2013 (7) TMI 159 - HC - Central Excise

Electrical Energy from Bagasse Not Excisable Goods Under Section 2(d); Duty Demand Notices Quashed Under Rule 6(2) & 6(3)

Gularia Chini Mills and others Versus Union of India and others

The HC held that electrical energy generated from bagasse is not excisable goods under Section 2(d) of the Central Excise Act, 1944, as it is not subject ... Cenvat Credit - Classification of bagasse and electrical energy - Excisable goods vs. exempted goods - Applicability of Rule 6 of the CENVAT Credit Rules, 2004 to electrical energy generated from bagasse - According to the petitioners, since electrical energy is not an excisable goods in view of definition of excisable goods in Section 2 (d) of Central Excise Act, 1944 read with Section 2 of the Central Excise Tariff Act, therefore, it is not exempted goods within the meaning of Rule 2 (d) of CENVAT Credit Rules, 2004 but even then, the Commissioner, Central Excise issued notices to the petitioners under Rule 6 (2) and Rule 6 (3) of the Central Excise Tariff Act, demanding the duty in respect of the electrical energy, sold outside the factory. Held that:- Perusal of Section 2 (d) of Central Excise Act shows that the excisable goods are only those goods which are subjected to duty of excise as specified in the first Schedule or second schedule of the Central Excise Tariff Act. - Since Column of rate of duty is blank, therefore, in view of Section 2 of the Central Excise Tariff Act, 1985, electrical energy is not being subjected to excise duty for the purposes of being excisable goods under Section 2 (d) of the Central Excise Act. The electrical energy generated from Naphtha, furnace oil, coal, etc., has been included under Chapter 27 as excisable goods on which the excise duty is being paid and the credit is taken respect of the excise duty paid on such inputs but in the instant case, no direct inputs are involved nor any input services have been availed/used and the Commissioner, Central Excise, without any basis observed that the petitioners have admitted that they have availed the CENVAT credit on inputs and input services used in relation to generation of electricity. The petitioner has only used bagasse as raw material which is a waste product, as already held by this Court in writ petition [2013 (1) TMI 525 - ALLAHABAD HIGH COURT] and no other inputs or input services has ever been used by the petitioner for generation of electricity which was only generated from bagasse. - electrical energy emerges from the bagasse and sold to U.P. Power Corporation Ltd. does not fall within the ambit of excisable goods. Geetanjali Woolens Mill judgment [2007 (6) TMI 112 - CESTAT, AHMEDABAD] relied upon by the Commissioner in the impugned orders have no relevance as Geetanjali Woolens Mill's judgment [2007 (6) TMI 112 - CESTAT, AHMEDABAD] was in respect of custom duty and was only concerned with the 'tariff item and not with respect to the 'excisable goods' as defined under Section 2(d) of Central Excise Act, 1944. Rule 6 of the 2004 Rules, which is applicable only to excisable goods, can alone be treated as exempted goods for the purposes of Rule 6 (3) of 2004 Rules, does not apply to electrical energy. Jurisdiction of Court under Article 226 of the Constitution of India, if alternative remedy is available. - Held that:- Alternative remedy does not oust the jurisdiction of this Court under Article 226 of the Constitution of India, if it is found necessary for promotion of justice and prevention of injustice as decided in Collector of Customs vs. Ramchand Sobhraj Wadhwan [1955 (8) TMI 1 - HIGH COURT OF JUDICATURE AT BOMBAY] - all the writ petitions are liable to be allowed. Issues Involved:1. Jurisdiction of the High Court under Article 226 despite the availability of an alternative remedy.2. Applicability of Rule 6 of the CENVAT Credit Rules, 2004 to electrical energy generated from bagasse.3. Classification of bagasse and electrical energy under the Central Excise Tariff Act.4. Validity of the demand notices issued by the Commissioner, Central Excise for duty on electrical energy sold outside the factory.Issue-wise Analysis:1. Jurisdiction of the High Court under Article 226 despite the availability of an alternative remedy:The respondents raised a preliminary objection regarding the maintainability of the writ petitions, arguing that the petitioners should have approached the Customs Excise & Service Tax Appellate Tribunal, New Delhi, as provided under Section 35-B of the Central Excise Act, 1944. However, the petitioners contended that exceptional circumstances justified their approach to the High Court. The Court, referring to precedents like *State of U.P. vs. Mohd. Nooh* and *Whirlpool Corporation vs. Registrar of Trade Marks*, held that the rule of alternative remedy does not oust the jurisdiction of the High Court under Article 226 if it is necessary for the promotion of justice and prevention of injustice. Consequently, the preliminary objection was dismissed, and the writ petitions were deemed maintainable.2. Applicability of Rule 6 of the CENVAT Credit Rules, 2004 to electrical energy generated from bagasse:The petitioners argued that Rule 6 of the CENVAT Credit Rules, 2004, which mandates the reversal of CENVAT credit for inputs used in the manufacture of exempted goods, does not apply to electrical energy. They cited decisions like *Collector of Central Excise vs. Solaris Chemtech Ltd.* and *Maruti Suzuki Ltd. vs. Commissioner Central Excise*, asserting that electrical energy is not an excisable good. The Court agreed, stating that Rule 6 applies only when a manufacturer produces both dutiable and exempted final products. Since electrical energy is not considered an excisable good, Rule 6 is inapplicable.3. Classification of bagasse and electrical energy under the Central Excise Tariff Act:The Court reiterated that bagasse, a by-product of sugar manufacturing, is classified under sub-heading 2303 2000 of the Central Excise Tariff Act, 1985, with a NIL rate of duty. Bagasse is considered an agricultural waste and not a manufactured product. The Court also noted that electrical energy generated from bagasse is not covered under Chapter 27 of the Central Excise Tariff Act, which pertains to electrical energy generated from mineral fuels, oils, etc. Thus, electrical energy from bagasse is neither excisable nor exempted under the Act.4. Validity of the demand notices issued by the Commissioner, Central Excise for duty on electrical energy sold outside the factory:The Court examined the impugned orders and the reliance on the *Geetanjali Woolens* case by the Commissioner, Central Excise. It found that the Commissioner had misinterpreted the applicability of Rule 6 and the classification of electrical energy. The Court emphasized that electrical energy generated from bagasse does not fall within the ambit of excisable goods. Consequently, the demand notices and orders issued by the Commissioner were quashed.Conclusion:The High Court allowed the writ petitions, quashing the impugned orders and show cause notices. It directed the respondents not to realize any excise duty on the electrical energy sold to U.P. Power Corporation Ltd., affirming that electrical energy generated from bagasse is not an excisable good under the Central Excise Act. No costs were awarded.