Custom, Excise & Service Tax Tribunal
Trichy Distilleries And Chemicals Ltd vs Tiruchirapalli Ce&St on 17 March, 2023
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT NO. III
EXCISE APPEAL No. 497 of 2012
(Arising out of Order-in- Appeal No. 193/2012 dt. 30.08.2012 passed by Commissioner
of Customs &Central Excise(Appeals) No.1, Williams Road, Cantonment, Tiruchirappalli-
620 001.)
M/s. Trichy Distilleries & Chemicals Ltd., : Appellant
Senthanneerpuram,
Trichy - 602004.
VERSUS
The Commissioner of GST &Central Excise, : Respondent
No.1, Williams Road, Cantonment,
Tiruchirappalli-620 001
APPEARANCE:
Shri P.C. Anand, Consultant
For the Appellant
Shri. R. Rajaraman, Assistant Commissioner (A.R)
For the Respondent
CORAM:
HON'BLE MS. SULEKHA BEEVI C.S., MEMBER (JUDICIAL)
HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL)
FINAL ORDER NO. 40181 / 2023
DATE OF HEARING: 16.02.2023
DATE OF DECISION: 17.03.2023
Per: Mrs. SULEKHA BEEVI C.S.
Brief facts are that the appellants are engaged in
the manufacture of Industrial Alcohol and Chemicals and
is availing the facility of CENVAT Credit of the duty paid
on inputs, capital goods and service tax paid on input
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Appeal. No.: E/497/2012-DB
services. The appellant was also clearing 'Extra Neutral
Alcohol' which is potable and non-excisable. The main
input for ENA is molasses which is procured from outside.
The appellant vide letter dated 24.11.2009 had informed
the Jurisdictional Range Officer that they are planning to
produce ENA out of molasses procured from outside and
that they are storing it separately and not availing Credit
of duty paid on molasses as ENA is non-excisable. A part
of ENA (8 to 15%) which was impure was not cleared but
denatured.This denatured sprit (DNS) was consumed
captivity for the manufacture of Acetaldehyde. Appellant
did not pay duty on DNS in terms of notification no.
67/95-CE dated 16.03.1995 as DNS was captively
consumed. The department was of the view that, the
appellant is not eligible for input Credit in respect of DNS
which is the input for manufacture of Acetaldehyde as no
duty was paid on DNS. It was also noticed that appellant
was availing Credit on 'molasses' consumed in DNS which
was being captively consumed for manufacture of dutiable
products (Acetaldehyde). The appellant was availing
Credit on molasses, at the time of captive consumption of
DNS by backward calculation of content of molasses in
DNS. Though the appellant procured molasses on
payment of duty, they had no prescribed duty paying
documents for the duty paid on DNS and was availing
Credit on the basis of the calculation sheet.
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Further according to department the input for dutiable
products was DNS whereas Credit availed is on molasses
content in the DNS captively consumed which is not
eligible. It appeared to department that appellant was
availing credit on molasses which is exclusively used in
manufacture of non-excisable ENA which is irregular as
per explanation II to Rule 6 of CENVAT Credit Rules 2004.
Further that, molasses received for manufacture of non-
excisable ENA cannot be treated as inputs. SCN was
issued proposing to recover the ineligible Credit along
with interest and for imposing penalties. After due process
of law, the original authority confirmed the demand,
interest and imposed equal penalty. Aggrieved by such
order the appellant is now before the Tribunal.
2. The ld. Consultant Shri. P.C. Anand appeared and
argued for the appellant. The products manufactured and
cleared by the appellants are ethyl alcohol, acetaldehyde,
acetic acid, etc. The main input is molasses. The appellant
did not avail CENVAT Credit on the quantity of molasses
used in production of potable ethyl alcohol (ENA) as this
product is not dutiable product. This ENA which was not
pure, was denatured, and used in further manufacturing
process, resulting in dutiable finished products vig:
acetaldehyde. The appellant is eligible to avail Credit on
inputs used for manufacture of dutiable product. Instead
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of resorting to keeping separate accounts for the Credit
availed on exempted and dutiable products the appellant
has calculated the quantity of inputs used for dutiable
products and thus availed CENVAT Credit only in regard to
inputs used in the manufacture of dutiable products. The
appellant has thus availed only eligible Credit.
