Custom, Excise & Service Tax Tribunal
Karmveer Kakasaheb Wagh Ssk Ltd vs Commissioner Of Central Excise And ... on 11 June, 2024
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
WEST ZONAL BENCH
EXCISE APPEAL NO: 86427 OF 2013
[Arising out of Order-in-Original No: 07/CEX/2012 dated 31st December 2012
passed by the Commissioner of Central Excise, Customs & Service Tax, Nashik.]
Karmveer Kakasaheb Wagh SSK Ltd
Kakasaheb Nagar, Tal: Niphad, Dist: Nasik - 422308 ... Appellant
versus
Commissioner of Central Excise, Customs &
Service Tax
Kendriya Rajaswa Bhavan, Annex Building
RG Ghadkari Chowk, Old Agra Road, Nashik - 422002 ...Respondent
WITH EXCISE APPEAL NO: 85632 OF 2014 [Arising out of Order-in-Appeal No: NSK-EXCUS-000-APP-328-13-14 dated 27th November 2013 passed by the Commissioner of Central Excise & Customs (Appeals), Nasik.] Karmveer Kakasaheb Wagh SSK Ltd Kakasaheb Nagar, Tal: Niphad, Dist: Nasik - 422308 ... Appellant versus Commissioner of Central Excise, Customs & Service Tax Kendriya Rajaswa Bhavan, Annex Building RG Ghadkari Chowk, Old Agra Road, Nashik - 422002 ...Respondent APPEARANCE:
Shri H S Shirsat, Consultant for the appellant Shri P K Acharya, Superintendent (AR) for the respondent CORAM:
HON'BLE MR C J MATHEW, MEMBER (TECHNICAL) HON'BLE MR AJAY SHARMA, MEMBER (JUDICIAL) E/86427/2013 2 FINAL ORDER NO: 85570-85571/2024 DATE OF HEARING: 20/12/2023 DATE OF DECISION: 11/06/2024 PER: C J MATHEW The fact of these appeals, pertaining to manufacture undertaken by M/s Karmaveer Kakasaheb Wagh SSK Ltd between April 2007 to January 2012 and disputing effect of negation of notification no. 67/95- CE dated 16th March 1995 on goods manufactured by them that claimed exemption owing to 'captive consumption' and of wrongful availment of credit of duties paid on goods procured by them for manufacture, challenges the fastening of duty liability of ₹ 2,31,05,908 and disallowance of CENVAT credit of ₹ 28,61,433 under section 11A of Central Excise Act, 1944, along with applicable interest under section 11AA of Central Excise Act, 1944 and rule 14 of CENVAT Credit Rules, 2004 respectively, while imposing penalties of like amounts under section 11AC of Central Excise Act, 1944 and rule 15 of CENVAT Credit Rules, 2004 respectively, in order1 of Commissioner of Central Excise, Customs & Service Tax, Nashik. The second appeal relating to February 2012 to August 2012 challenges recovery of duty of ₹ 12,69,411 under section 11A of Central Excise Act, 1944, along with applicable interest thereon under section 11AA of Central Excise 1 [order-in-original No: 07/CEX/2012 dated 31st December 2012] E/86427/2013 3 Act, 1944, besides imposition of penalty of ₹ 6,34,706 under section 11AC of Central Excise Act, 1944 which, though set aside in the impugned order2 of Commissioner of Central Excise & Customs (Appeals), Nashik, continues to be a source of grievance for holding that 'undenatured ethyl alcohol' or 'rectified spirit' is non-excisable and not covered in tariff item 2207 20 00 of Schedule to Central Excise Tariff Act, 1985 after 1st March 2005.
