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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 ..... 00 00 of the First Schedule to the Central Excise Tariff Act, 1985 (hereinafter, also referred to as "CETA") are generated. ii. In the Distillery Section they are manufacturing Ethyl Alcohol or Rectified Spirit (RS) and Extra Neutral Alcohol (ENA), Special Denatured Spirit or Denatured Ethyl Alcohol (CET ITEM 2207 20 00). iii. The appellant is removing Cane Sugar, Special Denatured Spirit or Denatured Spirit or Denatured Ethyl Alcohol on payment of duty. iv. The item Molasses is partly being removed for home consumption, on payment of duty and remaining quantity is transferred, without payment of duty, to the Distillery Section for the manufacture of Ethyl Alcohol or Rectified Spirit (RS) and Extra Neutral Alcohol (ENA). v. The other items i.e., Bagasse, Press mud and Electricity are exempted excisable goods, which are being removed without payment of duty or are captively consumed within the factory. vi. The items Ethyl Alcohol or Rectified Spirit (RS) and Extra Neutral Alcohol (ENA) are not excisable goods, and are removed without payment of Central Excise duty. vii. The appellant has been availing Cenvat Credit on the inputs and input services used in or in relation to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant up to the stage of Sugar Section are excisable goods. The goods such as Ethyl Alcohol, Rectified Spirit and ENA (Extra Neutral Alcohol) etc produced in the Distillery Section are non excisable goods except for the limited portion of SDS (Special Denatured Spirit) manufactured from RS (Rectified Spirit). iii. The goods which are not mentioned in Tariff are non-excisable goods and cannot be regarded as 'exempted goods'. The Molasses consumed in the manufacture of non-excisable goods i.e., RS and ENA (sold as such) & Bio-compost cannot be treated as input for the purpose of availing of Cenvat Credit under CCR, 2004. iv. Since the appellant is not maintaining separate accounts or having separate facility for storage/consumption of the Molasses consumed in the production of above said non-excisable goods, they were liable to reverse the Cenvat Credit along with interest (from the date of the availment of Cenvat Credit on such Molasses) on the quantity of Molasses used in the manufacture of above said non-excisable goods on the date on which the Molasses were issued for such use. v. Further, the appellant is required to pay duty, on the clearances of Molasses, from the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If these goods were not excisable, there was no need to exempt payment of duty on the same through the exemption notification. The notification was issued specifically to preserve the existing duty rates on specified commodities in view of the changes made 6-digit to 8-digit classification of excisable goods with effect from 01.03.2005. IV. The appellant is entitled to take benefit of the exemption notification no. 67/95-CE and rule 6(3) of Cenvat Credit Rules for molasses used in the Distillery for production of excisable goods even if some of the goods produced in the course of integrated manufacturing process are considered as non excisable products. In Kothari Sugar and Chemicals Ltd vs Commissioner, 2010 (262) ELT 545 (Tri.), this Hon'ble Tribunal has held that benefit of exemption under Notification No. 67/95-CE., could not be denied to molasses used for production of denatured ethyl alcohol even when alcoholic liquor for human consumption which is non-excisable is also produced. V. Rule 6(1) of the Cenvat Credit Rules, 2004 has been amended by notification no. 6/2015-CE dated 01.03.2015 by inserting an explanation to this rule which states that exempted goods shall inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section to Distillery Section. iii. Further, the provision of reversal of Cenvat Credit on inputs under Rule 6 of CCR, 2004 is applicable for the manufacture of Excisable Goods only and not on Non-excisable goods. Therefore, the party is not entitled for any proportionate reversal of Cenvat Credit on inputs used in the manufacture of Non-excisable goods under Rule 6(3) (ii). 7. The facts of the case and submissions of both the sides have been carefully considered. 8. The impugned order makes a mention that the appellant removed/transferred 8,22,500 litres Molasses from Sugar Section to Distillery Section without payment of duty under Notification No. 67/95 C.E., dated 16.03.1995, (supra) as amended, for the manufacture of non-excisable goods viz, Undenatured Ethyl Alcohol or Rectified Spirit (RS) and Extra Neutral Alcohol (ENA). The impugned order says that Notification No. 67/95 CE (supra) as amended provides exemption from payment of duty on the specified inputs and capital goods manufactured in a factory and used within the factory of production in or in relation to the manufacture of all dutiable goods falling under the First Schedule to the Central Excise Tariff Act, 1985; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the Tribunal in the case of Sakthi Sugars Ltd. v/s CCE, Salem 2008 (230) ELT 676 (Tri-Chen.) holds otherwise, stating that benefit of exemption