Customs, Excise and Gold Tribunal - Bangalore
The Godavari Sugar Mills Ltd. And Renuka ... vs The Commissioner Of Central Excise, ... on 30 November, 2006
ORDER T.K. Jayaraman, Member (T)
1. These appeals have been filed against the following OIOs given in the tabular form.
Appeal No. Arising out of OIO Appellants Passed by E/999/2005 No. 21/2005 Commr. Dated 3.8.2005 The Godavari Sugar Mills Ltd.
The Commissioner of Central Excise & Customs, Belgaum E/468/2005 No. 10/2005 Commr. Dated 2.3.2005 The Godavari Sugar Mills Ltd.
-do-
E/310/2006 No. 39/2005 (Commr.) dated 20.12.2005 M/s.
Renuka Sugars Ltd.
-do-
E/795/2006 No. 01/2006-07 (R.P) dated 1.5.2006 M/s.
GMR Industries Limited The Commissioner of Central Excise & Customs, Visakhapatnam
2. M/s. Godavari Sugar Mills manufacture sugar and molasses. They are availing cenvat credit on capital goods and inputs used in relation to the manufacture of the above products. They also have a Distillery within the premises of the sugar factory. The molasses manufactured in the sugar unit is cleared to the Distillery on payment of duty. The molasses is used for manufacturing Rectified Spirit and Denatured Spirit and ethanol. Rectified Spirit is an exempted product. Therefore, the appellant pays an amount equal to the cenvat credit attributable to molasses utilized for the manufacture of the Rectified Spirit so cleared. Denatured Spirit and Ethanol being dutiable products, the appellant pays duty on clearance by utilizing the credit availed on the Molasses. The department held the view that the appellant is not entitled for cenvat credit for duty paid on the quantity of molasses manufactured within the factory and cleared to their own Distillery Revenue relied on Board's Circular No. 615/6/2002-CX dated 4.2.2002. A Show Cause Notice was issued. The Adjudicating Authority passed the impugned order No. 21/2005 dated 8.8.2005. in the impugned order, the irregular credit on a quantity of 26,221.22 MTs of molasses from 1.4.2004 to 31.12.2004 has been ordered for recovery in terms of Rule 12 of Cenvat Credit Credits Rules, 2002. Interest under Rule 12 of Cenvat Credit Rules, 2002 and penalty of Rs. 10/- laksh has been imposed in terms of Rule 13(1) of Cenvat Credit Rules, 2002.
2.1 Similarly in Order No. 10/2005 dated 2.3.2005, the Adjudicating Authority has confirmed a demand of Rs. 2,47,53.225/- for the period from 1.10.2003 to 31.3.2004. Interest under Section 11AB has been demanded. A penalty of Rs. 10 lakhs has been imposed in terms of Cenvat Credit Rules, 2002.
2.2 Shri P.S. Manjunath, learned advocate appeared for the appellants and Shri R.K. Singla, learned JCDR appeared for the Revenue.
2.3 The learned advocate urged the following submissions.
(i) The molasses produced by the appellants is cleared on payment of Central Excise duty by issue of invoice to the Distillery Unit and the molasses is used in the production of both dutiable and non-dutiable ethyl alcohol. The credit in respect of non-dutiable ethyl alcohol is reversed. Only in respect of the clearance of dutiable ethyl alcohol, the credit is utilized. Therefore, there is no violation of any provisions of Central Excise Rules.
(ii) The Adjudicating Authority erred in holding that the Government of India Notification 67/1995 Central Excise dated 16.3.1995 has application to the facts of the case. Since Rectified Spirit is not dutiable, the said Notification has no application to the facts of the case.
(iii) The Adjudicating Authority erred in not noticing that the only provision that is applicable to the facts of the present case are Rule 6(3)(a) and Explanation 1. Under Rule 6(3) of Cenvat Credit Rules, 2002 where the manufacturer does not opt to maintain separate account under Rule 6(2), the manufacturer shall pay an amount equal to Cenvat Credit attributable to inputs used in or in relation to the manufacture of such final products viz., goods falling within the heading No. 22.04 of the First Schedule to the Tariff Act at the time of their clearance from the factory and as per Explanation 1, the amount mentioned in conditions (a) and (b) shall be paid by the manufacturer by debiting the Cenvat credit or otherwise.
(iv) The following case laws were relied on.
a. Chandrapur Magnet Wires (P) Ltd. v. CCE, Nagpur .
b. Final Order No. 852/2004 in the case of Ugar Sugar Works v. CCE, Belgaum (Tri.-Bang.) c. CCE, Lucknow v. Kesar Enterprises Ltd.