2. 'Molasses', which emerges as a viscous by-product in the process of extracting 'sucrose crystals' or 'sugar' from sugar cane juice, is used by the appellant within the factory for production and clearance of 'denatured spirit' and, in terms of notification no. 67/95-CE dated 16th March 1995 permitting intermediate goods to be used without payment of duty subject to it being used in the manufacture of excisable goods on which duty liability is discharged, was paying duty only on clearance of 'denatured spirit' into the market. The case of central excise authorities is that, before, denaturing, 'ethyl alcohol or rectified spirit' comes into existence which are either sold as such without payment of duty or when procured further for clearance as 'denatured spirits' are goods on which duty liability was not to be discharged, rendering the 'molasses', from which both are derived, liable to duty. Thus, liability came to be fastened on the entirety of 29901.560 metric tons supplied through pipeline to the distillery section of the factory 2 [order-in-appeal no. NSK-EXCUS-000-APP-328-13-14 dated 27th November 2013] E/86427/2013 4 during the period in dispute. The allegation that, during this period, the appellant had utilized ₹ 22,05,112 of credit, under CENVAT Credit Rules, 2004, of duty paid on 'molasses' procured by them to discharge duty liability on 10,05,262 litres of 'denatured ethyl alcohol' valued at ₹ 2,03,00,937 while reversing the credit attributable to clearance of 'rectified spirit' which, being, non-excisable, was not eligible for retention was not pursued by the adjudicating authority owing to confirmation of recovery of ₹ 28,61,433 for not having been reversed under rule 6 of CENVAT Credit Rules, 2004. In the other proceedings, for the succeeding period, captive consumption of 1643.25 metric tons of molasses deployed in the manufacturing process on which duty liability of ₹ 12,69,411 held as recoverable by the original authority was set aside in the other order impugned before us.
3. The impugned order of Commissioner of Central Excise took note of changes in design of Schedule to Central Excise Tariff Act, 1985 with effect from 1st March 2005, incorporating 'tariff lines' at the 'eight digit level', to conclude that, while the erstwhile heading 2204 of Schedule to Central Excise Tariff Act, 1985 corresponding to 'Ethyl alcohol of any strength whether denatured or not, but not including alcoholic liquor for human consumption' contemplated 'Denatured ethyl alcohol of any strength' E/86427/2013 5 and 'Other' corresponding to sub-heading 2204 10 and to sub-heading 2204 90 respectively of Schedule to Central Excise Tariff Act, 1985, the revised 'Ethyl alcohol and other spirits, denatured, of any strength.' corresponding to heading 2207 of Schedule to Central Excise Tariff Act, 1985 with sole description as 'Ethyl alcohol and other spirits, denatured, of any strength' corresponding to tariff item 2207 2000 of First Schedule and as '-' below the heading, inferred that '21.3 Thus, from the plain reading of the 8 digit tariff structure, it can be seen that only de-natured ethyl alcohol and denatured other spirits of any strength are excisable. The subtle change that was effected in the 8 digit tariff is that un-denatured ethyl alcohol commonly known as Rectified Spirit has been kept out of the ambit of the central excise tariff. The aforesaid Ch SHN No.2207 20 00 also accepts that 'ethyl alcohol' and 'other spirits' are different commodities or clusters. ........................... so as to mean that the word 'and' used in tariff entry 2207 20 00 separates /divides the term 'ethyl alcohol' and 'other spirit' due to which the further term 'de-natured' appearing in the entry gets linked up to 'other spirits' only and not to 'ethyl alcohol'. ........................ All in all, I do not find any merit in this plea of the assessee for the reason that attributing the word 'de-natured' only to other spirits would be a grammatical infraction and against clear and unambiguous meaning of entry written by legislation.' E/86427/2013 6 before going on to hold that 'rectified spirit' make out of molasses is not chargeable to duty and, therefore, 'molasses' should bear the burden of duty. Not unnaturally, the assessee is in appeal. The order of Commissioner of Central Excise (Appeals), in setting aside the confirmed demand, took the view that the object of the notification for 'captive consumption' without payment of duty had been fulfilled as the 'molasses' on which duty liability had not been discharged was used in the manufacture and clearance of 'denatured alcohol' on payment of duties of central excise. The assessee is, yet, aggrieved as they are of the view that the outcome will be legal only upon it behind held that 'rectified spirits' is excisable. There is no appeal by Commissioner of Central Excise against the dropping of one element of demand in the first and of dropping of the entire in the second.
4. Indeed, it would appear that, in opposing the appeal for the earlier period, Learned Authorized Representative has adopted a stand contrary to that of Revenue inasmuch as the order of Commissioner of Central Excise (Appeals) that is entirely at variance with that of the Commissioner of Central Excise was not challenged in appeal. Learned Authorized Representative urged us not to infer discrepancy in stands from this curious turn of events as he canvassed non-challenge to be solely on account of the threshold limits in the litigation policy of the Central Government; we are not convinced that this is nothing but an assumption on the part of Learned Authorized Representative because, E/86427/2013 7 if that had been otherwise, it was incumbent on the central excise authorities to furnish a copy of the review order. The threshold limits in the litigation policy bespeak intent of not clogging the appellate channel without, in any way, absolving the competent review authority of its statutory responsibility. That would have convinced us that, but for the restraints of litigation policy, the stand of Revenue is consistent. We do not wind up disposal of the appeal on this note but, nonetheless, cannot but approach the case put forth by Learned Authorized Representative with some caution.
