Molasses used for exempted products qualifies for excise duty refund under Notification 67/95-CE after credit reversal /95

CESTAT Bangalore allowed the appeal regarding refund of excise duty paid on molasses, a by-product of sugar manufacturing. The appellant manufactured sugar and used molasses captively to produce both dutiable products (Fuse Oil, Denatured Spirit, Ethyl Alcohol, Carbon dioxide) and exempted products (Rectified Spirit, Extra Neutral Alcohol). The tribunal held that molasses used in manufacturing exempted products qualified for exemption under Notification 67/95-CE dated 16.3.1995. Since the appellant had reversed proportionate credit attributable to molasses manufacture, they satisfied Rule 6 of CCR 2004 requirements, making them eligible for the notification benefit. The impugned order was set aside and refund claim allowed.

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Issues Involved:
1. Eligibility for refund of excise duty paid on molasses used captively for manufacturing exempted products.
2. Compliance with Notification No. 67/1995-CE and Rule 6 of the CENVAT Credit Rules, 2004.
3. Interpretation of Rule 6(3)(a)(i) of the CENVAT Credit Rules, 2004.

Detailed Analysis:

1. Eligibility for Refund of Excise Duty Paid on Molasses Used Captively for Manufacturing Exempted Products:
The appellants are engaged in the manufacture of sugar and its by-product, molasses, which is further used in their distillery unit to produce Rectified Spirit and Extra Neutral Alcohol. They initially paid duty on molasses but later claimed exemption under Notification No. 67/1995-CE, arguing that molasses used captively in the manufacture of exempted products should be eligible for exemption. The refund claim for the duty paid from September 2007 to April 2008 was rejected by the Assistant Commissioner and subsequently by the Commissioner (Appeals), leading to the present appeal.

2. Compliance with Notification No. 67/1995-CE and Rule 6 of the CENVAT Credit Rules, 2004:
The core argument revolves around whether the appellants complied with the conditions stipulated in Notification No. 67/1995-CE, particularly Clause (vi), which mandates compliance with Rule 6 of the CENVAT Credit Rules, 2004. The appellants contended that they reversed the CENVAT credit attributable to the inputs and input services used in the manufacture of molasses, thus fulfilling the conditions for availing the exemption. They cited several judgments, including Godavari Sugar Mills Ltd. and Sri Chamundeswari Sugars Ltd., to support their claim that the issue is no longer res integra.

3. Interpretation of Rule 6(3)(a)(i) of the CENVAT Credit Rules, 2004:
The appellants argued that Rule 6(3)(a)(i) allows for the reversal of CENVAT credit attributable to inputs and input services used in the manufacture of exempted final products. They maintained that molasses, an inevitable by-product in sugar manufacture, is used to produce both dutiable and exempted products. The Revenue, however, contended that the appellants failed to comply with Rule 6 by not reversing the duty payable on molasses used in the manufacture of exempted products. The Tribunal, referencing prior judgments, concluded that the appellants' reversal of proportionate credit attributable to the manufacture of molasses was sufficient compliance under Rule 6, thereby entitling them to the exemption under Notification No. 67/1995-CE.

Conclusion:
The Tribunal found that the appellants had complied with the conditions of Notification No. 67/1995-CE by reversing the CENVAT credit attributable to the inputs used in the manufacture of molasses. This compliance with Rule 6 of the CENVAT Credit Rules, 2004, was deemed sufficient for availing the exemption. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief as per law.

(Order pronounced in Open Court on 20.08.2024.)

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