Custom, Excise & Service Tax Tribunal
Sagar Industries & Distilleries Pvt Ltd vs Commissioner Of Central Excise And ... on 16 May, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
MUMBAI
REGIONAL BENCH - COURT NO. I
E-Hearing
EXCISE APPEAL No. 85648 of 2015
[Arising out of Order-in-Original No. 06&07/CEX/2014 dated 11.12.2014 passed by the
Commissioner of Central Excise, Customs & Service Tax, Nashik-I]
Sagar Industries & Distilleries Pvt. Limited .... Appellants
Gat No.48, Village Dayahane
P.O. Paregaon - 422 215
Taluk Chandwad, Nashik District.
VERSUS
Commissioner of Central Excise .... Respondent
Nashik Commissionerate Kendriya Rajaswa Bhavan 2nd Floor, Annex Building R.G. Gadkari Chowk, Old Agra Road Nashik - 422 002.
APPEARANCE:
Ms. Padmavati Patil, Advocate for the Appellants Shri P.K. Acharya, Authorized Representative for the Respondent CORAM:
HON'BLE MR. S.K. MOHANTY, MEMBER (JUDICIAL) HON'BLE MR. M.M. PARTHIBAN, MEMBER (TECHNICAL) FINAL ORDER NO. A/86996/2024 Date of Hearing: 16.05.2024 Date of Decision: 16.05.2024 PER: M.M. PARTHIBAN This appeal has been filed by M/s Sagar Industries & Distilleries Private Limited, Nashik (herein referred to as 'the appellants' for short) assailing Order-in-Original No. 06&07/CEX/2014 dated 11.12.2014 (referred to, as 'the impugned order') passed by the Commissioner of Central Excise, Customs & Service Tax, Nashik-I.
2.1 The facts of the case, leading to this appeal, are summarised herein below:
2E/85648/2015 2.2 The appellants were engaged in the manufacture of Extra Neutral Alcohol, Rectified Spirit, Denatured Rectified Spirit, Liquid CO2 falling under Chapter Headings No. 22 and No.28 of the First Schedule to the Central Excise Tariff Act, 1985. Rectified Spirit (un-denatured Ethyl Alcohol) manufactured by the appellants is not subjected to Central Excise Duty and the appellants were holding State Excise Licence for the same. The appellants had purchased molasses from outside their factory, and subjected the same to process of fermentation to make rectified spirit and simultaneously during the course of fermentation to make rectified spirit, liquid CO2 chargeable to the central excise duty under tariff item 2811 2190, Methane chargeable to the central excise duty and fusel oil chargeable to central excise duty also emerges as final products. Further part of the rectified spirit is converted into denatured rectified spirit which is cleared on payment of central excise duty and the balance portion of rectified spirit is cleared as such, on payment of duty at the rate of 6% of value of rectified spirit, by treating the same as exempted goods. The appellants were availing CENVAT credit of the duty of excise paid on molasses purchased from outside and received under the cover of central excise invoices. Prior to 28.08.2005 denatured ethyl alcohol was classifiable under sub-heading No. 220410 and was subjected to central excise duty at the rate of 16% and other than denatured ethyl alcohol was classifiable under heading 220490 subjected to NIL rate of excise duty.
2.3 On adoption of 8-digit Central Excise Tariff, replacing the earlier 6 digit tariff with effect from 28.02.2005, heading 2204 was kept blank and the entry there to was shifted to heading 2207. In other words, post 28.02.
2005, with the adoption of the 8 digit tariff, the central excise tariff heading 2207 2000 covers 'Ethyl Alcohol and Other Spirits, Denatured, of any Strength'. Effective from 01.03.2005, Notification No.3/2005-C.E. dated 24.02.2005 was issued providing exemption to all spirits other than denatured alcohol of any strength, vide entry at Sl. No. 14 thereto.