3. In respect of M/s. Renuka Sugars Ltd., Revenue felt that the appellant availed exemption in terms of Notification No. 67/95-Central Excise dated 16.3.1995 for the molasses captively used and such availment is not in order. In the appellant's unit, the molasses cleared for captive use was used in the manufacture of ethyl alcohol (pure Rectified Spirit), which is not dutiable. A part of the Rectified Spirit was converted to Denatured Spirit after adding denaturing elements. Denatured Spirit is cleared on payment of duty. Show Cause Notice was issued and the Adjudicating Authority in the impugned order demanded duty amounting to Rs. 2,70,85,335/- on molasses cleared for captive use without payment of duty from September 2004 to July 2005 under Section 11A of the Central Excise Act, 1944. Further, a credit of Rs. 38,96,515/- was disallowed for the period from September 2004 to July 2005 under Rule 14 of the Cenvat Credit Rules, 2004. Interest was also demanded under Section 11AB. Penalty of Rs. 3,09,81,850/- was imposed under Rule 25 of Central Excise Rules, 2002 read with Rule 15 of the Cenvat Credit Rules, 2004.
3.1 Shri V.B. Gaikwad, learned advocate appeared for the appellants and urged the following points.
(i) The molasses though is converted into Rectified Spirit (exempted/non-excisable) first, still part quantity of the same is further used in or in relation to the manufacture of Denatured Spirit (dutiable) and denatured ethanol (dutiable) and hence, it is clear chat molasses is not only used in the manufacture of Rectified Spirit but also in the manufacture of Denatured Spirit as well as denatured ethanol.
(ii) While selling the Rectified Spirit, the quantity of molasses used in or in relation to the manufacture of the said quantity of rectified spirit is determined and appropriate duty/Cenvat credit is paid/reversed on the said quantity of molasses as prescribed in Rule 6 of the Cenvat Credit Rules, 2004. Hence, denial of Cenvat Credit/exemption under Notification 67/95 Central Excise dated 16.3.95 as amended by Notification No. 31/2001 Central Excise dated 1.6.2001 is unwarranted.
(iii) The decision of Madhukar SSK Ltd. relied upon by the Department has not taken cognizance of the amendment made to Notification No. 67/95-Central Excise dated 16.3.95 vide Notification No. 31/2001-Central Excise dated 1.6.2001 wherein exemption is extended even if exempted final products are manufactured provided procedure under Rule 6 of the Cenvat Credit Rules is followed.
(iv) Even otherwise, strictly speaking, the exemption under Notification No. 67/95 Central Excise dated 16.3.95 and Cenvat Credit are being availed only on that quantity of molasses which is used in the manufacture of Denatured Spirit/Denatured ethanol as the duty/Cenvat Credit on molasses used in the manufacture of Rectified Sprit is being paid/reversed at the time of sale of Rectified Spirit. Thus, the practice has not caused any loss to revenue and interest of revenue is properly safeguarded. This is proved from the fact that as against the total demand of Rs. 3,09,81,850/- on molasses, there is payment/reversal of duty/cenvat credit on molasses of Rs. 3,46,50,110/-.
(v) Thus the demand is not sustainable in view of revenue neutrality and imposition of equivalent penalty is unjust and arbitrary. Fort he same reason, there is no question of recovery of any interest under Section 11AB. The following cases have been relied on.
a. Jaypee Rewa Cement v. CCE b. Shree Ramakrishna Steel Industries Ltd. v. CCE .
c. Vam Organics v. CCE (affirmed by the Supreme Court 1996 (84) ELT A 169 (SC).
d. CCE v. Flex Lamination e. Polychem Ltd. v. CCE .
f. SAIL v. CCE g. Arya Filaments v. CCE h. Oriental Carbon & Chemicals Ltd. v. CCE .
j. Shivalik Agro Poly Products Ltd. v. CCE k. CCE v. Kothari Products 2002 (148) ELT 1056 l. Bhor Industries Ltd. v. CCE 2001 (138) ELT 224 m. CCE v. Polyolefins Industries Ltd. 2001 (138) ELT 567
4. In respect of M/s. GMR Industries Limited, on similar facts, the Adjudicating Authority in his order 1/2006 dated 1.5.2006 demanded duty of Rs. 1,19,56,350/- plus Cess of Rs. 2,39,127/- on molasses used in the manufacture of Rectified Spirit during the period from march 2005 to September 2005 under Section 11A(i) of the Central Excise Act, 1944. The Cenvat credit taken on capital goods used in Ethanol plant has also been denied.
4.1 Shri N. Venkataraman, learned Sr. Advocate and Shri S. Muthuvenkataraman, learned advocate appeared for the appellant. They urged the following points.
(i) In respect of the molasses captively consumed for the manufacture of Rectified Spirit and impure spirit, the learned advocate urged that the appellants are entitled for taking credit, provided the obligations prescribed in Rule 6 of Cenvat Credit Rules are followed. Further, it was pointed out that Rule 6(3)(a)(i) specifically refers to goods falling under 22.04 of the First Schedule (Current Heading 22 07 2000 of the Central Excise Tariff Act, as amended by Act 4 of 2005) and consequently the obligation of the appellants would be to reverse the credit availed on inputs viz., various chemicals and once the credit is reversed, the appellants would be entitled to the benefit of captive consumption Notification No. 67/95-CE dated 16.3.1995 on the molasses used in the manufacture of Rectified Spirit and Denatured Spirit.
