TaxTMI 
TaxTMI 
2019 (11) TMI 123
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Credit Rules") were notified vide Notification 23/2004-CE (NT), dated 10th September, 2004, issued under Section 37 of the Act. The Cenvat Credit Rules contain the provisions governing availability of Cenvat Credit, of the duty paid on inputs, and service tax paid on input services, used in the manufacture of excisable goods, or providing of output services. The present appeal is concerned with Rule 6 of the Cenvat Credit Rules which, during the relevant period, read thus: "6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.- (1) The CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for provision of exempted services, except in the circumstances mentioned in sub-rule (2). Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule. (2) Where a manufacturer or provider of output service avails of CENV....
X X X X Extracts X X X X
X X X X Extracts X X X X
....manufacturer of goods or the provider of output service shall intimate in writing to the Superintendent of Central Excise giving the following particulars, namely:- (i) name, address and registration No. of the manufacturer of goods or provider of output service; (ii) date from which the option under this clause is exercised or proposed to be exercised; (iii) description of dutiable goods or taxable services; (iv) description of exempted goods or exempted services; (v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option under this condition; (b) the manufacturer of goods or the provider of output service shall, determine and pay, provisionally, for every month,- (i) the amount equivalent to CENVAT credit attributable to inputs used in or in relation to manufacture of exempted goods, denoted as A; (ii) the amount of CENVAT credit attributable to inputs used for provision of exempted services (provisional)= (B/C) multiplied by D, where B denotes the total value of exempted services provided during the preceding financial year, C denotes the total value of dutiable g....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (d) the manufacturer of goods or the provider of output service, shall pay an amount equal to the difference between the aggregate amount determined as per condition (c) and the aggregate amount determined and paid as per condition (b), on or before the 30th June of the succeeding financial year, where the amount determined as per condition (c) is more than the amount paid; (e) the manufacturer of goods or the provider of output service, shall, in addition to the amount short-paid, be liable to pay interest at the rate of twenty-four per cent. per annum from the due date, i.e., 30th June till the date of payment, where the amount short-paid is not paid within the said due date; (f) where the amount determined as per condition (c) is less than the amount determined and paid as per condition (b), the said manufacturer of goods or the provider of output service may adjust the excess amount on his own, by taking credit of such amount; (g) the manufacturer of goods or the provider of output service shall intimate to the jurisdictional Superintendent of Central Excise, within a period of fifteen days from the date of payment or adjustment, as per condition (d)....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 31st day of the month of March. Explanation III. - If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rule (3) or as the case may be sub-rule (3A), it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken. (4) No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year. (5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clause (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services. (6) The provisions of s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ufacture of dutiable, and exempted goods, or providing of taxable, and exempted output services, and take Cenvat credit only of the duty, or service tax, paid on that quantity of input, or input service, which is intended for use in the manufacture of dutiable goods, or in providing output service on which service tax is payable [Rule 6 (2)], or (ii) if the manufacturer of goods, or provider of output service, opts not to maintain separate accounts, then, either (a) to pay an amount equivalent to the Cenvat credit attributable to inputs, and input services used in, or in relation to, the manufacture of exempted goods, or providing of exempted services, subject to the conditions and procedures stipulated in Rule 6 (3A) [Rule 6(3)(ii)], or (b) to pay an amount equal to a percentage of the value of the exempted goods, or value of the exempted services, as prescribed by Rule 6(3)(ii). 5. During the period spanned by the dispute in the present appeal (1st January, 2007 to 31st March, 2011), the percentage stipulated in Rule 6(3)(ii) of the Cenvat Credit rules was 10%, till 6th July, 2009, and 5% thereafter. 6. "Exempted goods" are defined, in clause (d) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for an article to be excisable. This principle was reiterated in several decisions of the Supreme Court, of which the afore-cited decisions in Indian Aluminium Co. Ltd. 1995 (77) ELT 268 (SC) and Tata Iron & Steel Co. Ltd. 2004 (165) ELT 386 (SC) underscored the position by ruling that, though even rubbish could be bought and sold, it would, nevertheless, not be a "marketable" commodity, so as to be exigible to duty under the Act. This argument is, however, no longer available to an assessee, after the insertion, in Section 2(d) of the Act, of the Explanation thereto, which deems any article, material or substance, which is capable of being bought and sold, to be marketable. The distinction between "saleability" and "marketability", which prevailed prior to the insertion of the said Explanation has, therefore, been eviscerated. 