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TMI Blog2017 (10) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... cisable is of no consequence in the light of the Tribunal’s decision in case of Rajshree Sugars & Chemicals Ltd. The assessee appellant would be entitled to the benefit of exemption under N/N. 67/95 CE (supra); if from the records of the appellant it is confirmed that they reversed or paid the Cenvat credit pertaining to the inputs in the products not chargeable to any duty or where products were exempted or were ‘non excisable’ - matter is remanded to the original adjudicating authority to verify the fact of reversal or payment of Cenvat credit pertaining to inputs in the products not chargeable to any duty or where they are exempted or ‘non-excisable’ - matter on remand. CENVAT credit - demand of ₹ 48,48,388/- mainly on the reason that this amount of Cenvat credit pertains to the inputs and input services used in the manufacture of exempted goods namely, electricity, press mud, bagasse - Held that: - adjudicating authority has not thoroughly examined the submissions of the appellant that subject cenvat credit had already been reversed in case of confirmation of recovery of demand of Cenvat Credit amounting to ₹ 48,48,388/-. Therefore, in case of this demand als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacture of finished products under Cenvat Credit Rules, 2004. viii. In the Sugar Section, the appellant is using common inputs and input services for the manufacture of dutiable and exempted excisable goods. They are not maintaining separate accounts of inputs and inputs services used in or in relation to the manufacture of dutiable and exempted goods. The appellant has opted for proportionate reversal of Cenvat Credit pertaining to inputs and input services used in or in relation to the manufacture of exempted goods under Rule 6(3A) of Cenvat Credit Rules, 2004. ix. In the Distillery Section, the appellant is using Molasses as inputs for manufacturing distillery products. They are partly procuring duty paid Molasses from their other units and rest of the Molasses are being transferred (procured) from the Sugar Section of the composite unit, without payment of duty. x. The appellant is availing Cenvat credit on duty paid Molasses and other inputs and input services used in the manufacture of excisable and non excisable distillery products. The credit so taken is further utilized for payment of duty on excisable dutiable distillery products i.e., Special Denatured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Molasses, from the Sugar Section to the Distillery Section, as the products manufactured in the Distillery Section are non excisable; the benefit of Notification No. 67/95 dated 16/3/95 is not applicable in their case. 3. Based on the stand taken by the Revenue three show cause notices (SCNs) dated 07/10/11 , 17/9/2012 and 28/05/2013 for the period of Feb 2011 to August 2011, October 2012 to June 2012, and July 2012 to March 2013 were issued inter alia for proportionate denial of Cenvat credit and demand of Central Excise duty taken on inputs and input services used in relation to manufacture of non-excisable goods/ exempted goods namely Rectified Spirit (RS), Ethyl Alcohol (ENA), Power Alcohol, Absolute Alcohol, Bagasse, Press Mud, Electricity Bio compost. 4. Both sides represented by Ld. Advocate Shri P.K. Sahu for the appellant and Ld. DR, Shri R.K. Mishra for the revenue have been heard. 5. Ld. Advocate for the appellant mainly pleads as under: I. In CCE v. Sakhti Sugar Ltd., 2016 (332) ELT A194 (SC), Hon ble Supreme Court has upheld the decision of this Hon ble Tribunal in Sakhti Sugar Ltd. vs. CCE, 2008 (230) ELT 676 (Tri.) wherein it was held that payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h states that exempted goods shall include non-excisable goods for the purpose of Rule 6. This is a clarificatory amendment. Hence, applicability of Rule 6(3) of Cenvat Credit Rules cannot be denied even if non-excisable goods have been produced from molasses in distillery section of the appellant s factory. This amendment is in consonance with various judicial pronouncements to resolve unintended legal dispute and bringing clarity in the provisions so that it can be applied uniformly to all types of manufacturing. This shows that this explanation merely explains the existing law. Therefore, it is applicable prior to 01.03.2015, during the present period of dispute. Accordingly, benefit of Rule 6(3) cannot be denied to the appellant on the ground that the non-excisable goods cannot be considered as exempted goods. VI. The appellant has reversed canvat credit attributable to production of alleged non-excisable goods, applying fair principle of pro-rata allocation of credit. Hence, the Commissioner is not correct in denying entire cenvat credit on molasses. 