(ii) The total input credit that needs to be reversed during the disputed period is Rs. 1,30,389/- whereas even according to the Order-in-Original, the appellants have paid a sum of Rs. 83,51,500/- by paying an amount equal to 10% on rectified spirit. What needs to be done is only reversal of input credit under Rule 6(3)(a) whereas the appellants have paid more than in excess in terms of Rule 6(3)(b) and therefore, the appellants would be entitled to captive consumption benefit on molasses under Notification No. 67/95-CE dated 16.3.1995.
(iii) Reliance is placed on the decision of the Tribunal in the case of Sri Sarvaraya Sugars Ltd. v. CCE & C - Final Order No. 1749/2006 dated 12.10.2006.
(iv) The Adjudicating Authority has dealt with the utilization of Cenvat Credit on capital goods, inputs and input services for payment of excise duty on sugar and other excisable products. He has held in the impugned order that on the date of passing of the order, the ethanol plant has been used only for production of exempted products (Rectified Spirit) and therefore, credit is not available and the same would be made available to the appellant on commencement of production of ethanol. The above finding is incorrect because in Para 7 of the Show Cause Notice, it is stated that the appellants are producing both Rectified Sprit (which is not excisable) and Denatured Spirit (which is dutiable), therefore the above finding of the Commissioner is not maintainable. Reliance is placed on the following decisions.
a. Excel Industries Ltd. v. CCE .
b. CCE v. Sudarsanam Spinners Ltd. .
6. The learned JCDR & JDR reiterated the Orders-in-Original in all these appeals.
7. We have gone through the records of the case carefully. The main issue involved in all these appeals is whether the modvat credit availed in respect of the molasses used for manufacture of Rectified Spirit and Denatured Spirit, is in consonance with Rule 6 of Cenvat Credit Rules 2002 read with Notification No. 67/95 CX when the credit attributable to exempted rectified spirit is paid/reversed.
7.1 In respect of M/s. Godavari Sugars Ltd., the appellants pay Central Excise duty on the molasses cleared to their Distillery Unit avail the credit on the same for manufacture of Rectified Spirit. A part of Rectified Spirit is converted to Denatured Spirit. The contention of the department is that the appellants cannot take credit of the duty paid on molasses because the final product Rectified Spirit is not liable to pay Central Excise. On this ground, the Modvat credit has been denied. In respect of M/s. Renuka Sugars Ltd. the appellants have cleared the molasses without payment of duty availing exemption under Notification 67/95. In the case of M/s. GMR Industries, the benefit of notification for captively consumed molasses has been availed. However, in all the cases the appellants have reversed the cenvat credit attributable to exempted product.
7.2 It is the contention of the appellants that the reversal satisfies the conditions of Notification 67/95 read with Rule 6 of Cenvat Credit Rules, 2002. 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 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. According to Revenue, when molasses is used in the manufacture of Rectified Spirit, the Rectified Spirit, which emerges, is not excisable. Therefore, the Notification benefit cannot be available. This is the main contention of the Revenue for denying the benefit of Notification to molasses captively consumed. However, it is the appellant's contention that the molasses is not completely used for the production of exempted/non-dutiable product because a part of Rectified Spirit is converted to Denatured Spirit, which is dutiable. Our attention was invited to amendment to Notification No. 67/95 CE by Notification No. 31/2001 CE 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. This is the point urged by the appellants. 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. Once he exercises the option, it is sufficient if he pays 10% of the sale price of the exempted products. But certain goods have been specified in respect of which the obligation would be to reverse the credit attributable to the inputs used in the manufacture of exempted final products. In the present case, Rule 6(3)(a)(i) specifically refers to goods falling under 22.04 of the First Schedule (presently 22 07 20). In other words, 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. This obligation, from the records of the case appears to have been discharged in respect of all the appellants. 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.
7.3 In respect of the Appeal No. E/795/2006 of M/s. GMR Industries, the Cenvat Credit on capital goods and inputs used in the ethanol plant has been denied on the ground that on the date of passing the adjudication order, ethanol plant has been used only for production of exempted products. This finding is incorrect, as Para 7 of the Show Cause Notice concedes that the appellants are producing both Rectified Spirit and Denatured Spirit. In these circumstances, the demand in respect of the credit on capital goods, inputs and inputs services availed and utilized in ethanol plant cannot be sustained. They have already referred to the Show Cause Notice. In view of the above finding, the levy of penalties and demand of interest are also not sustainable. We set aside the above Orders-in-Original and allow these appeals with consequential relief.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)