Custom, Excise & Service Tax Tribunal
Bannari Amman Sugars Ltd vs Commissioner Of Central Excise, ... on 3 November, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeal(s) Involved: E/2436/2010, E/2437/2013-SM [Arising out of Order-in-Appeal No. 203/2010 dated 19/08/2010 passed by the Commissioner of Central Excise, Mangalore] Bannari Amman Sugars Ltd. Shri P. Manickavasagan, Former General Manager Alaganchi Village Nanjangud Taluk Mysore Appellant(s) Versus Commissioner of Central Excise, Customs and Service Tax, Mysore S1 & S2, Vinaya Marga, Siddharthanagar, Mysore 570 011 Respondent(s)
Appearance:
Shri P.C. Anand, Authorized Rep. No. 13, II Main Road, CIT Colony, Chennai 600 004 For the Appellant Smt Kavitha Poduval (AR) For the Respondent Date of Hearing: 19/07/2017 Date of Decision: 03/11 /2017 CORAM:
HON'BLE SHRI S.S GARG, JUDICIAL MEMBER Final Order Nos. 22702 - 22703 /2017 Per: S.S GARG These two appeals have been filed by Bannari Amman Sugars Ltd. and Shri P. Manickavasagan, General Manager, Bannari Amman Sugars Ltd. against the impugned order dated 19.08.2010 passed by the Commissioner (Appeals) whereby the Commissioner (Appeals) has upheld the Order-in-Original and rejected both the appeals filed by the company as well as General Manager. Briefly the facts of the present case are that the appellants are registered manufacturers of Sugar, molasses, Denatured Spirit, Ethanol and Fusel Oil falling under Ch 7 and 22 and availing cenvat credit on inputs, capital goods and input services. They are also having a co-generation plant for generating electric power which is used to meet the requirement of electricity of their sugar plant, Distillery, Residential colony etc. The electricity generated in excess of their requirement is sold to the State Grid, as per the power purchase agreement with KPTCL.
On gathering intelligence that the assessee were not complying with the provision of Cenvat Credit Rules 2004, the officers of the Division Preventive Mysore III Dn visited the factory premises and conducted detailed verification of records. It was seen that the assessee was availing cenvat credit in respect of input services like telephones, cleaning charges, freight, bank charges, C&F, R&M etc, which was utilized in the manufacture of both excisable and non-excisable goods. As the assessee was manufacturing dutiable and/or non-excisable goods they were required to fulfill Rule 3 and Rule 6 of CCR 2004. As the assessee was not maintaining separate account for receipt, consumption of inputs and input services, which were used both in the manufacture of dutiable and non dutiable goods, they were required to reverse the proportionate input service credit wrongly availed on the input services. It appeared that the assessee had contravened the provisions of Rule 2(1), Rule 3 and Rule 6(2) of CCR 2004, and assessee was therefore issued with a show-cause notice. After following the due process of law, the adjudicating authority vide Order-in-Original has confirmed various demands and also demanded interest and imposed equal penalty. Further the original authority has imposed a penalty of Rs. 50,000/- (Rupees Fifty Thousand only) on the General Manager under Rule 26 of Central Excise Rules, 2002. The adjudicating authority has also appropriated an amount of Rs. 10, 62, 521/- (Rupees Ten Lakhs Sixty Two Thousand Five Hundred and Twenty One only) already paid by the appellant. Aggrieved by the said order, appellant filed two appeals before the Commissioner (Appeals) and both the appeals were disposed of by the common impugned order. Since the issue involved is common therefore both the appeals are being disposed of by this order.