6. The Ld DR for the Revenue based on the appeal memorandum and written submissions mainly pleads as under: i. A manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he First Schedule to the Central Excise Tariff Act, 1985; and in case final product is exempted or chargeable to nil rate of duty, the manufacturer of dutiable and exempted final products is required to discharge Cenvat credit obligation as prescribed under Rule 6 of the Cenvat Credit Rules . The impugned order holds that items namely undenatured Ethyl Alcohol or Rectified Spirit (RS) and Extra Neutral Alcohol (ENA) manufactured by the appellant are not excisable goods, therefore, they are not entitled to exemption under Notification No. 67/95 CE dated 16.03.1995 on clearance of molasses from sugar section to distillery section, and, therefore, further holds that appellant is required to pay duty amounting to ₹ 6,35,38,125/- on said molasses (8,22,500 ltrs), transferred from Sugar Section to Distillery Section for the manufacture of non excisable goods. The impugned order holds that provisions of reversal of Cenvat credit under Rule 6 of Cenvat Credit Rules, 2004 is applicable only for manufacture of excisable goods; thus the appellant is not entitled for any proportionate reversal of Cenvat Credit on inputs used in the manufacture of non excisable goods, under Rule 6 (3) (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue filed an appeal before Hon ble Supreme Court; however this appeal of the Revenue was dismissed thus upholding the Tribunal s order that if the assessee had reversed Cenvat Credit availed on inputs, molasses captively consumed in manufacture of exempted rectified spirit, were eligible for benefit of exemption under Notification No. 67/95-C.E - [Commissioner V/s Sakthi Sugars Ltd. 2016 (332) ELT A194 (SC)]. 8.4. Similar matter again came before the Tribunal and in the case of Rajshree Sugars Chemicals Ltd. V/s CCE, Puducherry. 2016 (343) ELT 462 (Tri.Chennai), and therein it was held that benefit under Notification no 67/95-CE is available provided the assessee discharges the obligation of reversal of cenvat credit availed on duty paid on molasses used for manufacture of Rectified Spirit and denatured Spirit as required under Rule 6 (1) of CCR,2004 . Thus, the department s contention that Rectified Spirit (RS) and Extra Neutral Alcohol (ENA) are not excisable is of no consequence in the light of the Tribunal s decision in case of Rajshree Sugars Chemicals Ltd. vs. CCE, 2016 (343) ELT 462 (Tri) (supra). The tribunal in the said case has observed as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eading No. Sub-heading Description of goods (1) (2) (3) 22.04 2204.00 Ethyl Alcohol of any strength whether denatured or not, but not including alcoholic liquor for human consumption Rectified Spirit and ENA are not fit for human consumption and covered by exemption Notification No. 2/94-C.E., dated 1-3-1994 (Sl. No. 32 of the Table) exempted all goods, other than Ethyl Alcohol of any strength, denatured under sub-heading 2204.00 nil rate of duty. (II) Prior to 1-3-2005, Note 1 of Chapter 22 provides that this Chapter does not cover alcoholic liquors for human consumption . The relevant portion of Heading No. 22.04 is reproduced below :- Heading No. Sub-heading Description of goods (1) (2) (3) 22.04 Ethyl Alcohol of any strength whether denatured or not, but not including alcoholic liquor for human consumption 2204.10 2204.90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of the said Table; From the whole of the duty of excise leviable thereon which is specified in the Schedules to the Central Excise Tariff Act, 1985 (5 of 1986) or additional duty of excise leviable thereon, which is specified in the Schedule to the said Special Importance Act. Provided that nothing contained in this notification shall apply to inputs used in or in relation to the manufacture of final products which are exempt from the whole of the duty of excise or additional duty of excise leviable thereon or are chargeable to nil rate of duty, other than those goods which are cleared i) xxxx xxxxx xxxxx xxxxx (ii) xxxx xxxxx xxxxx xxxxx (vi) by a manufacturer of dutiable and exempted final products, after discharging the obligation prescribed in Rule 6 of the Cenvat Credit Rules, 2001. Description of Inputs Description of final products (1) (2) All goods falling under the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) other than (light diesel oil, high speed diesel oil) and motor spirit, commonly known as petrol All goods falling unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it and ENA are exempted goods, covered under Notification No. 3/2005-C.E. The Hon‟ble Allahabad High Court in the case of Gularia Chini Mills v. Union of India - 2014 (34) S.T.R. 175 (All.) while dealing with bagasse, which emerged as a residue of sugarcane used as fuel in factory for manufacture of final product would be treated as exempted goods in the context of restructuring of Tariff of 6 digit to 8 digit, observed as under :- 30. It is relevant to mention here that a notification, bearing No. 7/2005-Central Excise (N.T.) was published in Part II, Section 3, sub-section (I) of the Gazette of India, Extraordinary, dated 24-2-2005, which reads as under : In exercise of the powers conferred by Section 37 of the Central Excise Act, 1944 (1 of 1944), the Central Government hereby makes the following rules to amend all the rules made under the said section and all the notifications issued under the said rules and for the time being in force on the date of commencement of the Central Excise Tariff (Amendment) Act, 2004 (5 of 2005), except as respects things done or omitted to be done before such amendments, namely:- 1.