9. Two conditions, alone, therefore, are required to be fulfilled, in order for goods to be regarded as "excisable", for the purposes of the Act - or, therefore, for the purposes of the Cenvat Credit Rules - viz. (i) that they are specified in the first, or the second, Schedule to the Central Excise Tariff Act, 1985, and (ii) that they a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of sugar, waste/residue in the form of Bagasse arisis, which was further used by the Respondent in the generation of electricity from the power plant installed in their own factory premises and some part of the electricity generated was also sold to M/s UPPCL outside the factory premises of the assessee without payment of duty." (Italics supplied; underscored in original) 15. Cenvat credit, on the duty paid on inputs, capital goods and input services, commonly utilized by the respondent in the manufacture of the above goods, was availed by it. 16. The proceedings, in the present case commenced with the issuance, to the respondents, of Show Cause Notice dated 20th December, 2011. The Show Cause Notice alleged that, as the respondent was manufacturing dutiable goods (sugar and molasses) as well as exempted goods (bagasse and electricity), using common inputs and input services, the duty/service tax paid whereon Cenvat Credit had been availed; and was neither maintaining separate accounts and inventory, in respect of the inputs, and input services, used in the manufacture of the dutiable, and exempted goods; nor reversing the Cenvat Credit of the duty, and service tax, paid....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the said Rules. 20. The Commissioner also noted the contention, of the respondent, that it had reversed proportionate Cenvat Credit, of the inputs and input services used by it, in the manufacture of the electricity sold by it, which had been worked out, by the respondent, as Rs. 3,12,722/-, along with interest. Regarding this contention, however, the Commissioner observed that the respondent had not furnished the details of the value of the exempted electricity, the common inputs/input services used in the manufacture of the dutiable and exempted products, or the amount of Cenvat Credit availed in respect of such common inputs/input services and had also not followed the procedure stipulated in Rule 6(3A). In such a situation, the Commissioner observed that he was unable to verify the veracity of the respondent's contention regarding reversal, by it, of "proportionate" Cenvat Credit. 21. We may observe, here, that we have been unable to find, either in Rule 6 of the Cenvat Credit Rules, or elsewhere in the panoply of the Act or any Rules framed thereunder, any provision providing for reversal of "proportionate" Cenvat Credit. In fact, it was in order to mitigate the hardshi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot subject matter of controversy in the present appeal. 23. Appeals were preferred, by the respondent as well as the appellant, before the Tribunal, against the aforesaid Order-in-Original, dated 28th August, 2012. While the respondent challenged (vide Appeal No. E/3753/2012), the amounts confirmed against it by the Commissioner, the appeal of the Revenue (Appeal No. E/3949/2012) was an appeal merely in form, as it only sought to support the findings of the Commissioner. In effect, therefore, the only appeal, before the Tribunal, was Appeal No. E/3753/2012, filed by the respondent. 24. By the impugned Final Order No. A/55843-55844/2016-EX [DB], dated 24th November, 2016, the Tribunal has allowed Appeal No. E/3753/2012, of the respondent. In doing so, the Tribunal merely followed its earlier decision in DSM Sugar Mills Ltd. v. Commissioner of Central Excise 2014 (304) ELT 582, which, in turn, relied on the judgment of the High Court of Allahabad in Gularia Chini Mills v. UOI 2014 (34) STR 175 (All). Para 7 of the impugned Final Order passed by the Tribunal reads thus: "An identical issue has come up in Appeal No.58262/2013EX(DB) in the case of DSM Sugar Mills Ltd. 201....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icant by judgement of Hon'ble Allahabad High Court in the case of Gularia Chini Mills Gularia and others (judgement dated 13.08.2013) 2014 (34) STR 175 (All), there is no point in keeping the appeal pending. Accordingly, the impugned order is set aside and the appeal as well as stay application is allowed"." Following the ratio contained in the above passage from its earlier decision in DSM Sugar Mills Ltd., the Tribunal allowed the appeal of the respondent. 