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

CESTAT Hyderabad held that the appellant was entitled to CENVAT credit on capital goods installed in distillery plant for manufacturing ethyl alcohol during June 2011-June 2012, as the final cleared goods (denatured alcohol) were excisable. The tribunal distinguished the case from precedent where area-based exemption applied. CENVAT credit on erection, commissioning, and installation services after April 2011 was also allowed as input services. The matter regarding exemption under Notification 67/1995-CE on molasses was remanded to Commissioner for proper adjudication following natural justice principles. The demand for 6% payment under Rule 6(3)(i) CCR 2004 was set aside, as the department cannot force a specific option on the assessee.

---

---

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.

---