3. The Ld. Consultant submitted that the molasses used
in the production of DNS is duty paid molasses which fact
is not disputed. Every step of the process by which both
ENA and DNS are produced is documented and tightly
regulated and there is even a staff of the Excise
department who is present at all times in the factory. The
portion of the duty paid molasses contained in the DNS
which is captively consumed for manufacture of industrial
chemicals is clearly quantified and only credit in relation
thereto is taken in the CENVAT register maintained by the
appellant.
4. The main allegation of the department is that molasses
is used for manufacture of ENA which is non-excisable.
The ld. Consultant submitted that this issue as to whether
Credit is admissible on molasses used for manufacture of
dutiable final products when ethyl alcohol is produced in
the first stage which is non-excisable is no longer
res integra and settled by the decision of the Tribunal in
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Appeal. No.: E/497/2012-DB
the case of Rajshree Sugar & Chemical Ltd. 2016(343)
ELT 462 (Tri-Che.). The said decision was upheld by the
Apex Court as reported in 2017(345) ELT A30 (S.C.). The
decision in the case of Shree Ambika Sugar Ltd 2017
(343) ELT 462 (Tri-Che.) has also analysed similar issue.
This decision was also upheld as reported in 2017(345)
ETA 33(S.C.). The decision in the case of Dharani Sugars
[2016 (343) ELT 462 (Tri.-Che.) was also relied. It is
submitted that the same was upheld by the Hon'ble Apex
Court as reported in 2017(345) ELT A69 (S.C.). The Ld.
Consultant prayed that the appeal may be allowed.
5. The Ld. AR Shri R. Rajaraman supported the findings in
the impugned order.
6. Heard both sides.
7. The issue to be decided is whether CENVAT Credit
availed on the molasses is eligible or not. The department
is of the view that molasses is used for manufacture of
ENA which is non-excisable and therefore the credit is not
eligible. The case of the department is clear from para 48
where the original authority has observed as under:
" The contention of the assesse is not
correct since a harmonious reading of
Explanation III to Rule 6 of CCR with
Rule 2 (k) of CCR and Section 2(I) of the
CEA 1944 would lead to the conclusion
that the premises where non-excisable
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Appeal. No.: E/497/2012-DB
„ENA‟ is manufactured cannot fall under
the definition of factory and hence the
molasses received for the manufacture
of non-excisable „ENA‟ cannot be treated
as inputs „abinitio‟. Hence it is crystal
clear that in this issue molasses is not an
input at all as per CCR 2004. Even if it is
taken as input in academic interest the
credit on the same cannot be allowed
since it is exclusively used in the
manufacture of non-excisable „ENA‟ on
which no duty is payable. Further even if
the 15% impure „ENA" is denatured also
the credit on molasses is not eligible
since this denatured alcohol is exempted
since captively consumed."
8. In para 4.2 the Commissioner (Appeals) held as under:
"The appellants have taken the credit on
the duty portion of molasses which are
used for the manufacture of DNS,
whereas the actual input for
manufacture of DNS is extra neutral
alcohol (ENA), which itself is a product,
which are separately taken out and kept
in storage tank. Only 8% to 15% of
extra neutral alcohol (ENA) is being used
for further manufacturing of denature
sprit (DNS) and rest quantity is cleared
for bottling purpose under State excise
control. Therefore credit taken on
molasses is not correct to the extent of
the molasses is used for manufacture of
extra neutral alcohol (ENA), which itself
a product and non excisable. The extra
neutral alcohol (ENA) is under the state
excise control. Therefore as pre Rule 6 of
Cenvat credit rules, 2004, the appellants
are not eligible to take credit on the
Molasses, which is exclusively used for
the manufacture of ENA Hence the
question of using Cenvat credit of
molasses for the conversion of DNS
portion, which is obtained from ENA (non
excisable product), does not arise. Hence
it is clear that in this case molasses is
not an input at all as per CCR 2004, for
the manufacture of their final products
acetaldehyde and acetic acid. Only DNS,
which is excisable used in the
manufacture of acetaldehyde and acetic
acid and the appellants cannot take
credit on the invoices related to the
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purchase of molasses The appellants
have adopted reverse mechanisin
formula to ascertain the quantity of
molasses used for the manufacture of
denature sprit (DNS) suo-moto, which is
not prescribed under Cenvat credit
Rules, 2004 or under any of statutes.
