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CX – In generation of electricity from bagasse, no other input or input service is used and, therefore, electrical energy is neither excisable u/s 2(d) of CEA, 1944 nor exempted goods and hence, Rule 6 of CCR is not applicable: CESTAT

2019-TIOL-2407-CESTAT-BANG

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, BANGALORE

Appeal No. E/21084/2018-SM

Arising out of Order-in-Appeal No. BEL-EXCUS-000-APP-MSC-126-2017-18, Dated: 18.01.2018
Passed by Commissioner of Central Tax, BELGAUM (APPEALS)

Date of Hearing: 31.12.2018
Date of Decision: 31.12.2018

M/s SHRI PRABHULINGESHWAR SUGARS AND CHEMICALS LTD
SIDDAPUR VILLAGE TALUK – JAMAKHANDI
BAGALKOT-587301 KARNATAKA

Vs

COMMISSIONER OF CENTRAL TAX AND CENTRAL EXCISE
BELGAUM N0 71, CLUB ROAD, BELGAUM – 590001
KARNATAKA

Appellant Rep by: Mr Raghavendra B Hanjer, Adv.
Respondent Rep by: Mrs Kavitha Podwal, Superintendent AR

CORAM: S S Garg Member (J)

CX – Assessee is engaged in manufacture and clearance of sugar and molasses on payment of Central Excise duty and availing CENVAT credit under CCR, 2004 – They are also engaged in manufacture of electricity, which is used captively for manufacture of excisable goods and the excess/surplus quantity of electricity is sold to outside power supply agencies for a consideration without payment of duty, as no rate of duty has been prescribed in CETA, 1985 – The assessee was issued with SCN to demand an amount equal to 6% on the amount of Rs.14,83,155/- being the value of electricity sold to outside agencies i.e. power distribution companies during period March 2015 under Rule 6 of CCR, 2004 – The issue involved is no more res integra and has been settled by decision of Allahabad High Court in case of Gularia Chini Mills which has been approved by Supreme Court in case of M/s. DSCL Sugar Ltd. – Further, the Division Bench of Tribunal in case ofJakarya Sugars Ltd. has also considered the same issue and after relying upon the judgment of Allahabad High Court in case of Gularia Chini Mills has held that in the generation of electricity from bagasse, no other input or input service is used and therefore, the electrical energy is neither excisable under Section 2(d) of CEA, 1944 nor exempted goods and hence, Rule 6 is not applicable – By following the ratios of said decisions, the demand of 6% of value of electricity sold to various companies is not sustainable in law: CESTAT

Appeal allowed

Case laws cited:

Gularia Chini Mills vs. UOI : 2015 (34) STR 175 (SC)… Para 4

Venkateshwara Power Projects Ltd. & Others vs. CST – 2019-TIOL-289-CESTAT-BANG… Para 4.1

Cheyyar Co-operative Sugar Mills Ltd. vs. CST – 2019-TIOL-129-CESTAT-MAD… Para 4.1

Sharad S.S.K. Ltd. vs. CCE, Kolhapur – 2014-TIOL-2952-CESTAT-MUM… Para 5

FINAL ORDER NO. 21970/2018

Per: S S Garg:

The present appeal is directed against the impugned order dated 18.1.2018 passed by the Commissioner (A) whereby the Commissioner (A) has rejected the appeal of the appellant.

2. Briefly the facts of the present case are that appellant is engaged in the manufacture and clearance of sugar and molasses on payment of Central Excise duty falling under Chapter 17 of the Schedule to the Central Excise Tariff Act (CETA), 1985. They are availing CENVAT credit under CENVAT Credit Rules, 2004. They are also engaged in the manufacture of electricity, which is used captively for manufacture of excisable goods and the excess/surplus quantity of electricity is sold to outside power supply agencies for a consideration without payment of duty, as no rate of duty has been prescribed in the CETA, 1985. Therefore, CENVAT credit involved input and input services related to that quantity of electricity sold to outside agencies is not eligible to the appellant. The appellants were issued with show-cause notice dated 31.3.2016 to demand an amount of Rs.89,03,169/- equal to 6% on the amount of Rs.14,83,155/- being the value of the electricity sold to outside agencies i.e., power distribution companies during the period March 2015 under Rule 6 of the CENVAT Credit Rules, 2004. The Additional Commissioner of Central Excise, Belgaum vide Order-in-Original dated 19.1.2017 confirmed proportionate amount of 6% of the value of Rs.3,56,758/- for the amount of March 2015. Aggrieved by the order dated 19.1.2017 of the Addl. Commissioner, appellant filed appeal before the Commissioner (A) on the ground that the Original Authority has not considered their letter dated 29.11.2016 giving the revised proportionate credit of Rs.1,13,294/- but the Commissioner (A) also rejected their appeal. Hence, the present appeal.

