2024 (2) TMI 815 - AT - Central Excise

Distillery entitled to CENVAT credit on capital goods for manufacturing ethyl alcohol as final product was excisable

NSL Krishnaveni Sugars Ltd Versus Commissioner of Central Tax, Rangareddy

CESTAT Hyderabad held that the appellant was entitled to CENVAT credit on capital goods installed in distillery plant for manufacturing ethyl alcohol ... CENVAT credit - capital goods installed in the distillery plant used for manufacture of Ethyl Alcohol - period from June 2011 to June 2012 - Erection, Commissioning & Installation services as input services availed after 01.04.2011 for setting up and installation of the distellery plant - exemption under Notification No. 67/1995-CE dt.16.03.1995 on the molasses consumed captively to manufacture Ethyl Alcohol - Requirement to pay an amount equal to 6% of value of the exempted goods in terms of Rule 6(3)(i) of Cenvat Credit Rules, 2004 [CCR, 2004] under Rule 14 read with Sec 11A of the Central Excise Act, 1944 - levy of interest and penalty. Whether the Appellant is entitled to Cenvat credit on the capital goods installed in the distillery plant used for manufacture of Ethyl Alcohol during the period from June 2011 to June 2012? - HELD THAT:- While it is true that in the process of manufacture of the excisable goods, viz, denatured Alcohol, Ethyl Alcohol, which is otherwise not chargeable to central excise duty arises at an intermediate stage, and the last step of denaturing takes place in tankers itself. The manner in which the goods have left the factory is what matters with respect to central excise duty, whether it is a question of payment of central excise duty or the admissibility of CENVAT credit on the capital goods, inputs or input services. There is no good reason as to why the Cenvat credit on capital goods used in the distillery should be denied to the Appellant - neither the factor that an exempted good, viz, Ethyl Alcohol comes into existence prior to the manufacture of denatured Alcohol nor the fact that denatured Alcohol is not produced within the distillery machines, but in the tankers within the factory, should make any difference to the entitlement of Cenvat credit. Nothing in the CCR determines the eligibility of CENVAT credit based on at what stage the final goods become liable to central excise duty, and so long as the goods which are cleared from the factory are excisable goods, CENVAT credit on the capital goods cannot be denied. Revenue relied on the decision of Division Bench of this Tribunal in RAI BAHADUR NARAIN SINGH SUGAR MILLS LTD VERSUS COMMISSIONER OF CENTRAL GST, DEHRADUN [2023 (11) TMI 1163 - CESTAT NEW DELHI] to assert that no Cenvat credit can be given on capital goods used in the manufacture of a distillery unit. We have examined the decision in Rai Bahadur Narain Singh Sugar Mills. The facts in that case were different. The Assessee in that case was entitled to an Area based exemption notification, which it availed and hence it would not have been entitled to CENVAT credit on captial goods - In this case, there is no exemption for denatured Alcohol and CO2 manufactured by the Appellant from duty and there is no dispute that duty was liable to be paid and was paid. Since the present case is different on facts, we find that the decision relied upon by the Revenue will not come to its rescue. Whether the Appellant is entitled to Cenvat credit on the Erection, Commissioning & Installation services as input services availed after 01.04.2011 for setting up and installation of the distellery plant? - HELD THAT:- This Bench held in PEPSICO INDIA HOLDINGS (PVT.) LTD. VERSUS COMMISSIONER OF CENTRAL TAX, TIRUPATI [2021 (7) TMI 1094 - CESTAT HYDERABAD] that after 01.04.2011, although the services rendered in relation to installation and commissioning of the plant were not in the inclusive part of the definition but they were not excluded either and the main part of the definition of input service is broad enough to include the input services used in setting up and installation of the plant and machinery and hence CENVAT credit is admissible - the Appellant is entitled to Cenvat credit on the inputs used in setting up the plant and machinery. Whether the Appellant is entitled to claim exemption under Notification No. 67/1995-CE dt.16.03.1995 on the molasses consumed captively to manufacture Ethyl Alcohol? - HELD THAT:- There are no strong force in the submission of the learned Counsel that the adverse report of the Range Superintendent obtained after the Hearing was over, cannot be relied upon unless a copy is served upon the Appellant and it is given an opportunity to defend. The only matter of fact to be determined is if the appellant