2016 (8) TMI 386 - AT - Central Excise

Tribunal rules in favor of appellant in CENVAT credit case involving rectified spirit classification

The Tribunal ruled in favor of the appellant, a composite unit with a sugar mill and distillery division, in a case involving the demand for wrongly ... CENVAT credit admissibility - classification of rectified spirit as ethyl alcohol - tariff item 22072000 covering ethyl alcohol and denatured spirits - composite unit manufacturing doctrine - continuous manufacturing processCENVAT credit admissibility - classification of rectified spirit as ethyl alcohol - tariff item 22072000 covering ethyl alcohol and denatured spirits - continuous manufacturing process - Whether rectified spirit produced during fermentation is the same commodity as ethyl alcohol and, if so, whether inputs, input services and capital goods used in its manufacture qualify for CENVAT credit when the final product is denatured spirit falling under tariff item 22072000. - HELD THAT: - The appellants operate a composite unit where molasses produced in the sugar mill are fermented in the distillery to obtain ethyl alcohol, which is thereafter denatured. The department's case was that with effect from 01.03.2005 tariff item 22072000 covers ethyl alcohol and denatured spirits and that a pre-denatured intermediate called 'rectified spirit' did not find place in the tariff, thereby breaking admissibility of CENVAT credit on inputs, input services and capital goods. The Tribunal examined the nature of 'rectified spirit' and relied on the Apex Court's observation (para 9 of the cited decision) that rectified spirit for industrial process is spirit purified by distillation having a strength of not less than 95% by volume of ethyl alcohol, treating rectified spirit and ethyl alcohol as one and the same for non consumable use. Applying that reasoning to the present facts, the Tribunal held that rectified spirit not intended for human consumption is ethyl alcohol and is covered by tariff item 22072000; consequently the emergence of that intermediate does not sever the chain of manufacture so as to render CENVAT credit inadmissible. The show cause notice and the order confirming recovery were found unsustainable on this basis.The Tribunal held that rectified spirit used for industrial purposes is ethyl alcohol falling under tariff item 22072000 and that CENVAT credit on inputs, input services and capital goods used in the manufacture of denatured spirit is admissible; the impugned order and show cause notice were set aside and the appeal allowed.Final Conclusion: The appeal is allowed: rectified spirit (for industrial use) is held to be ethyl alcohol covered by tariff item 22072000, CENVAT credit is admissible for inputs etc. used in the manufacture of denatured spirit, and the show cause notice and impugned order are set aside. Issues:1. Demand of CENVAT credit on inputs and capital goods.2. Interpretation of Central Excise Tariff regarding rectified spirit.3. Admissibility of CENVAT credit for manufacturing denatured spirit.Analysis:1. The appellant, a composite unit with a sugar mill and distillery division, faced a demand for wrongly availed CENVAT credit of Rs. 9,51,11,791. The issue revolved around the manufacturing process of rectified spirit and denatured spirit. The appellant contended that rectified spirit is essentially ethyl alcohol and falls under tariff item no. 22072000. The original authority confirmed the demand, leading to the appeal.2. The central issue was whether rectified spirit is distinct from ethyl alcohol and whether it is covered under the Central Excise Tariff. The appellant argued that rectified spirit is ethyl alcohol and relied on various legal precedents to support their claim. The revenue representative, however, supported the original authority's findings.3. Upon careful consideration, the Tribunal analyzed the manufacturing process and the relevant tariff items. They referred to a Supreme Court ruling highlighting that ethyl alcohol and rectified spirit are synonymous. Consequently, the Tribunal concluded that rectified spirit, when not intended for human consumption, is indeed ethyl alcohol falling under tariff item no. 22072000. As a result, the show cause notice demanding CENVAT credit was deemed unsustainable, leading to the appeal's success with consequential relief granted.