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2016 (11) TMI 994 - CESTAT MUMBAI

2016 (11) TMI 994 - CESTAT MUMBAI - TMI - CENVAT credit - molasses - Denatured spirit - 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 - whether denial of credit of duty paid on molasses during this period and to seek recovery of credit utilized for clearance of denatured rectified spirit justified? - Held that: - The .....

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oduct 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 - There is an option for the manufacturer not to maintain two separate accounts. - The denatured alcohol is acknowledged as an excisable good and 'ou .....

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ere 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. - Appeal allowed. - APPEALS NOS: E/86643-89187/2013, E/85417/2014, E/89092/2013, E/85361-85362/2015, E/86504-89136/2013, E/89510-87182/2013 And E/89195-86799/2 .....

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Order-in-original Duty Penalty 1. E/86643/2013 Sagar Industries & Distilleries Pvt. Ltd 03/CEX/2013 dated 21st January 2013 Rs.13,72,83,114/- Rs.13,72,83,114/- 2. E/85417/2014 29/CEX/2013 dated 05th November 2013. Rs.2,75,24,733/- Rs.15,00,000/- 3. E/89187/2013 15/CEX/2013 dated 12th Jul 2013. Rs2.40.52.041/- Rs.24,00,000/- 4. E/89092/2013 Shree satpuda Tapi Parisar Sahakar Sakhar Karkhana Ltd. 16/CEX/2013 dated 15th Jul 2013. Rs.12,18,10,431/- Rs.12,18,10,431/- 5. E/85361/2015 08 & 09/C .....

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2013 Sahakarmahars hi Bhausaheb Thorat Sahakari Sakhar 13/CEX/2013 dated 12th Jul 2013. Rs1,83,14,719/- Rs.18,00,000/- 12. E/86799/2013 07/CEX/2013 dated 24th January 2013. Rs.8,29,92,493/- Rs.8,29,92493/- 2. The appellants are distilleries that source molasses, the primary input, from various sugar factories on payment of duty and on which CENVAT credit under CENVAT Credit Rules, 2004 is taken upon receipt of inputs in factory of manufacture. The credit taken is reversed proportionately upon cl .....

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methane, carbon dioxide and hydrogen sulphide. Rectified spirits finds use in production of alcohol for human consumption. Other industrial demand is catered to by denaturing of the rectified spirit to segregate the two owing to the control and monitoring of potable alcohol being assigned to state governments and in accordance with laws enacted by the state legislatures. Denatured spirit is subject to duties of central excise while potable alcohol is outside the purview of excise duty on manufac .....

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es of excise for following goods manufactured or produced within the state (i) alcoholic liquor for human consumption and (ii) opium, Indian hemp and other narcotic drugs and narcotics.' 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 .....

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thyl 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 .....

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mption 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 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 du .....

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a. 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. 8. It was claimed on behalf of the appellants that ethyl alcohol continued in the tariff after Feb .....

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y Sugar Mills Ltd and Others v Commissioner of Central Excise [2007 (212) ELT 234 (T)], which relied upon the former, and which, having been dismissed in appeal by Hon'ble High Court of Karnataka, was accepted by Revenue. Alternatively, it was also submitted that the credit taken should have been allowed in accordance with restrictions in Rule 6 of CENVAT Credit Rules, 2004. The imposition of penalty also challenged as no evidence of mens rea had been adduced in the impugned order. It was al .....

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from the manufacturing process as carbon dioxide is a by-product besides clearing of denatured spirit which is a dutiable item. 9. Learned Authorized Representative took us through the provisions of the Constitution of India demarcating taxation powers between Union and states and thereby rendering ethyl alcohol to be a non-excisable item; being non-excisable, the procurement of molasses would not be an input and, hence, eligibility for CENVAT credit was non-existent. Drawing upon technical mate .....

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edit. Placing reliance on L'Oreal India Private Ltd v. Commissioner of Central Excise, Pune-l [2012 (281) ELT 113 (Tri-Mumbai)], Orion Appliances Ltd v. Commissioner of Service Tax, Ahmedabad [2010 (19) STR 205 (Tri-Ahmd)] and Madhukar Sahakari Sakhar Karkhana Ltd v CCE&C, Nasik [2012 (281) ELT 552 (Tri Mumbai)], it was submitted that duty paid on inputs used to manufacture goods and render services that were outside the scope of the taxing statute could not be taken as credit. Relying o .....

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d 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 do .....

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een 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 be .....

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on 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 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) ELT 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 interferenc .....

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es 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 de-natured spirits under notification no. 67/95-CE 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 .....

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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. Our attention was invited to amendment to Notification No. 67/95 Central Excise by Notification No. 31/2001 Central Excise dated l. 1.2001. In terms of the said amendment, the appellants are entitl .....

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able 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 .....

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