25. Aggrieved thereby, the Revenue is in appeal before this Court, in the present proceedings. Substantial Question of Law 26. Vide order dated 3rd December, 2018, the present appeal was admitted, on the following substantial question of law: "Is the CESTAT correct in holding that as electricity is not excisable, Rules 6(2) & (3) of the CENVAT Credit Rules, 2004 are not applicable and consequently input credit is admissible in the facts and circumstances of the case?" Rival Submissions 27. Detailed arguments were addressed, on the appeal, by Mr. Amit Bansal, learned Senior Standing Counsel appearing on behalf of the appellant, and by Ms. Charanya Lakshmikumaran, learned Counsel appearing for the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mits that it was never the case of the respondent that electricity was not "excisable goods", which is what the Tribunal has proceeded to hold in the impugned Final Order. Rather, the defence of the respondent, before the Tribunal, Mr. Bansal emphasises, was that it had reversed Cenvat Credit, "proportionate" to that utilised by it in production of the electricity sold to UPPCL. This submission, points out Mr. Bansal, was rejected by the Commissioner, in the passage to which reference is contained in para 20 supra. Resultantly, he submits, the appeal of the respondent ought to have been dismissed by the Tribunal. 30. In its counter-affidavit, filed in response to the appeal of the Revenue, the respondent has, on the other hand, contended thus: (i) In view of the judgment of the High Court of Allahabad in Gularia Chini Mills, which stood affirmed by the Supreme Court in U.O.I. v. D. S. C. L. Sugar Ltd. 2015 (322) ELT 769 (SC), electricity could not be regarded as "excisable goods". Gularia Chini Mills, moreover, had been followed, by the Tribunal, in DSM Sugar Mills Ltd., the Civil Appeal, against which, stood dismissed by the Supreme Court As reported in 2015 (324) ELT ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on, on the judgment of the Supreme Court in C.C.E. v. Bombay Dyeing & Manufacturing Ltd 2007 (215) ELT 3 (SC) and of the High Court of Allahabad in Hello Minerals P Ltd v. U.O.I. 2004 (174) ELT 422 (All). 31. Supplementing the above submissions, Ms. Lakshmikumaran, appearing for the respondent, drew our attention to the manufacturing process, by which bagasse and electricity came into existence, highlighting the position that electricity was produced from bagasse, and not directly from the inputs, or input services, originally used by the respondent. She submits that the only manufactured final product of the respondent was sugar. The input used, for production of electricity was, therefore, she submits, bagasse. She relies on para 20 of the judgment of the Supreme Court in Swadeshi Polytex Ltd v. C.C.E. 1989 (44) ELT 794 (SC), which reads thus: "On an analysis and comparison of aforesaid, it is clear that the clarification in the form of trade notice issued by the Pune Collectorate in respect of Rule 56A was as much applicable to that rule as to Notification No. 201/79. In the premises, it is clear that the Tribunal should have held that even though a part of the ethyl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be denied was only where the final products were wholly exempt from the duty of excise or chargeable to nil rate of duty. In the present case, the excisable goods, namely, polyester fibre were not wholly exempt from duty nor chargeable to nil rate of duty. It cannot be read in the notification that the notification would not be available in case non-excisable goods arise during the course of manufacture. In fact, the Tribunal seems to have erred in not bearing in mind that exemption notification was pressed in service in respect of polyester fibre which is excisable goods and not in respect of methanol which arises as a by-product as a part and parcel of chemical reaction. It appears further on a comparison of the Rule 56A and the Notifn. No. 201/79 that these deal with the identical situation." 32. In fine, Ms. Lakshmikumaran submits that there is no merit in the appeal of the Revenue, which deserves, therefore, to be dismissed. Analysis 33. The Tribunal has proceeded on one solitary ground, i.e., that electricity could not be regarded as "excisable goods". The sequitur would, therefore, be that electricity would not be "exempted goods", either, for the purposes of the Ce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....djudication of the lis before it, cannot be ignored by a judicial authority, even if it is not urged by either party. No doubt, if a judicial authority comes across a nice legal point, which has not been urged by either litigant before it, but which could impact the outcome of the proceedings, it may be appropriate, depending on the situation that obtains, for the authority to place the point before the parties, before adjudicating on that basis. This is obviously for the reason that the interests of justice would warrant that a party be not taken by surprise, as it is quite possible that the litigant, against whom the point of law operates, may have a satisfactory response thereto. That, however, would be a call, to be taken by the judicial authority, depending on the facts of the case, and the point involved, and no iron-cast rule, or principle, can be postulated in this regard. Suffice it to state, at the cost of repetition that, in the ultimate analysis, justice must be done, after grant of free and fair opportunity to all parties before the court. 37. In the present case, however, the impugned Final Order was dictated in open court. It cannot, therefore, be said that either....