2015 (4) TMI 215 - AT - Central Excise

Bagasse electricity not excisable: Tribunal rejects Revenue appeal

The Tribunal upheld the impugned order, dismissing the Revenue's appeals, as it concluded that electricity generated from bagasse is not excisable goods ... Cenvat credit - excisable goods - exempted goods - Rule 6(3) of the Cenvat Credit Rules - requirement to reverse 10% of value - use of bagasse as boiler fuel - manufacture of electricityRule 6(3) of the Cenvat Credit Rules - Cenvat credit - requirement to reverse 10% of value - manufacture of electricity - use of bagasse as boiler fuel - excisable goods - exempted goods - Whether respondents were required to pay 10% of the value of electricity sold under Rule 6(3) because cenvat credit was availed on inputs/input services used in generation of that electricity. - HELD THAT: - The Tribunal found as an admitted fact that only bagasse, a by product on which no duty is payable, was used as fuel in the boiler; steam produced by burning bagasse operated the turbine by pressure and no steam was itself used in the manufacture of electricity. The Revenue's reliance on authorities where dutiable inputs or fuel (such as furnace oil or other goods) were used in electricity generation was held inapposite on facts. The Tribunal further relied on the decision of the Hon'ble Allahabad High Court in Gularia Chini Mills, which held that electrical energy generated from bagasse is not covered under the chapter as excisable goods and therefore is not an exempted good under Section 2(d) of the Act; consequently Rule 6 is not attracted as indicated by the Supreme Court in Solaris Chemtech Ltd. Applying these authorities and the factual finding that no dutiable input/input service was used in manufacture of electricity, the Tribunal concluded that the obligation to reverse 10% under Rule 6(3) did not arise. [Paras 6, 7]Demand for reversal equal to 10% of the value of electricity was not sustainable; the Commissioner (Appeals) order dropping the demand is upheld and Revenue's appeals are dismissed.Final Conclusion: On the admitted facts that only bagasse (a duty free by product) was used as boiler fuel and no dutiable inputs/input services were employed in manufacture of electricity, electricity generated is not an excisable/exempted good for the purposes of Rule 6; therefore the requirement to reverse 10% under Rule 6(3) did not arise and the appellate order setting aside the demand is upheld. Issues:1. Whether the respondents are liable to pay 10% of the amount of electricity cleared by them as duty under Rule 6(3) of the Cenvat Credit Rules.Detailed Analysis:Issue 1: Liability to Pay Duty on Electricity Cleared:The Revenue appealed against the dropping of demands by the learned Commissioner (Appeals) regarding the respondents availing cenvat credit without maintaining separate accounts for dutiable and exempted goods. The Revenue contended that since electricity cleared by the respondents to MSEDCL without payment of duty is considered exempted goods, they are required to pay 10% of the amount of electricity cleared as per Rule 6(3) of the Cenvat Credit Rules. The Revenue relied on previous tribunal decisions to support their argument.Analysis: The respondents argued that the generation of electricity involved using bagasse as fuel in the boiler, which does not attract duty. They emphasized that no steam was directly used in the manufacture of electricity, making the dutiable inputs and input services argument irrelevant. They cited tribunal decisions and a High Court case to support their stance that electricity generated from bagasse is not excisable goods, thus exempt from Rule 6 of the Cenvat Credit Rules. The Tribunal agreed with the respondents, stating that the facts of the case did not align with the previous cases cited by the Revenue. Referring to the High Court decision, the Tribunal concluded that electricity generated from bagasse is not excisable goods and, therefore, Rule 6 of the Cenvat Credit Rules does not apply. Consequently, the Tribunal upheld the impugned order, dismissing the appeals filed by the Revenue.This comprehensive analysis highlights the core issue of the liability to pay duty on electricity cleared by the respondents under Rule 6(3) of the Cenvat Credit Rules, providing a detailed examination of the arguments presented by both parties and the Tribunal's reasoning in reaching its decision.