2.4 The appellants have been taking CENVAT Credit of central excise duty paid on molasses and reverse the 6% credit attributable to rectified spirit, while clearance thereof. It has been prevalent practice for the industry in taking credit of duty paid on molasses and reversing proportionate or equal to specified percentage (6%) of CENVAT credit attributable to rectified spirit chargeable to state excise and this practice has also been accepted by the Department. However, the Department objected to such taking of CENVAT credit on molasses and at the insistence of the Department, the appellants 3 E/85648/2015 had paid presumptive duty for clearance of molasses for the period from 01.04.2014 to 31.07.2014. The Department had issued show cause notices (SCNs) dated 20.03.2014 and 11.09.2014, proposing to deny CENVAT credit taken on the entire quantity of molasses and also demanded central excise duty with interest, on the clearances of denatured rectified spirit and liquid carbon dioxide, during the disputed period by utilising such CENVAT credit, besides proposing to impose penalty on the appellants. The said SCNs were adjudicated by the learned Commissioner in confirmation of the adjudged demands in the impugned order. Feeling aggrieved with the said order, the appellants have filed this appeal before the Tribunal.
3.1 Learned Advocate for the appellants submitted that the issue of denial of CENVAT credit in respect of molasses used in manufacture ethyl alcohol and other spirits, and demand of central excise duty on the clearance of by products, by utilisation of such CENVAT credit, is no more disputable. In this regard, they relied upon the decision of this Tribunal in Final Order No. A/87052-87053/16/EB dated 15.04.2016 - 2016 (344) E.L.T. 537 (Tri. - Mum.) passed, the appeal preferred by self-same appellants for the earlier period April, 2007 to March, 2013, wherein the Tribunal have held that CENVAT credit of central excise duty paid on molasses is admissible.
3.2 Learned Advocate further submitted that the exemption provided by the government under Notification No.03/2005-C.E. (Sl. No.14) and the succeeding Notification No.12/2012-C.E. (Sl. No.40), shows that the intention of the government is always to treat denatured spirit is excisable goods and hence, the exemption under the said notifications were granted. She further submitted that as per Rule 6(3)(a) of the CENVAT Credit Rules, 2004 (CCR) there was a requirement of reversal of credit of CENVAT taken on molasses in proportion to utilization thereof in the manufacture of ethyl alcohol upto 31.03.2008 and thereafter, on substitution of Rule 6(3) ibid w.e.f. 01.04.2008, by Notification No.10/2008-C.E. (N.T.) dated 01.03.2008, an option of either paying an amount equal to specified percentage of the value of exempted goods or paying an amount as per the formula under Rule 6(3A) has been prescribed. Accordingly, the appellants have continued to avail the CENVAT credit on molasses and paid 6% duty on Rectified Sprit, treating the same exempted goods. Thus, she claimed that there is no contravention of CENVAT statute by the appellants.
3.3 In support of their stand, learned advocate also relied upon the judicial pronouncement in the following cases:
4E/85648/2015
(i) Sagar Industries & Distilleries Pvt. Ltd. Vs. Commissioner of C.Ex. & Customs, Nasik - 2016 (344) E.L.T. 537 (Tri. - Mumbai)
(ii) Rajshree Sugars & Chemicals Ltd. Vs. Commissioner of Central Excise, Puducherry; Dharani Sugars & Chemical Ltd. Vs. Commissioner of Central Excise, Tirunelvel; Shree Ambika Sugars Ltd. Vs. Commissioner, LTU, Chennai; Dharani Sugars & Chemicals Ltd. Vs. Commissioner of Central Excise, Puducherry - 2016 (343) E.L.T. 462 (Tri. - Chennai)
(iii) Commissioner of Central Excise & Service Tax Vs. Dharani Sugars & Chemical Ltd. - 2017 (345) E.L.T. A69 (S.C.) 3.4 On the above basis, learned advocate pleaded that the impugned order is liable to be set aside and therefore the appeal preferred by them, may be allowed.