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rated was used as fuel, to generate electricity. As in the present case, a demand, under Rule 6(3)(i) of the Cenvat Credit Rules was raised, against Gularia, on the sale price of the electricity sold by it. Gularia contended, in opposition to the demand, that electrical energy did not conform to the definition of "excisable goods", as contained in Section 2(d) of the Act read with Section 2 of the Central Excise Tariff Act. Reliance was placed, for this proposition, on Solaris Chemtech Ltd. 42. The High Court of Allahabad framed the issue, arising before it for consideration, in para 22 of the report as "whether electrical energy generated from bagasse and sold to U.P. Power Corporation Ltd is excisable or not". It is immediately apparent that the facts, as well as the issue, in Gularia Chini Mills, are identical to those in the present appeal. 43. Before paraphrasing the grounds on which the High Court held in favour of Gularia, the relevant passages, from the report, may be reproduced thus: "24. On perusal of the above judgment and order dated 18th May, 2012, it is clear that Rule 6 of 2004 Rules will only apply where a manufacturer manufactures both the excisable ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Supreme Court stands nullified. Since the Circular of Board and that of Chief Commissioner dated 2-1-2010 is binding upon the assessing authority, the petitioner has informed the jurisdictional Central Excise Authority that even though Rule 6 is not applicable and the petitioner is not liable for payment of any Central Excise Duty or reversal of 5% of the amount of bagasse sold, still the petitioner has deposited the amount of duty under protest. ***** 32. The definition of 'excisable goods' given in Section 2(d) means the goods, which are specified in the First or Second Schedule and which are subjected to duty of excise, can only be treated as excisable goods. A proposition has also been accepted by the Commissioner in its findings. A perusal of Section 2(d) of Central Excise Act shows that the excisable goods are only those goods which are subjected to duty of excise as specified in the First Schedule or Second Schedule of the Central Excise Tariff Act. Since Column of rate of duty is blank, therefore, in view of Section 2 of the Central Excise Tariff Act, 1985, electrical energy is not being subjected to excise duty for the purposes of being excisable goods under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Solaris Chemtech Ltd, that electrical energy did not constitute "excisable goods". (b) Chapter 27 of the Tariff covered only electrical energy generated from mineral fuels, mineral oils and products of their distillation, bituminous substances, mineral waxes, etc. Electrical energy generated from bagasse was not covered by Chapter 27 of the Tariff. (c) This position was not altered by the explanation, added to Section 2(d) of the Act, w.e.f. 13th May, 2008. Neither did the said explanation nullify the judgment of the Supreme Court in Solaris Chemtech Ltd. (d) Section 2(d) of the Act defines "excisable goods" as goods subjected to a duty of excise as specified in the first Schedule or the second Schedule of the Tariff. In the case of electrical energy, the column, relating to the rate of duty payable thereon, as contained in Chapter 27 of the Tariff, was blank. Electrical energy did not, therefore, constitute "excisable goods", as defined in Section 2(d) of the Act. (iii) The only input, which went into the generation of electricity, was bagasse. Bagasse was a waste product. The electrical energy, which emerged from bagasse, and was sold to UPPCL ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not an excisable item". It went on to hold that "fuel either utilised directly or for generating electricity, as an intermediary product, integrally connected with several operations which resulted in the emergence of the final product, namely cement/caustic soda". It was emphasised, by the Supreme Court, that, "without utilisation of LSHS, it is not possible to manufacture cement/caustic soda", inasmuch as "the electrolysis process is dependent on continuous flow of electricity". As such, it was held, LSHS came within the ambit of the expression "used in or in relation to the manufacture of the final product". The utilisation of the captively generated electricity, in the production of the final product, it was observed, was crucial, and, therefore, Modvat Credit, on the LSHS used in the production of electricity, could not be denied. The Supreme Court went on to expound on the concept of usage "in or in relation to the manufacture of final products", especially the expression "in relation to". In view of the wide ambit of this expression, the Supreme Court held that Modvat Credit, of the duty paid on LSHS, was available to Solaris. 