Sugar factory and distillery under single registration deemed one unit, area-based exemption applies to all products

CESTAT New Delhi held that a sugar factory and distillery unit operating under single Central Excise registration constituted one unit despite separate state licenses. The tribunal ruled that area-based exemption under N/N. 50/2003-CE applied to all products including denatured alcohol and CO2, making them fully duty-exempt. However, no CENVAT credit was allowable on capital goods for exempt products. Regarding input services, CENVAT credit of Rs. 32,82,816 was allowed for invoices issued before September 1, 2014, as notification 21/2014-CE restricting six-month availment applied prospectively. Demand of Rs. 4,57,436 for short reversal under Rule 6(3A) was upheld as the show cause notice issued on January 4, 2016 fell within one-year limitation period. Appeal was partly allowed with penalty reduction.

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Issues Involved:
1. Whether the distillery unit and the sugar factory are separate entities for the purpose of Central Excise and CENVAT Credit Rules.
2. Whether the appellant is entitled to CENVAT credit on capital goods and input services used in setting up the distillery unit.
3. Whether the demand of Rs. 4,57,436/- is a duplication.
4. Whether the demand was time-barred.

Issue-wise Comprehensive Details:

1. Separate Entities for Central Excise and CENVAT Credit Rules:
The Tribunal held that the sugar factory and the distillery unit are one unit as far as Central Excise is concerned. The appellant had a single Central Excise registration and filed a single Excise Return for both the sugar factory and the distillery. The Tribunal stated, "We, therefore, find that the sugar factory and the distillery are one unit as far as the Central Excise is concerned."

2. Entitlement to CENVAT Credit:
The Tribunal noted that the appellant availed the area-based exemption notification and it is not tenable to claim the benefit of the exemption on some goods and not on others. The Tribunal stated, "Once the appellant had opted for the area-based exemption notification, it is not open for it to say that it will not avail the benefit for some goods manufactured and will avail the benefit for other goods." Consequently, no CENVAT credit on the capital goods used in setting up the distillery could be availed by the appellant.

3. Demand of Rs. 4,57,436/-:
The Tribunal found that the demand of Rs. 4,57,436/- on account of alleged short reversal of CENVAT Credit under Rule 6(3A) for December 2014 is not a duplication. The Tribunal upheld the demand stating, "The demand of Rs. 4,57,436/- needs to be upheld."

4. Time-barred Demand:
The Tribunal rejected the appellant's contention that the demand was time-barred. The Tribunal noted, "The show cause notice was issued on 4.01.2016 within one year from the relevant date. We, therefore, find no force in the submission of the learned counsel that the show cause notice was time-barred."

Conclusion:
The appeal was partly allowed. The denial of CENVAT credit on input services to the extent of Rs. 32,82,816/- was set aside, and the rest of the demand was upheld. The impugned order was modified accordingly.

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