Molasses exemption under N/N. 67/95-CE upheld for captive consumption despite department's non-excisable goods claim

CESTAT Chennai allowed the appeal regarding exemption on molasses manufactured for captive consumption under N/N. 67/95-CE dated 16-03-1995. The department denied benefits claiming products were non-excisable goods under Section 2(d) of Central Excise Tariff Act 1944. The Tribunal relied on its earlier decision in Final Order No. 40789-40799/2014 and held that rectified spirit and extra neutral alcohol remained covered under subheading 22 07 2000 after tariff restructuring from 01.03.2005, supported by Board Circular No. 808/5/2005-CX. The SC upheld this position in Commissioner of CE ST versus Dharani Sugars Chemicals Ltd. The demand, interest and penalties were set aside.

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Issues Involved:
1. Eligibility for the benefit of Notification No. 67/95-CE dated 16.03.1995.
2. Eligibility for credit availed on inputs, input services, and capital goods.

Issue-Wise Detailed Analysis:

1. Eligibility for the Benefit of Notification No. 67/95-CE dated 16.03.1995:
The appellant is engaged in the manufacture of various products, including excisable and non-excisable goods. The primary issue is whether the appellant can avail the benefit of Notification No. 67/95-CE for molasses used in the manufacture of non-excisable goods like rectified spirit and extra neutral alcohol. The department argued that these goods are non-excisable as they are not listed in the First Schedule of the Central Excise Tariff Act, 1985, and thus, the appellant is not eligible for the notification benefit.

The appellant contended that rectified spirit and extra neutral alcohol were excisable but exempted goods, classified under subheading 220490 prior to 01.03.2005 at nil duty. After the restructuring of the Tariff effective from 01.03.2005, these goods were cleared without payment of duty as exempted goods by Notification No. 03/2005-CE and Notification No. 12/2012. The Tribunal in the appellant's own case for the earlier period had already set aside the demand, a decision affirmed by the Hon'ble Supreme Court.

The Tribunal reviewed the legislative changes in Chapter 22 and the relevant notifications, concluding that rectified spirit and extra neutral alcohol remained exempted goods under the new tariff structure. The Tribunal cited the Board Circular No. 808/5/2005-CX dated 25.02.2005, which clarified that these goods are covered under subheading 2207 2000 after the tariff restructuring. The Tribunal also referred to various judgments, including the Hon'ble Allahabad High Court's decision in Gularia Chini Mills vs. Union of India, which supported the appellant's position.

2. Eligibility for Credit on Inputs, Input Services, and Capital Goods:
The department also argued that the appellant is not eligible to take credit on molasses procured from outside, other inputs, input services, and capital goods used in the manufacture of non-excisable goods. The appellant had availed credit on various inputs and input services used in the manufacture of non-excisable goods and on capital goods used exclusively in the distillery unit.

The Tribunal noted that the appellant had reversed the amount under Rule 6 of the CENVAT Credit Rules, 2004, at the time of clearance of the exempted denatured ethyl alcohol, including rectified spirit. It was observed that the restructuring of the tariff from 6-digit to 8-digit did not involve any substantive changes in the existing rules, and the appellant's products remained covered under the relevant headings, thus eligible for the exemption and credit.

The Tribunal cited previous decisions, including Ugar Sugar Works vs. CCE and Godavari Sugar Mills Ltd. vs. CCE, which held that rectified spirit and denatured spirit remained excisable under the new tariff structure. The Tribunal concluded that the appellant had discharged the obligation under Rule 6 of the CENVAT Credit Rules by paying 6% of the invoice value on the clearance of rectified spirit, making them eligible for the benefit of Notification No. 67/95-CE.

Conclusion:
The Tribunal, after appreciating the facts and following the above decisions, concluded that the demand, interest, and penalties cannot sustain. The impugned order was set aside, and the appeal was allowed with consequential relief if any. The Tribunal's decision was consistent with its previous rulings and the Hon'ble Supreme Court's affirmation, ensuring the appellant's eligibility for the benefits claimed.

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