Hence the appellants are not eligible to
take proportionate credit on the
molasses which are consumed in the
manufacture of DNS The other
arguments and case laws put forth by
the appellants do not come for rescue as
they are rio relevance to this issue. In
view of the above the order of the lower
authority does not warrant any
interference."
(emphasis supplied)
9. The appellant did not avail CENVAT Credit of the duty
paid on molasses immediately on receiving the molasses
in the factory. Though they manufactured non-excisable
ENA and also dutiable products viz, acetaldehyde and
acetic acid, they have availed credit only on that part of
molasses which go into manufacture of dutiable product.
Department has no allegation that they have availed
credit on the entire quantity of molasses. The Credit that
is eligible in respect of dutiable products will be known
only when the appellant knows what quantity of alcohol
denatured and how much molasses is used in such
excisable product captively consumed in further
manufacture of dutiable products cleared from the
factory. The main allegation is that as ENA is derived at
the first stage which is non-excisable and therefore the
credit availed is not in order.
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10. The very same issue was analysed by the Tribunal in
the case of Rajshree Sugar & Chemical Ltd. (Supra).
"8.1. For the proper appreciation of the
case, we take up the facts from Appeal
No. E/41188/2014 in the case of Ms.
Rajshree Sugars and Chemicals Ltd. v.
CCE, Puducherry. The adjudicating
authority observed that Denatured Ethyl
Alcohol were dutiable and removed from
the factory on payment of appropriate
Excise duty and the non-excisable goods
i.e. varieties of Denatured Ethyl Alcohol
including Rectified spirit were removed
on payment of an amount equivalent to
6%, on the invoice value in terms of
Rule 6 of the Cenvat Credit Rules, 2004.
Ethyl Alcohol mainly has an intoxicating
agent in alcohol-based liquor for human
consumption. Prior to 1-3-2005 of Tariff
restructuring from 6 digit to 8 digit
Heading No. 2204.90 of 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.
.
8.12 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. 9 Appeal. No.: E/497/2012-DB (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."
(emphasis supplied) The above decision of the Hon'ble Apex court as reported in 2017(345) ELT A30 (S.C.).
11. In the case of M/s. Shri Ambika Sugar Ltd. (supra) similar view was taken by the Hon'ble Apex Court as reported in 2017(345)ELT A33(S.C). In the case of Commissioner Vs. M/s. Dharani Sugars & Chemicals Ltd.
2017 (345) ELT A69 (S.C.) it was held that the credit cannot be denied. It was also decided that appellants are eligible for benefits of Notification No. 67/95-C.E. In Godavari Sugar Mills Ltd. Vs Commissioner of Central Excise, Belagaum 2007 (212) ELT 234) (Tri-Bang.) it was held that it is sufficient if CENVAT Credit attributable to inputs in exempted product is reversed or paid.
12. In case on hand, though the appellants have resorted to different method, it is clear that the appellants have not availed CENVAT Credit on inputs in respect of exempted products or non-excisable ENA. Following the 10 Appeal. No.: E/497/2012-DB proposition laid in the above decisions we hold that the demand cannot sustain. The impugned order is set aside.
13. In the result, the appeal is allowed with consequential reliefs, if any.
(Order pronounced in the open court on 17.03.2023) sd (SULEKHA BEEVI C.S.) MEMBER (JUDICIAL) sd (VASA SESHAGIRI RAO) MEMBER (TECHNICAL) Rkp