2014 (1) TMI 1157 - AT - Central Excise

Tribunal allows Cenvat credit for molasses, upholds excisable item classification

The Tribunal ruled in favor of the appellants, allowing them to claim Cenvat credit on duty paid for molasses used in manufacturing rectified spirit. The ... Entitlement of canvat credit on molasses - Denatured spirit cleared – Revenue was of the view that the rectified spirit is not an excisable product – Waiver of pre-deposit – Held that:- Following Ugar Sugar Works Vs. CCE [2007 (4) TMI 31 - CESTAT,BANGALORE] - by paying 5% of the value of rectified spirit in terms of the provisions of Rule 6 the appellant has already reversed the credit to the extent of 40 lakhs approximately – pre-deposits waived till the disposal – Stay granted. Issues:1. Entitlement to Cenvat credit of duty paid on molasses used in manufacturing rectified spirit.2. Classification of rectified spirit as an excisable item.3. Applicability of exemption notification No. 3/2005-CE dated 25th February 2005.4. Reversal of credit by paying 5% of the value of rectified spirit under Rule 6.Entitlement to Cenvat credit of duty paid on molasses:The appellants, engaged in manufacturing sugar and molasses, also produce rectified spirit using molasses, which is further utilized in making denatured spirit. The Revenue argues that since rectified spirit is not excisable under the Central Excise Act, the appellants cannot claim Cenvat credit on duty paid for molasses. However, the appellants assert that rectified spirit falls under the Act, citing exemption notification No. 3/2005-CE, and since denatured spirit is an excisable product, they should be entitled to the credit. The Tribunal notes the issue's similarity with a previous case and acknowledges the appellant's reversal of credit by paying 5% of the rectified spirit's value under Rule 6, thus allowing the stay petitions unconditionally.Classification of rectified spirit as an excisable item:The crux of the matter lies in determining whether rectified spirit qualifies as an excisable item under the Central Excise Act. The appellants argue that rectified spirit is covered under the Act, supported by exemption notification No. 3/2005-CE, which exempts rectified spirit. They contend that since a portion of the rectified spirit is cleared to outside parties, payment of 5% of its value under Rule 6 has already led to the reversal of credit amounting to around 40 lakhs. This argument, combined with the Tribunal's previous ruling and the nature of the final product (denatured spirit) being excisable, supports the appellants' position.Applicability of exemption notification No. 3/2005-CE dated 25th February 2005:The exemption notification plays a crucial role in the appellants' case, as it specifically exempts rectified spirit from certain provisions of the Central Excise Act. By citing this notification, the appellants seek to establish that rectified spirit, although exempted, still falls within the purview of excisable items. This argument forms a significant part of their defense against the Revenue's claim that they are not entitled to Cenvat credit on duty paid for molasses used in manufacturing rectified spirit.Reversal of credit by paying 5% of the value of rectified spirit under Rule 6:The Tribunal acknowledges the appellants' proactive measure of reversing the credit by paying 5% of the rectified spirit's value in accordance with Rule 6. This action demonstrates the appellants' compliance with regulatory provisions and further strengthens their case for claiming Cenvat credit on duty paid for molasses. The Tribunal's decision to dispense with the pre-deposit of duty and penalties, along with unconditionally allowing the stay petitions, reflects a consideration of the appellants' efforts to address the issue and maintain regulatory adherence.