5. Learned Consultant appearing for appellant was at pains to draw our attention to the manner in which the amendments enabling the revision, and subsequent notifications giving effect to continuation of exemptions from rates, in the structuring of the Tariff from 1st March 2005 rested on the assurance that, as far as assessees were concerned, it was business as usual. He drew our attention to the amending legislation, the attendant alteration to the notification and circular no. 808/5/2005-CX dated 25th February 2005 of Central Board of Excise & Customs (CBEC) to urge that 'rectified spirits' continued to be excisable. He also drew attention to the erstwhile and amended coverage of the relevant headings in Schedule to Central Excise Tariff Act, 1985. He placed reliance on the decisions of the Tribunal in Commissioner of Central Excise & Customs, Guntur v. Crane Betel Nut Works [2008 (221) ELT 99 (Tri-Bang)] and on the decision of the E/86427/2013 8 Hon'ble Supreme Court in Essilor India Pvt Ltd v. Commissioner of Customs, Bangalore [2016 (335) ELT 584 (SC)] and in Commissioner of Central Excise & Service Tax v. Dharani Sugars & Chemicals Ltd [2022 (379) ELT 556 (SC)].
6. As far as the issue of dutiability of 'molasses', arising from use in manufacture of non-excisable goods is concerned, Learned Authorized Representative placed reliance on the decision of the Tribunal in Rajshree Sugars & Chemicals Ltd v. Commissioner of Central Excise, Puducherry [2016 (343) ELT 462 (Tri-Chennai)] to urge dismissal of the appeal as the terms in which the notification could be permitted leave no scope for any other option. He countered the argument of Learned Consultant with the proposition that the final product was exempted and could not be given the benefit.
7. The proposition that the tariff structure before 1st March 2005 did include 'rectified spirits' in heading 2204 of Schedule to Central Excise Tariff Act, 1975 is of no relevance as the dispute pertains to the period after. It is not the case of appellant that it was dutiable during the overlap and continued to be thereafter; nor that the condition of being 'excisable' sufficed for coverage under notification no. no. 67/95-CE dated 16th March 1995. The submissions of Learned Consultant have not adverted to the manner in which the appellant was compliant with the terms of the said exemption for E/86427/2013 9 'Provided that nothing contained in this notification shall apply to inputs used in or in relation to the manufacture of final products (other than those cleared either to a unit in a Free Trade Zone or to a 100% Export Oriented Undertaking or to a unit in an Electronic Hardware Technology Park or to a Software Technology Parks), which are exempt from the whole of duty of excise leviable thereon or are chargeable to 'Nil' rate of duty.' makes its inclusionary coverage specific to duty liability at a stage thereafter. The issue in context is the scope for 'non goods' emerging in a manufacturing process to be chargeable to duty, or exempt therefrom, with consequences to deferment of duties on goods captively consumed in integrated manufacture of assessee.
8. That the controversy has its origin over manufacture of 'molasses' during sugar production which are further used in distilling 'spirits' to be denatured before sale is not in dispute. It is common ground that from distillation of fermented 'molasses' emerges 'alcohol' which is partly cleared without payment of duty and partly utilized for being denatured and cleared thereafter on payment of duty appropriate to the tariff item with corresponding description that matches the goods. It is common ground that the clearance at these two stages is not tainted by allegation of contrariness to law. It is also common ground that this dichotomy of tax treatment - being cleared as a manufactured product without payment of duty before 'denaturing' and not being exempted merely from not being cleared and used in captive consumption - has E/86427/2013 10 been cause of this controversy. It is, therefore, necessary for us to attend to the notification impugned in the dispute as well as the process which distinguishes the two .