3. Heard both sides and perused the records.

4. Learned counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law. He further submitted that steam and electricity generated by using bagasse cannot be either as exempted product or as non-excisable product as the input used for generation of steam and electricity is bagasse which is an agricultural waste and no credit has been taken on the same. He also submitted that steam and electricity generated by using bagasse are not covered under CTH 28 or 27 as Chapter 28 and 27 covers the products manufactured out of mineral fuels and mineral oil as rightly held by the apex court in the case of Gularia Chini Mills vs. UOI : 2015 (34) STR 175 (SC). He also submitted that provisions of Rule 6 of CENVAT Credit Rules, 2004 is not applicable in respect of steam cleared to sister concern for captive consumption and electricity sold outside the factory of the appellant as bagasse which is used as an input in generation of steam and electricity is neither excisable input nor exempted input. He further submitted that appellant has not availed any credit either on bagasse or on sugarcane or on any input services as alleged by the Department and hence, the very question of reversal of proportionate credit does not arise. Further, the department has failed to identify the input services which are used in the generation of steam and electricity and hence, the very basis for demand for reversal of proportionate credit does not arise.

4.1 Further, the issue of applicability of Rule 6 of the CENVAT Credit Rules in respect of electricity and steam generated by using the bagasse is settled in favour of the appellant in the following cases:

– Venkateshwara Power Projects Ltd. & Others vs. CST: 2018 (11) TMI 913 – CESTAT Bangalore = 2019-TIOL-289-CESTAT-BANG

– Cheyyar Co-operative Sugar Mills Ltd. vs. CST: 2018 (10) TMI 827 – ITAT Chennai = 2019-TIOL-129-CESTAT-MAD

4.2 The learned counsel also submitted that the proportionate credit reversible in respect of steam cleared for captive consumption and electricity sold outside, works out to Rs.1,13,294/- and the same has been reversed by the appellant vide CENVAT Credit Entry No.164 dated 26.11.2016 along with interest of Rs.33,858/- vide Challan No.00396 dated 29.11.2016 which has been accepted by the Jurisdictional Range Officer as per the verification report dated 28.11.2016.

5. On the other hand, the learned AR defended the impugned order and submitted that as per the decision of the Mumbai Tribunal in the case of Sharad S.S.K. Ltd. vs. CCE, Kolhapur: 2017 (49) STR 506 (Tri.-Mum.) = 2014-TIOL-2952-CESTAT-MUM wherein the Tribunal has held that the appellants are liable to reverse the credit, if any, taken on inputs/input services which have been used in the generation of electricity which have been sold to MSEB.

6. After considering the submissions of both the parties and perusal of the material on record, I find that the issue involved in the present appeals is no more res integra and has been settled by the decision of the Allahabad High Court in the case of Gularia Chini Mills cited supra which has been approved by the Hon’ble Supreme Court in the case of UOI vs. M/s. DSCL Sugar Ltd. cited supra. Further, the Division Bench of the Tribunal in the case of Jakarya Sugars Ltd. cited supra has also considered the same issue and after relying upon the judgment of the Allahabad High Court in the case of Gularia Chini Mills has held that in the generation of electricity from bagasse, no other input or input service is used and therefore, the electrical energy is neither excisable under Section 2(d) of Central Excise Act, 1944 nor exempted goods and hence, Rule 6 is not applicable.

6.1 By following the ratios of the above said decisions, I am of the considered view that the demand of 6% of the value of electricity sold to various companies is not sustainable in law and therefore, I set aside the demand by allowing the appeal.

7. In view of my above discussions, I set aside the impugned order by allowing the appeal of the appellant with consequential relief, if any.

(Operative portion of the Order was pronounced in Open Court on 31.12.2018)

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