had fulfilled the requirements under Rule 6 of CCR or not. In view of the above, it is found that it is a fit case to be remanded to the Commissioner on this question, with a direction to provide or send a copy of the report of the Range Superintendent to the appellant and after giving the appellant sufficient opportunity to rebut the report and explain how it had fulfilled the obligation under Rule 6 of CCR, and pass a reasoned order after following principles of natural justice. Whether the Appellant is required to pay an amount equal to 6% of value of the exempted goods in terms of Rule 6(3)(i) of Cenvat Credit Rules, 2004 [CCR, 2004] under Rule 14 read with Sec 11A of the Central Excise Act, 1944? - HELD THAT:- In M/S TIARA ADVERTISING VERSUS UNION OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE [2019 (10) TMI 27 - TELANGANA AND ANDHRA PRADESH HIGH COURT], it has been held by the Hon’ble High Court that the obligations under Rule 6(1) or Rule 6(2) or Rule 6(3) are various options given to the assessee and it is not for the Department to choose an option for the Assessee. If the assessee does not follow any of the options and fulfill its obligations, demand can be raised to deny the entire amount of Cenvat credit, but the assessee cannot be forced to pay an amount equal to 6% under Rule 6(3)(i) of CCR, 2004. Therefore, the demand equal to 6% of the value of exempted goods sold, under Rule 6(3) of CCR, 2004, cannot be sustained and needs to be set aside. Appeals are partly allowed and partly remanded. Issues Involved:1. Cenvat credit on capital goods installed in the distillery plant.2. Cenvat credit on Erection, Commissioning & Installation services.3. Exemption under Notification No. 67/1995-CE on molasses consumed captively.4. Payment of an amount equal to 6% of the value of exempted goods under Rule 6(3)(i) of CCR, 2004.5. Interest under Rule 14 of CCR, 2004.6. Penalty under Rule 15 of CCR, 2004 and Sec 11AC of the Act.Summary:1. Cenvat Credit on Capital Goods:The Tribunal examined whether the Appellant is entitled to Cenvat credit on capital goods used in the distillery plant for the manufacture of Ethyl Alcohol. The Department argued that since Ethyl Alcohol is an exempted product, no Cenvat credit is admissible. However, the Tribunal found that denatured Alcohol, which is excisable, is produced in the distillery, and therefore, Cenvat credit on capital goods should not be denied. The Tribunal ruled in favor of the Appellant, allowing Cenvat credit on capital goods.2. Cenvat Credit on Erection, Commissioning & Installation Services:The issue was whether the Appellant is entitled to Cenvat credit on services used for setting up the distillery plant after 01.04.2011. The Department contended that such services were removed from the 'includes' part of the definition of 'input service' post-01.04.2011. The Tribunal, relying on previous judgments, held that the main part of the definition of 'input service' is broad enough to include these services, and thus, Cenvat credit is admissible. The Tribunal ruled in favor of the Appellant.3. Exemption on Molasses Consumed Captively:The Department argued that the Appellant wrongly availed the benefit of Notification No. 67/1995-CE for molasses consumed captively. The Tribunal noted discrepancies in the Appellant's fulfillment of obligations under Rule 6 of CCR, 2004, as reported by the Range Superintendent. Since the report was not shared with the Appellant, the Tribunal remanded the matter back to the Commissioner to provide a copy of the report and decide afresh after giving the Appellant an opportunity to defend.4. Payment of 6% of the Value of Exempted Goods:The Tribunal found that the demand for an amount equal to 6% of the value of exempted goods under Rule 6(3) of CCR, 2004, is not sustainable. It cited the jurisdictional High Court's ruling that the Department cannot choose an option for the Assessee under Rule 6. The Tribunal set aside this demand.5. Interest:The Tribunal did not specifically address the issue of interest under Rule 14 of CCR, 2004, as it is consequential to the primary issues discussed.6. Penalty:Similarly, the Tribunal did not specifically address the issue of penalty under Rule 15 of CCR, 2004, and Sec 11AC of the Act, as it is consequential to the primary issues discussed.Conclusion:The Tribunal partly allowed the appeals, setting aside the denial of Cenvat credit on capital goods and input services used in the distillery plant and the demand for 6% of the value of exempted goods. The issue of exemption on molasses consumed captively was remanded to the Original Authority for a fresh decision after providing the Appellant with the Range Superintendent's report.