9. The impugned notification is intended to facilitate 'captive consumption' which, particularly in a continuous integrated manufacturing process, would have involved assessment to duty of central excise at several stages with its own controversies over rate of duty and value that are not exactly not superfluous as the chain of value addition ensures that duty is, in any case, charged on the final value of the goods from the factory of production. Furthermore, the availability of credit of duties paid at each stage neutralizes intermediate assessment including ascertainment of classification and value. The collection of duties at every stage is also set in the backdrop of, ab initio and by force of law, lack of fitment within the valuation scheme acknowledging 'transaction value' as default in Central Excise (Determination of Price of Excisable Goods) Rules, 2000 and, thus, adding compulsion to exclude 'captive consumption' from being assessed to duty. Therefore, as long as the process is continuous and manufactured product liable to duty emerges therefrom, there is no case to conclude that the exception in the proviso of the notification comes into play. More so, when the nature of the intermediate product is such that it cannot be, or has not been, ascertained for exemption from duties of central excise. No evidence, in the form of test report of samples E/86427/2013 11 drawn at the intermediate stage, either from those cleared into the market or of those deployed for 'captive consumption', nor of any other basis for concluding that these were indeed 'marketable' to be considered as excisable but not liable to duties of excise is before us. We are unable to fathom the ascertainment by which the adjudicating authorities were able to deduce that some goods were indeed 'manufactured' at intermediate stage by conformity with the test laid down by the Hon'ble Supreme Court in Union of India v. Delhi Cloth & General Mills [1963 AIR 791] and which prevails over excisability for the latter is secondary to the test of manufacture to bring section 3 of Central Excise Act, 1944 into play.
10. Unarguably, it is the clearance of part of the product at the intermediate stage which underlies the proposition of 'manufacture' and 'non-excisability' that prompted and promoted the adjudicatory exercise. The nature of that clearance has neither been scrutinized for determining the nomenclature of the product by applicable standards as it was governed by an entirely different legal authority that was closed to the jurisdictional ambit of the Union Government. There was, thus, no concurrent jurisdiction for central excise authorities to determine if 'manufacture', as set out by the Hon'ble Supreme Court in re Delhi Cloth & General Mills, had been satisfied and, if so, that the goods were not excisable. It is certainly not the case of the central excise authorities that those were exempt. Indeed, the proviso in the impugned E/86427/2013 12 notification is about exemption and not about goods that are not 'excisable'; the emphasis placed on 'excisable' by both adjudicating authorities rests upon unfounded premise about its relevance to the issue in dispute and, more especially, without the pre-requisite of 'manufacture' having been determined. There is, thus, no evidence of any goods having come into existence at the intermediate stage except by presumption and application of a taxing law unknown to Central Excise Act, 1944.
11. The tariff structure appended to Central Excise Tariff Act, 1985 underwent alteration for alignment with the Schedule appended to Customs Tariff Act, 1975 which had already classified goods upto the 'eight digit' or 'tariff line' level; this necessitated regroupings and, owing to the constitutional restraints on commodity taxation, erasing of several of the headings, in addition to the ones already done, in chapter 22 of Schedule to Central Excise Tariff Act, 1985. The tariff is mere promulgation of legislative intent to tax goods at specified rate and 'excisable' has relevance for the linkage between section 3 of Central Excise Act, 1944 to the Schedule of Central Excise Tariff Act, 1985. The definition of the expression and inclusions in the enumeration are of limited applicability and, especially, in the contours of this dispute in which 'exemption' predominates to fasten duty liability before the final product emerges.
E/86427/2013 13
12. From the above, we may deduce that the quagmire of taxing manufacture at the point of sale that, yet, had to accommodate 'taxable event' at several stages in an integrated process of manufacture was resolved through exemption notification; such a mechanism absolved the central excise authorities from having to take cognizance of occurrence of 'taxable event' during integrated process of manufacture except when the proviso came into play. The 'proviso' would come into play only upon a claim of exemption from duty of central excise which, in the instant case, would be only upon sale of 'rectified spirit' and that is not an element of the dispute here. Such claim for exemption was not preferred in relation to the goods that were yet in the manufacturing process. A notification that was intended as ceasing to be upon claim for exemption on clearance has been contrived to scrutinize a process that the said notification intended to preclude. That is the error in the order of the Commissioner of Central Excise.
13. Spirits are denatured to render unfit for human consumption; levy of commodity taxation in the constitutional scheme excludes the jurisdiction of the Union on spirits intended for human consumption. Central Excise law is this applicable to all, and any spirit, that is not intended for human consumption. Denaturing is only the mark of that intention as it does not alter the product for further use except in human consumption. Therefore, the intermediate product that emerges, and to the extent that it is not intended for human consumption, is not E/86427/2013 14 marketable as such and all the indicators of 'goods' adheres to it upon denaturing. There is no dispute that denatured spirits are manufactured, are excisable and are not exempt. Consequently, the 'molasses' that have been deployed captively for the purpose are exempted from duty. The demand of duty on 'molasses' in the order of Commissioner of Central Excise fails to survive along with attendant detriments. The order of Commissioner of Central Excise (Appeals) finds affirmation accordingly.