2. Heard both the parties and perused the records.
3. Learned consultant for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without considering the submissions of the appellant. He further submitted that the impugned order is contrary to the binding judicial precedent on the same issue. He further submitted that with reference to inputs and input services used in connection with the production of sugar, the adjudicating authority has not complied with Rule 3 read with Rule 4 and Rule 6 of Cenvat Credit Rules 2004 which categorically provided that they are eligible for cenvat credit in question. He also submitted that with reference to the input or input services which are otherwise used in the manufacture of same which is further used in the manufacture, the adjudicating authority ought not to direct any recovery on the simple premise that the inputs and input services are used only in the manufacture of dutiable final product i.e sugar. He also submitted that the imposition of penalty of Rs. 1,00,000/- (Rupees One Lakh only) on the General Manager under Rule 26 of the Central Excise Rules, 2002 is not sustainable in law as the General Manager has not violated any statutory provision under the Excise Act and he has not acted malafide. He further submits that as per the annexure to the show-cause notice which refers to the proposition of the value of non-excisable goods and the value of excisable goods as 94% and 6%. Consequently the amount of credit to be expunged has been arrived at Rs. 8,24,761/- (Rupees Eight Lakhs Twenty Four Thousand Seven Hundred and Sixty One only). He also submitted that instead of applying the same percentage for the input services credit, the Department considered a different methodology as seen from the work sheet attached, the proportion of power sold in terms of units has been considered and arrived at for the purposes of split percentage of 30:70. The input services in question in fact with reference to the co-generated plant and the condition had been stipulated only on the percentage of units produced vis-`-vis unit consumed within the factory. The co-generation produces both electricity and steam. The steam is fully utilized in the factory of production. However the Department has taken an unjustifiable stand that the percentage of split ought to be on production of the electricity consumed within the factory and that quantum wheeled outside the factory. He further submitted that in fact the Rule refers to the percentage which can be determined only based on value and not on quantity. In support of his submission, he relied upon the decision in the case of DSM Sugar Mills Vs. CCE, Meerut reported in 2014 (304) E.L.T. 582 wherein the Bench considered the case of electricity generated by using common cenvat credit availed inputs and the excess electricity was sold to UP Power Corporation. Even though the electricity is not an excisable goods as held by Allahabad High Court in Gularia Chini Mills reported in 2014 (34) S.T.R. 175, the Tribunal held that proportionate cenvat credit may be denied. However the Supreme Court on a review held that Rule 6(3) of Cenvat Credit Rules would not be applicable. He further submitted that the issue involved in the present case has been considered by the Division Bench of this Tribunal in the case of Sharad S.S.K. Ltd. Vs. CCE, Kolhapur 2014 (304) E.L.T. 595 (Tri.-Mumbai) wherein the identical issue was involved and the Division Bench of this Tribunal has remanded the case back to the adjudicating authority for re-computation of the demand keeping in view the judgment of the Alllahabad High Court in the case of Gularia Chini Mills cited supra.
4. On the other hand the learned AR reiterated the findings of the impugned order.
5. After considering the submissions of both the parties and the perusal of the material on record and the judgment of the Tribunal in the case of DSM Sugar Mills and Sharad S.S.K. Ltd. cited supra, I find that the appellant had reversed a sum of Rs. 10,30,586/- (Rupees Ten Lakhs Thirty Thousand Five Hundred and Eighty Six only) and Rs. 20,601/- (Rupees Twenty Thousand Six Hundred and One only) (as cess) before the issue of show-cause notice and further a sum of Rs. 10,474/- (Rupees Ten Thousand Four Hundred and Seventy Four only) and a education cess of Rs. 860/- (Rupees Eight Hundred and Sixty only) has been reversed by the appellant. Further I find that in considering the explanation of the electricity used for sale to the Karnataka State Grid the unit produced was considered whereas it should be the value of sale and not the unit in question which should have been considered. Further I also find that the entire issue hinges on an error made on calculation and therefore appears to be a computation mistake which needs to be re-computed. In this regard it is pertinent to reproduce para 6.3 of the decision in the case of Sharad S.S.K. Ltd. cited supra which is reproduced herein below:
6.3 From the records it is seen that the common inputs on which credit has been availed are (1) Sulphur, (2) Caustic soda, (3) Lubricant oil, (4) T-46, (5) Turbo oil, (6) Boiler Chemicals, (7) Flocculants, (8) Colour precipitate, (9) Grease and (10) Phosphoric acid. Of these inputs Sulphur, Caustic Soda, Boiler chemicals, Flocculants, Colour precipitate and Phosphoric acid has nothing to do with the generation of electricity and therefore, there is no need to reverse any credit taken in respect of these inputs. Similarly in the case of input services, common input services are (1) Inward Cane Transportation, (2) Telephone Services and (3) Maintenance & Repairs. Inward Cane Transportation has nothing to do with electricity generation. Telephone and maintenance or repair services will apply only when the same has been availed in respect of equipment used for generation of electricity. Therefore, reversal of credit is required only in respect of input services which have nexus with generation of electricity. The appellant is at liberty to lead evidence in this regard and if they are able to prove that the inputs and input services have no nexus with electricity generation, the question of reversal of credit taken will not arise at all. For this limited purpose the matter has to go back to the adjudicating authority for re-computation of the demand.
6. Therefore keeping in view the aforesaid discussion, this case needs to be remanded back to the original authority which will determine the amount which is required to be reversed. Before determining the said amount, the original authority will give an opportunity to the appellant to lead evidence and if the appellant is able to prove that the inputs and input services have no nexus with the electricity generation, the question of reversal of credit taken will not arise at all and therefore for this limited purpose, I am remanding the case to original authority for re-computation of the demand after setting aside the impugned order. The original authority will pass a de novo order after complying with the principles of natural justice within a period of three months from the receipt of the certified copy of the order.
(Order pronounced in Open Court on 03/11/2017) (S.S GARG) JUDICIAL MEMBER iss