2024-VIL-163-CESTAT-HYD-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Manufacture of sugar – Emergence of molasses as by-product – appellant set up a distillery plant within its factory and used the molasses captively in its distillery plant to produce Ethyl Alcohol - Entitlement to Cenvat credit on capital goods used in setting up the distillery plant and on input services used in Erection, Commissioning & Installation of the distillery plant – HELD – The undisputed fact is that the distillery produces Ethyl Alcohol, which, if cleared as such, is chargeable to State Excise duty and goes out of the purview of the Central Excise duty. On the other hand, if it is denatured before clearing, the denatured Alcohol is chargeable to Central Excise duty instead - While it is true that in the process of manufacture of the excisable goods, viz, denatured Alcohol, Ethyl Alcohol, which is otherwise not chargeable to central excise duty arises at an intermediate stage, and the last step of denaturing takes place in tankers itself. The manner in which the goods have left the factory is what matters with respect to central excise duty, whether it is a question of payment of central excise duty or the admissibility of CENVAT credit on the capital goods, inputs or input services. There is no good reason as to why the Cenvat credit on capital goods used in the distillery should be denied to the Appellant - neither the factor that an exempted good, viz, Ethyl Alcohol comes into existence prior to the manufacture of denatured Alcohol nor the fact that denatured Alcohol is not produced within the distillery machines, but in the tankers within the factory, should make any difference to the entitlement of Cenvat credit – Cenvat Credit Rules determines the eligibility of CENVAT credit based on at what stage the final goods become liable to central excise duty, and so long as the goods which are cleared from the factory are excisable goods, CENVAT credit on the capital goods cannot be denied - the issue of Cenvat credit on capital goods used in distillery is answered in favour of assessee - Eligibility of CENVAT credit on the input services used in installation of capital goods in the distillery plant – HELD - after 01.04.2011, although the services rendered in relation to installation and commissioning of the plant were not in the inclusive part of the definition but they were not excluded either and the main part of the definition of input service is broad enough to include the input services used in setting up and installation of the plant and machinery and hence CENVAT credit is admissible - Appellant is entitled to Cenvat credit on the inputs used in setting up the plant and machinery - Whether the Appellant is entitled to claim exemption under Notification No. 67/1995-CE dt.16.03.1995 on the molasses consumed captively to manufacture Ethyl Alcohol - the case of the Department that the Appellant had wrongly availed the benefit of Notification No. 67/1995-CE dt.16.03.1995 on the molasses, which it had captively consumed – HELD - In view of discrepancies reported by the Range Superintendent, the Commissioner held that the Appellant had not discharged its obligations under Rule 6(3A) of CCR and held that the Appellant had not fulfilled the conditions laid down in Notification No. 67/1995-CE - the adverse report of the Range Superintendent obtained after the Hearing was over, cannot be relied upon unless a copy is served upon the Appellant and it is given an opportunity to defend. The only matter of fact to be determined is if the appellant had fulfilled the requirements under Rule 6 of CCR or not – matter remanded to the Commissioner on this question, with a direction to provide or send a copy of the report of the Range Superintendent to the appellant and after giving the appellant sufficient opportunity to rebut the report and explain how it had fulfilled the obligation under Rule 6 of CCR, and pass a reasoned order after following principles of natural justice - Whether the Appellant is required to pay an amount equal to 6% of value of the exempted goods in terms of Rule 6(3)(i) of Cenvat Credit Rules, 2004 under Rule 14 read with Sec 11A of the Central Excise Act, 1944 – HELD - the obligations under Rule 6(1) or Rule 6(2) or Rule 6(3) of CCR, 2004 are various options given to the assessee and it is not for the Department to choose an option for the Assessee. If the assessee does not follow any of the options and fulfill its obligations, demand can be raised to deny the entire amount of Cenvat credit, but the assessee cannot be forced to pay an amount equal to 6% under Rule 6(3)(i) of CCR, 2004. Therefore, the demand equal to 6% of the value of exempted goods sold, under Rule 6(3) of CCR, 2004, cannot be sustained and set aside.
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