Molasses used for manufacturing denatured spirits qualifies for duty exemption under notification 67/95-CE for captive consumption

The CESTAT Mumbai allowed the assessee's appeal, setting aside the Commissioner's order regarding dutiability of molasses used in manufacturing non-excisable goods. The tribunal held that notification 67/95-CE facilitates captive consumption in integrated manufacturing processes, avoiding multiple duty assessments at intermediate stages. Since denatured spirits are manufactured goods that are excisable and not exempt, and molasses were used captively for this purpose, the molasses qualified for duty exemption under the notification. The tribunal emphasized that denaturing renders spirits unfit for human consumption without altering their utility for further manufacturing processes.

---

---

Issues Involved:
1. Dutiability of 'molasses' used in the manufacture of non-excisable goods.
2. Wrongful availment of CENVAT credit.
3. Interpretation of tariff structure post-1st March 2005.
4. Applicability of notification no. 67/95-CE dated 16th March 1995.

Summary:

1. Dutiability of 'molasses' used in the manufacture of non-excisable goods:
The central excise authorities contended that 'ethyl alcohol or rectified spirit' comes into existence before denaturing, which are either sold without payment of duty or used for clearance as 'denatured spirits'. This rendered the 'molasses' liable to duty. The Tribunal noted that the impugned notification is intended to facilitate 'captive consumption' and concluded that the 'molasses' used in the manufacture of 'denatured spirits' are exempt from duty. The demand of duty on 'molasses' in the order of Commissioner of Central Excise fails to survive along with attendant detriments.

2. Wrongful availment of CENVAT credit:
The appellant had utilized Rs. 22,05,112 of credit under CENVAT Credit Rules, 2004, of duty paid on 'molasses' procured by them to discharge duty liability on 'denatured ethyl alcohol' while reversing the credit attributable to clearance of 'rectified spirit'. The Tribunal found that the appellant has reversed credit taken on 'molasses' procured from elsewhere and adhered to the injunction on retention of credit of duty paid on goods deployed in the manufacture of 'exempted goods'. Thus, negating the demand on that count in the order of Commissioner of Central Excise along with appended detriments.

3. Interpretation of tariff structure post-1st March 2005:
The Tribunal noted that the tariff structure appended to Central Excise Tariff Act, 1985 underwent alteration for alignment with the Schedule appended to Customs Tariff Act, 1975. The revised tariff item 2207 2000 of First Schedule includes 'Ethyl alcohol and other spirits, denatured, of any strength'. The Tribunal held that 'rectified spirit' is not chargeable to duty and, therefore, 'molasses' should bear the burden of duty. However, the Tribunal found no evidence of any goods having come into existence at the intermediate stage except by presumption.

4. Applicability of notification no. 67/95-CE dated 16th March 1995:
The Tribunal concluded that the impugned notification intended to preclude scrutiny of a process that the said notification intended to facilitate. The 'proviso' would come into play only upon a claim of exemption from duty of central excise, which was not preferred in relation to the goods that were yet in the manufacturing process. The Tribunal found that the error in the order of the Commissioner of Central Excise was in contriving to scrutinize a process that the notification intended to preclude.

Conclusion:
The order of Commissioner of Central Excise is set aside, allowing the appeal of the assessee. The appeal of the assessee impugning the order of Commissioner of Central Excise (Appeals) is dismissed as infructuous.

---