2019 (2) TMI 1384 - AT - Central Excise

Tribunal rules in favor of sugar manufacturer on Cenvat Credit Rules for bagasse electricity

The Tribunal ruled in favor of the appellant, a sugar manufacturer, in a case concerning the applicability of Cenvat Credit Rules to electricity generated ... Excisability - waste - the electricity sold by the appellant that was being generated from bagasse - Applicability of Explanation 1 inserted to Rule 6(1) of Cenvat Credit Rules 2004 - Held that:- Admittedly electricity, though not found in tangible form, is classifiable under Tariff item no. 27160000 of Central Excise Tariff Act, 1985. But it is a non-excisable goods and the process of generation of electricity though a manufacturing process is dutiable if it is generated from mineral oils, bitumen substance, mineral waxes etc. and electricity generated from bagasse is not covered under Chapter 27 like electricity generated through solar power, hydro power, wind power etc. It has been held by this Tribunal in the case of Jakarya Sugars Ltd, [2018 (5) TMI 1665 - CESTAT MUMBAI], that electricity generated from bagasse which is a by-product is neither a dutiable goods nor liable for payment of 6% - the duty demand made against such sale of surplus electricity manufactured through waste product is not sustainable in law - appeal allowed - decided in favor of appellant. Issues:1. Applicability of Explanation 1 to Rule 6(1) of Cenvat Credit Rules 2004 to electricity generated from bagasse.2. Imposition of duty liability under Rule 6(3A) of Cenvat Credit Rules 2004 on electricity sold by the appellant.3. Compliance with maintaining separate records for exempted final product.4. Interpretation of Rule 6 in relation to waste products like bagasse.5. Nexus between common inputs and generation of electricity.6. Eligibility of cenvat credit for inputs and input services used for generation of electricity sold.7. Judicial precedent regarding duty liability on electricity generated from waste products.Analysis:1. The judgment revolves around the applicability of Explanation 1 to Rule 6(1) of Cenvat Credit Rules 2004 to electricity generated from bagasse. The Tribunal examined the duty liability imposed under Rule 6(3A) of the same rules on the electricity sold by the appellant. The departmental authority found the appellant liable to pay duty on the value of exempted goods sold, leading to the appeal.2. The factual background of the case revealed that the appellant, a sugar manufacturer, generated electricity from bagasse, a waste product, and sold a portion to a power trading company. The department alleged non-maintenance of separate records for exempted electricity generation, resulting in a duty demand of 6%. The appellant challenged this duty demand through the appeal process.3. During the appeal, the appellant's counsel argued based on precedents that bagasse was not considered an input or input service for electricity generation. The appellant contended that the common inputs used were primarily for manufacturing sugar, not electricity. The department's lack of evidence supporting the use of inputs for electricity generation was highlighted.4. The appellant relied on legal precedents, including the Jakarya Sugars Ltd. judgment, to support their case. The Tribunal considered these arguments and precedents, emphasizing that electricity generated from bagasse, a by-product, was not dutiable or subject to the 6% duty.5. The department, represented by the Assistant Commissioner, defended the duty demand, arguing for the reversal of credits related to inputs used for generating and selling electricity. The nexus between common inputs and electricity generation for sale was a key point of contention.6. After hearing both sides and reviewing relevant decisions, the Tribunal concluded that the duty demand on surplus electricity generated from waste products like bagasse was not legally sustainable. The judgment referenced the Jakarya Sugars Ltd. case as a post-amendment precedent supporting this conclusion.7. Ultimately, the Tribunal allowed the appeal, setting aside the order of the Commissioner of Central Tax (Appeals) that upheld the duty demand on the appellant. The judgment was pronounced on 22.02.2019, emphasizing the legal precedent and interpretation of the Cenvat Credit Rules in the context of electricity generation from waste products.