Cenvat credit on surplus electricity from bagasse generation not recoverable under Rule 6; demand and penalty unsustainable.

Electrical energy generated in a sugar factory from bagasse and sold as surplus was treated as non-excisable, so Rule 6 of the Cenvat Credit Rules, 2004 did not require payment of 10% of its value. The Tribunal accepted that such electricity was not an exempted final product for Rule 6 purposes under Section 2(d) of the Central Excise Act, 1944. It also noted that credit attributable to inputs and input services used for generation of the electricity sold outside had already been reversed, which satisfied the Cenvat requirement. The demand, interest and penalty were therefore unsustainable.

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Issues: Whether the appellant was liable under Rule 6 of the Cenvat Credit Rules, 2004 to pay an amount equal to 10% of the value of electricity sold and to reverse credit attributable to inputs and input services used in generation of electricity, and whether the demand and penalty could be sustained.

Analysis: The dispute turned on whether electricity generated in the sugar factory and sold as surplus was an exempted or excisable final product for the purpose of Rule 6. The Tribunal followed the settled view that electrical energy generated from bagasse or similar non-conventional sources is not excisable goods within the meaning of Section 2(d) of the Central Excise Act, 1944 and therefore does not attract the Rule 6 mechanism applicable to dutiable and exempted final products. The Tribunal also noted that the appellant had already reversed the credit attributable to inputs and input services used in generation of electricity sold outside, which was sufficient compliance with the Cenvat scheme.

Conclusion: The appellant was not required to pay 10% of the value of the electricity sold and the demand, interest and penalty were unsustainable.

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