Cenvat credit for sugar and distillery operations remains available when rectified spirit is only an intermediate form.

Cenvat credit on common inputs, input services and capital goods used in a sugar-cum-distillery unit cannot be denied merely because rectified spirit emerges as an intermediate stage before denaturation. The Tribunal treated rectified spirit and ethyl alcohol as the same commodity, and noted that denatured spirit remains within the relevant excisable tariff entry. On that basis, the emergence of rectified spirit did not break the manufacturing chain or the eligibility for credit. Accordingly, denial of Cenvat credit was unsustainable, and the associated demand, interest and penalty could not survive.

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Issues: Whether Cenvat credit on inputs, input services and capital goods used in the manufacture of sugar and molasses could be denied on the ground that rectified spirit emerges as an intermediate product before denaturation into spirit not fit for human consumption.

Analysis: The controversy turned on whether rectified spirit and ethyl alcohol are distinct commodities or the same product. The Tribunal followed its earlier decision and the reasoning that ethyl alcohol/rectified spirit is the same commodity, and that denatured spirit produced in a composite sugar and distillery unit remains within the excisable tariff entry. On that basis, the emergence of rectified spirit did not break the chain of eligibility for Cenvat credit on the common inputs, input services and capital goods used in the manufacturing process.

Conclusion: Cenvat credit could not be denied to the assessee, and the demand, interest and penalty were not sustainable.

Ratio Decidendi: Where rectified spirit is only an intermediate form of ethyl alcohol and denatured spirit is the final excisable product, Cenvat credit cannot be denied merely because rectified spirit emerges during the manufacturing process.

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