2019 (11) TMI 123 - HC - Central Excise

Tribunal rules non-excisable bagasse electricity not under Cenvat Credit Rule 6

Commissioner of Central Excise And Service Tax LTU, Delhi Versus Nangalamal Sugar Complex

The Tribunal allowed the respondent's appeal, citing that electricity generated from non-excisable bagasse does not fall under Rule 6 of the Cenvat Credit ... CENVAT Credit - common input, input services used in dutiable goods (sugar and molasses) as well as exempted goods (bagasse and electricity) - Rule 6 (3A) of the Cenvat Credit Rules - N/N. 23/2004-CE (NT), dated 10th September, 2004. Is the CESTAT correct in holding that as electricity is not excisable, Rules 6(2) & (3) of the CENVAT Credit Rules, 2004 are not applicable and consequently input credit is admissible in the facts and circumstances of the case? HELD THAT:- The point on which the learned Tribunal has decided the appeal is a point of law, i.e., the excisability, or otherwise, of electricity. It is required to be decided on the basis of the prevalent statutory position, as reflected in the Act, read with the Tariff and the law laid down on the point, and is not dependent on adjudication of any disputed question of fact. Statutorily, therefore, there is no escape from the position, in law, that “electricity”, or “electrical energy”, is excisable. The Supreme Court has, in UNION OF INDIA VERSUS DSCL SUGAR LTD. [2015 (10) TMI 566 - SUPREME COURT] clearly held that bagasse is not an excisable item and, that, therefore, a demand under Rule 6 of the Cenvat Credit Rules, on the ground of sale of electricity generated from bagasse, could not sustain - The inevitable sequitur of the discussion is that the decision of the Tribunal, to allow the appeal of the respondent on the basis of the judgment of the High Court of Allahabad in GULARIA CHINI MILLS AND OTHERS VERSUS UNION OF INDIA AND OTHERS [2013 (7) TMI 159 - ALLAHABAD HIGH COURT], was justified, albeit for the reason that, as the electricity sold by the respondent was generated entirely from bagasse, and bagasse itself was in the nature of non-excisable waste/residue, no demand, posited on Rule 6(3)(i) of the Cenvat Credit Rules, could sustain against the respondent. The question of law, framed answered in the affirmative, and against the Revenue - Appeal dismissed. Issues Involved:1. Applicability of Rule 6 of the Cenvat Credit Rules, 2004.2. Classification of electricity as 'excisable goods.'3. Entitlement to Cenvat Credit on inputs used for generating electricity sold outside the factory.4. Validity of demands raised under Rule 6(3)(i) of the Cenvat Credit Rules.5. Admissibility of 'proportionate' Cenvat Credit reversal.Issue-wise Detailed Analysis:1. Applicability of Rule 6 of the Cenvat Credit Rules, 2004:The core issue revolves around whether Rule 6 of the Cenvat Credit Rules applies when common inputs and input services are used in the manufacture of both dutiable and exempted goods. The respondent was accused of not maintaining separate accounts for inputs used in manufacturing dutiable and exempted goods, nor reversing the Cenvat Credit in accordance with Rule 6(3A). The Tribunal, relying on the High Court of Allahabad's decision in Gularia Chini Mills, held that Rule 6 does not apply to electricity as it is not 'excisable goods.'2. Classification of Electricity as 'Excisable Goods':The Tribunal followed the High Court of Allahabad's ruling in Gularia Chini Mills, which held that electricity is not 'excisable goods' under Section 2(d) of the Central Excise Act. The High Court reasoned that Chapter 27 of the Tariff only covers electricity generated from mineral fuels, not from bagasse. The Supreme Court in D.S.C.L. Sugar Ltd. affirmed this view, stating that bagasse is non-marketable waste, and electricity generated from it cannot be considered 'excisable goods.'3. Entitlement to Cenvat Credit on Inputs Used for Generating Electricity Sold Outside the Factory:The Revenue argued, based on Maruti Suzuki Ltd., that Cenvat Credit is not admissible for inputs used in generating electricity sold outside the factory. The Supreme Court in Maruti Suzuki Ltd. held that inputs used for generating electricity sold outside the factory are not entitled to Cenvat Credit. However, the Supreme Court in D.S.C.L. Sugar Ltd. clarified that bagasse is non-excisable waste, and electricity generated from it does not attract Rule 6 of the Cenvat Credit Rules.4. Validity of Demands Raised Under Rule 6(3)(i) of the Cenvat Credit Rules:The Commissioner had confirmed a demand of Rs. 2,81,82,486/- against the respondent under Rule 6(3)(i), representing 10%/5% of the price at which electricity was sold to UPPCL. The Tribunal, following Gularia Chini Mills, held that such a demand could not be sustained as electricity is not 'excisable goods.' The Supreme Court in D.S.C.L. Sugar Ltd. upheld this view, dismissing the Revenue's appeal and confirming that Rule 6(3)(i) does not apply to electricity generated from non-excisable bagasse.5. Admissibility of 'Proportionate' Cenvat Credit Reversal:The respondent claimed to have reversed proportionate Cenvat Credit for inputs used in generating electricity sold outside the factory. The Commissioner rejected this claim due to insufficient evidence and non-compliance with Rule 6(3A). The Tribunal did not address this issue directly, focusing instead on the excisability of electricity. The Supreme Court in Chandrapur Magnet Wires Pvt. Ltd. held that proportionate reversal of Cenvat Credit is permissible, but the procedure must be followed as prescribed.Conclusion:The Tribunal's decision to allow the respondent's appeal was justified based on the Supreme Court's ruling in D.S.C.L. Sugar Ltd., which held that electricity generated from bagasse, a non-excisable waste, does not attract Rule 6(3)(i) of the Cenvat Credit Rules. Consequently, the question of law was answered in the affirmative, and the Revenue's appeal was dismissed.