2015 (5) TMI 22 - AT - Central Excise

Court allows CENVAT credit for sugar manufacturing inputs and power generation

The appeals were allowed in favor of the appellant in all three issues. The court held that the appellant was entitled to CENVAT credit on common inputs ... Denial of CENVAT credit - common inputs - whether common inputs used by appellant in the course of manufacture of sugar resulting in sugar as well as bagasse and press mud not liable to duty is entitled to CENVAT credit on the inputs used - Held that:- Following decision of CCE, Pondicherry Vs. EID Parry (I) Ltd. [2013 (3) TMI 366 - MADRAS HIGH COURT], Gularia Chini Mills Ltd. Vs. Union of India [2013 (7) TMI 159 - ALLAHABAD HIGH COURT] and Balrampur Chini Mills Ltd. Vs. Union of India [2013 (1) TMI 525 - ALLAHABAD HIGH COURT] - if generation of power by appellant was neither using mineral fuels, mineral oils and products of their distillation, bituminous, substances, mineral waxes etc., the energy so generated from bagasse is not be covered by Chapter 27 of the Central Excise Tariff Act, 1985. Therefore, there cannot be denial of CENVAT credit. It was the opinion of the Court that the electricity energy not being excisable goods nor its is exempted goods in terms of Rule 2(d) of the CENVAT Credit Rules, 2004, the appellant cannot be denied of the CENVAT credit on the common input used. - Decided in favour of assessee. Issues Involved:1. CENVAT credit entitlement on common inputs used in the manufacture of sugar, bagasse, and press mud.2. Denial of CENVAT credit due to the generation of power using bagasse.3. Disentitlement to CENVAT credit for the common input due to bagasse generation in sugar manufacturing.Analysis:Issue 1: CENVAT Credit on Common InputsIn the first appeal (E/391/2012), the controversy revolved around whether the appellant, using common inputs to manufacture sugar, bagasse, and press mud, is entitled to CENVAT credit. The appellant argued that the input-output relationship need not be one-to-one, citing a judgment by the Hon'ble High Court of Madras. The court found merit in the appellant's submission, emphasizing that once inputs are used in the initial stage to produce final products and wastes, there is no further application of those inputs in the manufacturing process. As the exempted final product, bio-compost fertilizer, did not involve the use of CENVAT credit inputs, the Revenue's demand for denial of credit was deemed unsustainable. The appeal was allowed based on the alignment with the High Court's findings.Issue 2: Denial of CENVAT Credit for Power GenerationIn the second appeal (E/511/2012), the question arose regarding the denial of CENVAT credit due to the generation of power using bagasse. The appellant contended that the electricity generated was not excisable goods and, therefore, CENVAT credit should not be denied. Citing a judgment by the Hon'ble High Court of Allahabad, which clarified that electrical energy generated from bagasse does not fall under Chapter 27 of the Central Excise Tariff Act, the court held that the appellant cannot be denied CENVAT credit on the common inputs used. The Revenue failed to provide evidence to counter the court's reasoning, leading to the allowance of the appeal.Issue 3: Disentitlement to CENVAT Credit for Bagasse GenerationThe third appeal (E/40316/2014) focused on whether the generation of bagasse during sugar manufacturing would disentitle the appellant to CENVAT credit for common inputs. Referring to a judgment by the Hon'ble High Court of Allahabad, the court clarified that since bagasse is a waste product that emerges during the sugar manufacturing process, it does not constitute the manufacture of exempted goods. The court emphasized that bagasse being an agricultural waste does not involve any manufacturing activity that would warrant the imposition of duty. As the Revenue failed to provide any material to distinguish the relevant paragraphs of the High Court's judgment, the appeal was allowed.In conclusion, all three appeals were allowed based on the alignment with the respective High Court judgments and the lack of evidence presented by the Revenue to counter the legal interpretations provided therein.