4. On the other hand, learned Authorised Representative for Revenue reiterated the findings of the Commissioner in the impugned order, and submitted that denatured spirits find mention in the central excise tariff only after 01.03.2005. Therefore, molasses used in the manufacture of rectified spirit are treated as though used in the manufacture of non-
excisable goods. Thus, the chain of CENVAT credit gets broken at that stage. Therefore, he submitted that since molasses is a dutiable goods captively consumed in the manufacture of non-excisable goods, the appellants are not eligible for availing CENVAT credit of the central excise duty paid on molasses. Further, he stated that CBEC have clarified that Notification No.03/2005-C.E. have been issued to preserve the duty rates on goods prior to the restructuring of the tariff. Thus, he claimed that even if the rectified spirit was considered as excisable, they remain exempted. Therefore, he prayed that the appeal preferred by the appellants is liable to be set aside.
5. Heard both sides and perused the records of the case. We have also perused the additional written submission made in the form of paper book submitted by both sides.
6. The issue for consideration before the Tribunal in this case relates to the following:-
(i) utilisation of CENVAT credit taken on the input viz., molasses used for manufacture of Un-denatured ethyl alcohol (Known as rectified spirit) and other excisable goods, is admissible as input credit under CENVAT Credit Rules, 2004 or not?.5
E/85648/2015
(ii) whether penalty is impossible on the appellants under Rule 15(1) of CENVAT Credit Rules, 2004 or not?
7. On perusal of the case records, we find that the aforesaid issues have been already dealt in by the Coordinate Bench of the Tribunal in the case of self-same appellants in Final Order No. A/87052-87063/2016/EB dated 15.04.2016 - 2016 (344) E.L.T. 537 (Tri. - Mumbai). In these cases, the Tribunal have set aside the adjudication orders confirming the adjudged demands by holding that CENVAT Credit rules, 2004 (CCR) permit an assessee to take credit of duty paid on molasses subject to the compliance of Rule 6 ibid, and have held that recovery of duty on goods cleared by utilisation of such CENVAT credit is not required. The relevant paragraphs of the said order is extracted and given below:
"4. The Schedule to the Central Excise Tariff Act, 1985 at Heading No. 22.04 describes the relevant goods as 'ethyl alcohol of any strength whether denatured or not, but not including alcoholic liquor for human consumption' and segregates the taxable items as
- denatured ethyl alcohol of any strength (2204.10)
- other (2204.90) Upon transformation from six digit code for tariff to eight digit code with effect from 28th February, 2005, the entry relating to ethyl alcohol was placed at 2207 as 'ethyl alcohol and other spirits, denatured, of any strength and to restrict further classification to
- Ethyl alcohol and other spirits, denatured, of any strength (220720 00) Notification No. 3/2005-C.E., dated 24th February, 2005 extended exemption from excise duty to all spirits other than denatured ethyl alcohol of any strength.
5. The issue in dispute relates to 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. Rectified spirit cleared, as such, was considered as exempt goods and denatured spirit as excisable goods. The appellants resorted to reversal of credit in accordance with Rule 6(3)(a) of Cenvat Credit Rules, 2004 till 31st March, 2008. Thereafter, the option of paying an amount equal to specified percentage of value of exempted goods or paying such amount as determined by formula in Rule 6(3A) of Cenvat Credit Rules, 2004 was being followed.
6. Rule 6(1) of Cenvat Credit Rules, 2004 forbids recourse to credit of duty paid on inputs used in or in relation to manufacture and clearance of exempted goods except as provided for in the Rules. Subject to maintenance of separate accounts of receipt, consumption and inventory of inputs for manufacture of excisable and exempt goods, Cenvat credit is allowed to be taken under Rule 6(2) for manufacture and clearance of excisable goods. Should such separate accounts be not maintained, Rule 6(3), manufacturers have the option to pay an amount 6 E/85648/2015 equal to 6% of value of exempted goods or an amount determined under Rule 6(3A).