(1) These rules may be called the Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of 8 digits with effect from 28-2-2005. 32. The definition of excisable goods‟ given in Section 2(d) means the goods, which are specified in the First or Second Schedule and which are subjected to duty of excise, can only be treated as excisable goods. A proposition has also been accepted by the Commissioner in its findings. A perusal of Section 2(d) of Central Excise Act shows that the excisable goods are only those goods which are subjected to duty of excise as specified in the First Schedule or Second Schedule of the Central Excise Tariff Act. Since Column of rate of duty is blank, therefore, in view of Section 2 of the Central Excise Tariff Act, 1985, electrical energy is not being subjected to excise duty for the purposes of being excisable goods under Section 2(d) of the Central Excise Act. Furthermore, Rule 6 of the 2004 Rules, which is applicable only to excisable goods, can alone be treated as exempted goods for the purposes of Rule 6(3) of 2004 Rules, does not apply to electrical energy. 8.5 It is clear from the decision of the Hon‟ble Allahabad High Court in the case of Gularia Chini Mills (supra), that the restructuring of Tariff from 6 digit to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Spirit/Denatured Spirit. It is the contention of the Revenue that w.e.f. 1-3-2005, Rectified Spirit has become non-excisable and, therefore, no Cenvat credit could have been availed by the appellant. Apart from molasses, furnace oil is also used in the manufacture of Rectified Spirit as a fuel. Therefore, Revenue is also aggrieved that the Cenvat credit availed on furnace oil is also not admissible. The appellant has contended that prior to 1-3-2005, Rectified Spirit was covered under Chapter sub-heading 2204.90 and Denatured Spirit was covered under CSH 2204.10. However, in the restructured Tariff, both Rectified Spirit and Denatured Spirit are covered under the same Tariff Item 2207 20 00. Therefore, the contention that Rectified Spirit has become non-excisable w.e.f. 1-3-2005 is totally wrong. We find that even though the molasses is first converted to Rectified Spirit, while converting the same, Carbon Di-Oxide is first manufactured and the same is cleared on payment of duty. Further, part of the Rectified Spirit is converted into Denatured Spirit which is also sold on payment of duty. Therefore, it cannot be said that Molasses is used only in the manufacture of Rectified Spir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Heading No. 22.04 of the Tariff (presently Item 2207 20 00). 8.8 The adjudicating authority observed that Section 2(d) of the Central Excise Act, 1944 defines excisable goods to refer only to those goods being leviable to central excise duty, denatured ethyl alcohol virtually changed into non-excisable goods since 1-3-2005. It has been observed that Note 4 of Chapter 22 of the Tariff excludes liquor for human consumption. Rectified spirit and other varieties of denatured ethyl alcohol being only undiluted form of liquor for human consumption and usable for potable purposes are certainly excluded from the purview of Chapter 22 thereby do not remain as excisable goods. We find that in the present case, the stand taken by the Revenue that prior to 1-3-2005, Rectified spirit was not for human consumption and therefore it was classified under Heading 2204 as nil rate of duty. So, after 1-3-2005, it cannot be said that it is fit for human consumption. It is further observed that the exemption Notification No. 3/2005-C.E. would be extendable only to Heading No. 2207 2000 denatured ethyl alcohol and other denatured spirits, of any strength . It has also observed that though the not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming the recovery of demand of ₹ 6,35,38,125/- [on 8,22,500 Ltrs. of Molasses- para 71.ii of the impugned order] and of ₹ 5,34,03,535/- ( para 71.iv of the impugned order) alongwith penalties imposed in this regard are hereby set aside matter is remanded to the original adjudicating authority to verify the fact of reversal or payment of Cenvat credit pertaining to inputs in the products not chargeable to any duty or where they are exempted or non-excisable ; and in the light of the above discussions pass the fresh order within the four months of receipt of this order but after giving necessary opportunity of personal hearing and submission of documents to the appellant. 9. Further, the impugned order confirms the demand of ₹ 48,48,388/- mainly on the reason that this amount of Cenvat credit pertains to the inputs and input services used in the manufacture of exempted goods namely, electricity, press mud, bagasse. However, the appellant has maintained that the said demand is wrongly been confirmed as the computation of the department in this regard is incorrect and the appellant correctly made the computation of their liability of reversal of Cenvat credit, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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