14. It is on record that the appellant has reversed credit taken on 'molasses' procured from elsewhere and, therefore, has adhered to the injunction on retention of credit of duty paid on goods deployed in manufacture of 'exempted goods' as defined in rule 2 of CENVAT Credit Rules, 2004. The 'molasses' so procured and used in the manufacture of 'denatured spirits' do not fall within the ambit of rule 6 of CENVAT Credit Rules, 2004 and, thus, negates the demand on that count in the order of Commissioner of Central Excise along with appended detriments.
15. We also find support for our view supra from decision of the Tribunal in Bannari Amman Sugars Ltd v. Commissioner of Customs, Central Excise & Service Tax, Mysore [2018 (362) ELT 705 (Tri.- Bang)], holding that '6.1 The Notification No. 67/95 is not available in respect of E/86427/2013 15 inputs used in the manufacture of final products which are exempted from whole of duty or chargeable to 'nil' rate of duty. The question for consideration is whether alcohol for human consumption which is not charged to Central Excise duty will fall under either of the above categories. The above question is answered in favour of the appellant in the case of Manakpur Chini Mills Ltd. (supra). The findings recorded in para 6 of the Tribunal's decision is reproduced herein below :
"6. We have taken the rival contentions into consideration and also have gone through the case records and paper books submitted during the hearing. We find that the appellant have a composite unit where sugar and molasses are manufactured. Further the molasses on fermentation in the distillery, ethyl alcohol is obtained. Ethyl alcohol is denatured by mixing certain chemicals which make ethyl alcohol unfit for human consumption. Before1-3-2005 chapter sub-heading 2204.10 covered denatured ethyl alcohol of any strength and chapter sub-heading No. 2204.90 covered ethyl alcohol except alcoholic liquor for human consumption and undenatured ethyl alcohol. From 1-3-2005 tariff item No. 2207 20 00 covered ethyl alcohol and other spirits denatured of any strength. This led the Central Excise authorities to think that pre-denatured ethyl alcohol does not find place in Central Excise Tariff. We find that the show cause notice contends that rectified spirit is manufactured in between the process to manufacture denatured spirit and rectified spirit does not find place in Central Excise Tariff with effect from 1-3-2005 and therefore Cenvat credit is not admissible as inputs & input services and capital goods going into manufacture of rectified spirit and hence going into manufacture of denatured spirit. Before 1-3-2005, department accepted that rectified spirit is covered under chapter sub-heading No. 2204.90. As stated above, 2204.90 covers ethyl alcohol except one for human consumption and which are undenatured. Therefore, the issue to be decided is whether ethyl alcohol and rectified spirit are two different commodities or one and the same commodity. We find that the Hon'ble Supreme Court in the case of State of Uttar Pradesh v. Modi Distillery and others (supra) in para 9 has observed as follows :-
"The ISI specifications had divided ethyl alcohol into several kinds of alcohol. Beverages and industrial alcohols were clearly and differently treated. Rectified spirit for industrial process was defined as spirit purified by distillation having a strength of not less than 95% by volume of ethyl alcohol."
It is very clear from the observation of Hon'ble Supreme Court that ethyl alcohol and rectified spirit are one and the same. We, E/86427/2013 16 therefore, hold that rectified spirit which is not used for human consumption is nothing but ethyl alcohol and is finding place in tariff item No. 2207 20 00. We, therefore, hold that the show cause notices are not sustainable. As a result, we set aside the impugned orders and allow the appeals with consequential relief. No costs.' which was affirmed by the Hon'ble Supreme Court in Commissioner of Central Excise & Service Tax v. Dharani Sugars & Chemicals Ltd [2022 (379) ELT 556 (SC)].
16. The order of Commissioner of Central Excise is set aside to allow appeal of assessee. In the light of our findings supra, the appeal of assessee impugning order of Commissioner of Central Excise (Appeals) is dismissed as infructuous.
(Order pronounced in the open court on 11/06/2024) (AJAY SHARMA) (C J MATHEW) Member (Judicial) Member (Technical) */as