7. Appellants were issued with show cause notices for varying periods between April, 2007 to March, 2013 seeking to deny credit of duty paid on molasses during this period and to seek recovery of credit utilized for clearance of denatured rectified spirit. The claim of Revenue was that reversal of proportional Cenvat credit was not sufficient compliance of obligations under Rule 6 supra. The original authority rendered a finding that, with effect from 28th February, 2005, 'rectified spirit' was non- excisable owing to alteration of the tariff entry in the Schedule to the Central Excise Tariff Act, 1985 as discussed supra. He also disallowed the credit of duty paid on molasses on the ground that the final product is entirely non-excisable and, thus, exempt. Further holding that Rule 6(3)(i) was not required to be followed for non-excisable goods and conceding that the amount paid by the appellants in accordance with the said Rule, he permitted off-setting of the amount so paid towards the Cenvat credit disallowed.
xxx xxx xxx xxx
10. Having heard the rival contentions and perused the records, we observe that the issue, notwithstanding the various contentions regarding 'stop-start' manufacture and erasure of 'intermediate output' canvassed by the learned Authorised Representative which, in a way, extends beyond the show cause notices and the impugned orders, is limited to the issue of eligibility to take Cenvat credit on inputs and utilize such credit towards clearance of dutiable goods. The existence of rectified spirit, even if not excisable, is not deniable. Merely owing to non-dutiability or coverage under the entry empowering taxation as a duty of excise by the Union, it does not transform as a figment of the imagination. That it finds a place in the Tariff as it stood prior to 28th February, 2005 and in its altered form thereafter clearly evidences so. That it finds a place in an exemption notification reinforces the position. Admittedly, an exempted goods does emerge from the distillation. Most of these may have been cleared under the excise laws of the State; to the extent that they have been, it is akin to clearance of goods on which exemption notification has been claimed.
11. Denaturing of ethyl alcohol is an extension of the process of manufacturing a dutiable product commencing with molasses. Therefore, there can be no doubt that the appellants manufacture both exempted and dutiable goods using duty-paid molasses. It would appear that the appellants have been following the procedure laid down in Rule 6 of Cenvat Credit Rules, 2004 and reversing credit taken on inputs at the time of clearance of rectified spirit.
12. The Tribunal has consistently been taking the stand that in case of molasses used for manufacture of rectified spirit and denatured alcohol by distilleries, compliance with Rule 6 of Cenvat Credit Rules, 2004 is sufficient. In Vishwanath Sugars Ltd. v. Commissioner of C. Ex., Belgaum [2010 (250) E.L.T. 390 (Tri.-Bang.)], the Tribunal held that clearance of dutiable denatured spirit even for a part of the year was sufficient for allowing proportionate credit of duty paid on inputs used in common with exempted goods.7
E/85648/2015
13. Our attention is drawn to decision of the Hon'ble Supreme Court in the matter of Commissioner of Central Excise, Salem v. M/s. Sakthi Sugars Ltd. in CA D. No. 28938 of 2015 [2016 (332) E.L.T. A194 (S.C.)] filed by Revenue against order of Tribunal in Sakthi Sugars Ltd. v. Commissioner of Central Excise, Salem (Final Order No. 802/2007, dated 26th June, 2007) [2008 (230) E.L.T. 676 (Tri.- Chennai)]. The Hon'ble Supreme Court has accorded its approval to the order of the Tribunal by declaring that there were no sound reasons for interference with it. The decision of the Tribunal in that matter, therefore, acquires significance in resolving the present dispute. We also notice that in Re : Sakthi Sugars Ltd., the Tribunal placed reliance on Godavary Sugar Mills Ltd. and Others v. Commissioner of Central Excise [2007 (212) E.L.T. 234 (T)] which has been discussed supra.
14. In the matter before the Hon'ble Supreme Court, the Tribunal had ruled in favour of the assessee who manufactures rectified spirits and denatured alcohol from molasses produced by the assessee as a by- product of manufacture of sugar. The molasses was eligible for exemption from duty upon being captively consumed for manufacture of denatured spirits under Notification No. 67/95-C.E., 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. Citing the decision of the Tribunal in Re :
Godavary Sugars Pvt Ltd., it was observed that :
5. We have carefully considered the case records and the rival submissions. We find that disposing a couple of appeals involving similar facts the Bangalore Bench of the Tribunal in Para 7.2 of its Final Order Nos. 56 to 59/07, dated 30-11-2006 [2007 (212) E.L.T. 234 (T)] made the following observations :
"7.2 Notification 67/95 grants exemption from payment of duty on an intermediary product which is captively consumed for manufacture of excisable goods. Molasses is an excisable product. When molasses is used in the manufacture of some other excisable product, then the molasses captively consumed need not discharge any duty burden.
