2019 (11) TMI 433 - AT - Central Excise

Classification of goods - Electrical Energy - whether classified under Tariff Item No.27160000 of Central Excise Tariff Act (CETA), 1985 or otherwise? - captive consumption - excess/surplus quantity is sold to outside to power distribution companies for a consideration without payment of duty as no rate of duty has been prescribed in the CETA, 1985. HELD THAT - The issue involved in the present appeal is no more res integra and has been settled by the decision of the Allahabad High Court in the case of GULARIA CHINI MILLS AND OTHERS VERSUS UNION OF INDIA AND OTHERS 2013 (7) TMI 159 - ALLAHABAD HIGH COURT which has been approved by the Hon ble Supreme Court in the case of UNION OF INDIA VERSUS DSCL SUGAR LTD. 2015 (10) TMI 566 - SUPREME COURT . Further, the Division Bench of the Tribunal in the case of JAKARYA SUGARS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-II 2018 (5) TMI 1665 - CESTAT MUMBAI has also considered the same issue and after relying upon the judgment of the Allahabad High Court in the case of Gularia Chini Mills has held that in the generation of electricity from bagasse, no other input or input service is used and therefore, the electrical energy is neither excisable under Section 2(d) of Central Excise Act, 1944 nor exempted goods and hence, Rule 6 is not applicable. The demand of 6% of the value of electricity sold to various companies is not sustainable in law - Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Eligibility of CENVAT credit on electricity sold to outside agency
- Application of Rule 6 of CENVAT Credit Rules, 2004
- Interpretation of statutory provisions and judicial precedents

Eligibility of CENVAT credit on electricity sold to outside agency:
The case involved the appellant, engaged in manufacturing sugar, molasses, ethyl alcohol, and electricity, selling surplus electricity to outside agencies. The dispute arose regarding the eligibility of CENVAT credit on input and input services related to the electricity sold. The department demanded an amount equal to 6% of the value of electricity sold, which was confirmed by the original authority and upheld by the Commissioner (A). The appellant argued that there was no evidence of common inputs or input services used in generating electricity, making the demand unsustainable. The appellant cited various decisions to support their claim, emphasizing that the amended Rule 6 should apply only when common credit is used for dutiable and non-excisable goods. The Tribunal found in favor of the appellant, setting aside the demand based on settled judicial precedents and lack of evidence supporting the department's claim.

Application of Rule 6 of CENVAT Credit Rules, 2004:
The appellant contended that the impugned order, relying on Explanation-I of Rule 6(1), was contrary to statutory provisions and judicial precedents. They argued that the department failed to provide justification or evidence of common inputs/services used for both dutiable goods and non-excisable electricity. The appellant highlighted that Rule 6 should only apply when there is clear evidence of common credit usage. They referenced decisions like Jakarya Sugars Ltd. and Gularia Chini Mills to support their argument. The Tribunal agreed with the appellant, emphasizing that Rule 6 does not apply when no evidence of common inputs/services exists, as established in previous judgments.

Interpretation of statutory provisions and judicial precedents:
The Tribunal analyzed various decisions, including Gularia Chini Mills and UOI vs. DSCL Sugar Ltd., to determine the applicability of Rule 6 in cases involving electricity generation from bagasse. They noted that in the generation of electricity from bagasse, no other input or input service is typically used, rendering the electricity neither excisable nor exempted goods. By following established precedents and considering the specific circumstances of the case, the Tribunal concluded that the demand for 6% of the value of electricity sold was not legally sustainable. Consequently, the Tribunal set aside the demand and allowed the appeal of the appellant, providing consequential relief as necessary.