48. Though the judgment of the Supreme Cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., pertained to a period prior to the insertion, in Section 2(d) of the Act, of the Explanation thereto, in 2008. The Supreme Court noted the legal position that, after the addition of the said Explanation in Section 2(d), a deeming fiction, whereby all goods, which were capable of being bought and sold for consideration, were deemed to be marketable, had been introduced. The Supreme Court proceeded to hold, in the first instance, that bagasse was only agricultural waste and residue, which was not the result of any process and could not, therefore, be treated as the outcome of a process of "manufacture", as defined in Section 2(f) of the Act. Not being the product of the process of "manufacture", the Supreme Court held that bagasse would not be treated as excisable. The following passages, from the judgment of the Supreme Court, merit reproduction, in extenso: "6. The aforesaid judgment was pronounced by this Court related to the period before 2008. In the year 2008 there was an amendment in Section 2(d) as well as in Section 2(f) of the Act which defines 'excisable goods' and 'manufacture' respectively. Section 2(d) with the said amendment reads as under : Section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dule. 10. In the present case it could not be pointed out as to whether any process in respect of Bagasse has been specified either in the Section or in the Chapter notice. In the absence thereof this deeming provision cannot be attracted. Otherwise, it is not in dispute that Bagasse is only an agricultural waste and residue, which itself is not the result of any process. Therefore, it cannot be treated as falling within the definition of Section 2(f) of the Act and the absence of manufacture, there cannot be any excise duty. 11. Since it is not a manufacture, obviously Rule 6 of the Cenvat Rules, 2004, shall have no application as rightly held by the High Court." Proceeding therefrom, the Supreme Court went on to dismiss the Special Leave Petition, preferred against the judgment of the High Court of Allahabad in Gularia Chini Mill8, along with eight other Special Leave Petitions/Civil Appeals, in the following words (in para 13 of the report): "Cenvat Credit in respect of electricity was denied solely on the premise that the Bagasse attracts excise duty and consequently Rule 6 of the Cenvat Credit Rules is applicable. Since this action of the appellant i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... granted, the doctrine of merger does not apply." (Emphasis and underscoring supplied) 52. Where, therefore, the Supreme Court dismisses a Special Leave Petition , without granting leave but with reasons, there is no merger, but the reasons adduced by the Supreme Court for dismissing the SLP, nevertheless, constitute declaration of the law, within the meaning of Article 141 of the Constitution of India, which would be binding on all courts and Tribunals subordinate to the Supreme Court, and no such Court or Tribunal would be at liberty to take a view different from that of the Supreme Court. Returning to Gularia Chini Mills 53. The facts, and the controversy, arising in Gularia Chini Mills, are, as already noted hereinbefore, identical to those in the present appeal, before us. 54. Mr. Bansal has emphasised the fact that the observation, in paras 26 and 33 of the judgment of the High Court of Allahabad in Gularia Chini Mills, that Chapter 27 of the Tariff "covers only those electrical energy which are generated from minerals fuels, mineral oils and products of the distillation, bituminous substances, mineral waxes, etc.", and did not cover electrical energy generated....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re does not, however, impact the outcome of these proceedings, as the Supreme Court has, in its judgment in D. S. C. L. Sugar Ltd., upheld dismissed the Special Leave Petition, preferred against the judgment of the High Court of Allahabad in Gularia Chini Mills by upholding ground (i). The Supreme Court has held that bagasse was in the nature of non-marketable and, consequently, non-excisable waste/residue and that, as the electricity, which was sold to UPPCL, was entirely generated from such non-excisable bagasse, the said sale could not constitute the basis for a demand under Rule 6(3)(i) of the Cenvat Credit Rules. The said reasoning, as postulated by the Supreme Court as the ground to dismiss the SLP, constitutes "law declared", within the meaning of Article 141 of the Constitution of India, and it is not open to us to depart, or differ, therefrom. 59. As the issue stands covered by Gularia Chini Mills, we do not deem it necessary to refer to the order of the Tribunal in DSM Sugar Mills Ltd.7, on which the respondent has placed reliance. In any event, the said order was passed on an application for waiver of pre-deposit, and does not, therefore, have any real precedential va....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ich is used within the factory would qualify as an immediate product. The utilization of inputs in the generation of steam or electricity not being qualified by the phrase "within the factory of production" could be outside the factory. Therefore, whatever goes into generation of electricity or steam which is used within the factory would be an Input for the purposes of obtaining credit on the duty payable thereon." 20. To sum up, we hold that the definition of "input" brings within its fold, inputs used for generation of electricity or steam, provided such electricity or steam is used within the factory of production for manufacture of final products or for any other purpose. The important point to be noted is that, in the present case, excess electricity has been cleared by the assessee at the agreed rate from time to time in favour of its joint ventures, vendors etc. for a price and has also cleared such electricity in favour of the grid for distribution. To that extent, in our view, assessee was not entitled to CENVAT credit. In short, assessee is entitled to credit on the eligible inputs utilized in the generation of electricity to the extent to which they are using t....