However, the entitlement to Notification No. 67/95 is subject to a condition. The condition is that the final product should be dutiable or otherwise the exemption would not be applicable. Our attention was invited to amendment to Notification No. 67/95-C.E. by Notification No. 31/2001-C.E., dated 1-1-2001. In terms of the said amendment, the appellants are entitled for the benefit of exemption notification in a situation where there is manufacture of both dutiable and exempted final products, provided the manufacturer discharges the obligation prescribed in rule 57AD of the Central Excise Rules, 1944, which is pari materia with Rule 6 of the Cenvat Credit Rules, 2002. What is the obligation under Rule 6 of the Cenvat Credit Rules, 2002? The obligation under Rule 6 of Cenvat Credit Rules, is that when a manufacturer uses input both for exempted and dutiable final products, he should maintain separate accounts because no Cenvat credit is available for the inputs used in exempted products. There is an option for the manufacturer not to maintain two separate accounts. 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. Therefore, the demand of duty in respect of the credit taken on molasses is not correct."
The above observations squarely cover the subject case. Following the ratio of the above decision, we allow the subject appeal filed by SSL.' From the above decision, it is clear that denatured alcohol is acknowledged as an excisable goods and 'output' in terms of Cenvat 8 E/85648/2015 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. The above decision approved by the Hon'ble Supreme Court would be applicable to both. It is, thus, amply clear that 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."
8.1 We further find that in similar set of facts, arising in the cases of Dharani Sugars & Chemical Ltd., Shree Ambika Sugars Ltd., Rajshree Sugars & Chemicals Ltd., Dharani Sugars & Chemicals Ltd. (supra), the Coordinate Bench of the Tribunal in Final Order Nos. 40789-40799/2014 dated 21.11.2014, have held that the phrase "all spirits" used the in the Notification No.03/2005-C.E. have wide amplitude irrespective of whether denatured or not. Thus, when the manufacturer is discharging the obligation under Rule 6 of CCR, 2004, by paying the value of exempted clearance, then they are eligible to take CENVAT credit in respect of molasses used in the manufacture of rectified spirit and Extra Neutral Alcohol (ENA). The relevant paragraph in the said order is extracted and given below:
"8.12 It is seen from the above, that after re-structuring of Central Excise Tariff from 6 Digit to 8 Digit with effect from 1-3-2005, Rectified Spirit and ENA are exempted by Notification No. 3/2005-C.E. (supra) and the appellant discharged the obligations under Rule 6 of the Cenvat Credit Rules, 2004 in respect of clearance of Rectified Spirit and ENA and therefore, denial of exemption Notification No. 67/95-C.E. (supra) on Molasses captively consumed in Rectified Spirit and ENA cannot be sustained. Accordingly, denial of Cenvat credit on the Molasses purchased from other sugar mill used in the manufacture of Rectified Spirit and ENA are also liable to be set aside. We have also noted that inputs and input service are not exclusively used for generation of electricity and therefore, Cenvat credit cannot be denied.
9. In view of the above discussion, we set aside all the impugned orders and allow the appeals with consequential relief, if any."
8.2 We further find that the issues in dispute in the aforesaid cases, were appealed against by the Department before the Hon'ble Supreme Court by filing various Civil Appeals. While dismissing these Civil Appeals in the above cases, the Hon'ble Supreme Court have held that the changes made in the tariff were pursuant to restructuring and adoption of 6 digit to 8 digit 9 E/85648/2015 tariff, and the benefits available to the appellants cannot be denied. The extract of the said judgement dated 16.02.2022 is given below:
10E/85648/2015 11 E/85648/2015
9. In view of the settled position of law, as discussed in the above referred cases, the issue arising out of the present dispute is no more open for any debate and as such, the impugned order dated 11.12.2014 passed by the learned adjudicating authority is liable to be set aside.
10. Therefore, the impugned order is set aside and the appeal is allowed in favour of the appellants.
(Operative portion of the order pronounced in open Court) (S.K. Mohanty) Member (Judicial) (M.M. Parthiban) Member (Technical) SM