Notification No. 67/95 (supra) is available for Molasses captively consumed in manufacture of Rectified or Denatured Spirit, if the Cenvat Credit attributable to inputs in the exempted products is reversed or paid. But from the facts it is not clear if in the present case the appellant has factually reversed Cenvat Credit pertaining to the inputs in the products not chargeable to any duty or where the products are exempted or 'non-excisable'. If the fact of cenvat credit reversal or its payment is proved by records, the appellant would be entitled to the benefit of Notification number 67/95 (supra) in respect of Molasses used captively for manufacture of Rectified Spirit (RS) and Extra Neutral Alcohol (ENA). It is made clear again that for the present facts whether goods manufactured are non-excisable or exempted goods or chargeable to nil rate of duty, they are to be treated on the same plane. 8.3. In the case of Sakthi Sugars Ltd. (supra) the revenue filed an appeal before Hon'ble Supreme Court; however this appeal of the Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CETA covers Rectified Spirit and ENA, NIL rate of duty. The appellants were eligible to avail the Cenvat credit on the molasses captively used in the manufacture of dutiable and exempted products. The appellants reversed the amount under Rule 6 of the Cenvat Credit Rules, 2004 at the time of clearance of the exempted Denatured Ethyl Alcohol including Rectified spirit. According to Revenue, after restructuring of the Tariff from 6 digit to 8 digit, Denatured Ethyl Alcohol would become non-excisable and therefore the appellants are not eligible to avail the benefit of the exemption Notification No. 67/95-C.E. (supra) in respect of molasses used in the manufacture of Denatured Ethyl Alcohol including Rectified spirit. 8.2 It is appropriate to look into the changes of Chapter 22 and the Notification as under :- I) As on 1st March, 1994, Chapter 22 covers beverages, vinegar and spirit. Note to Chapter 22 states that this Chapter does not cover alcoholic liquors for human consumption. The Tariff description of Heading No. 22.04 is reproduced below :- Heading No. Sub-heading Description of goods (1) (2) (3) 22.04 2204.00 Ethyl Alcohol of any strength whether denatured o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nafter referred to as the said Special Importance Act), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts - (i) capital goods as defined in the CENVAT Credit Rules, 2002 manufactured in a factory and used within the factory of production; (ii) goods specified in column (1) of the Table hereto annexed (hereinafter referred to as „inputs‟) manufactured in a factory and used within the factory of production in or in relation to the manufacture of final products specified in column (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 24-2-2005 was issued to preserve the existing duty rate. So, it is clearly evident that the Rectified Spirit existing NIL rate of duty under sub-heading No. 2204.90 has been covered under Serial No. 14 of the Table appended to Notification 3/2005-C.E. (supra). In view of the above Board Circular, we find merit in the submission of the learned Advocate that with effect from 28-2-2005, Rectified Spirit 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 Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31. A perusal of the „Note‟ appended below the Notification dated 24-2-2005 as well as the statement made by the Hon‟ble Finance Minister in Parliament, as referred to above, clearly establishes that the notification has taken care of the technical changes adopted in the numbering scheme of 6 digits Central Excise classification, which has been aligned with the Customs Tariff 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be said that with effect from 1-3-2005, it became non-excisable. The relevant portion of the said decision is reproduced below :- "4. The appellant manufactures Sugar and Molasses. From the molasses, Rectified spirit is produced. Rectified spirit is denatured and de-natured spirit is also manufactured. The appellant takes Cenvat credit on the molasses used in the manufacture of Rectified 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held that molasses used for manufacture of Rectified spirit and denatured spirit, part of Rectified spirit converted into denatured spirit which is dutiable, benefit of Notification No. 67/95-C.E. is available provided the manufacturer discharges the obligation prescribed under Rule 6 of the Cenvat Credit Rules. In that case, it was observed that the Rectified spirit covers under 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee appellant would be entitled to the benefit of exemption under Notification No. 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'. Consequently the impugned order confirming the recovery of demand of Rs. 6,35,38,125/- [on 8,22,500 Ltrs. of Molasses- para 71.ii of the impugned order] and of Rs. 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 Rs. 48,48,388/- mainly on the reason that this amount of Cenvat credit pertains to the inp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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