is not sustainable in law - appeal allowed - decided in favor of appellant.

Summary

Issues:
Applicability of Explanation 1 to Rule 6(1) of Cenvat Credit Rules 2004 to electricity generated from bagasse and imposition of duty liability under Rule 6(3A) challenged.

Analysis:
1. The appellant, a sugar and molasses manufacturer, generated electricity from bagasse, a sugar manufacturing waste, for captive use and sale. The department invoked Explanation 1 to Rule 6, holding the appellant liable for duty on electricity sold. The appellant contested, citing precedents like Gularia Chini Mills and DSCL Sugar Ltd., arguing that Rule 6 does not apply to electricity generated solely from bagasse without other inputs. The appellant emphasized the lack of evidence of common inputs for dutiable goods in electricity production.

2. The department referenced judicial decisions to support the duty demand, arguing for the reversal of credit on inputs used for duty-free electricity generation. The Tribunal reviewed relevant precedents and noted that electricity, though non-excisable, is classifiable under the Central Excise Tariff Act. However, electricity from bagasse, like other renewable sources, is not dutiable. Citing Jakarya Sugars Ltd., the Tribunal emphasized that electricity from bagasse is not subject to duty as per the DSCL Sugar Ltd. judgment.

3. Following the precedent set by Jakarya Sugars Ltd., the Tribunal deemed the duty demand on surplus electricity from waste product generation unsustainable. Consequently, the appeal was allowed, setting aside the Commissioner's order imposing duty on electricity sold from bagasse-generated power.

This judgment clarifies the non-applicability of duty on electricity generated solely from bagasse, a waste product, aligning with established legal precedents and exempting such electricity from duty liability under Rule 6 of the Cenvat Credit Rules 2004.