The Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that denatured alcohol and CO2 manufactured by distillery are duty exempted and Cenvat credit is not available on the same.
M/s. Rai Bahadur Narain Sugar Mills Ltd, the appellant filed the appeal to challenge the de-novo Order in Original passed by the Commissioner of Central Goods and Services Tax, Dehradun after the matter was remanded to him by this Tribunal’s Final Order No. 50084/2018 dated 5.01.2018.
The appellant is a Sugar Mill located in Haridwar, Uttarakhand and factories located in this area were entitled to area-based exemption notification no. 50/2003-CE dated 10.6.2003 which exempted the excisable goods manufactured by the factories in this area from the whole of the duty. The appellant claimed the benefit of this exemption which was available up to 2.11.2014.
The appellant further expanded its capacity by adding a distillery unit on the same premises. It needs to be pointed out that a by-product of the sugar industry is molasses which the sugar factories either sell or, if they have a distillery unit, distill it into alcohol. This alcohol (known as rectified spirit in pure form) can be sold for human consumption in which case it is chargeable to State Excise duty and no central excise duty is chargeable.
It can also be denatured (by adding some denaturants) making it unfit for human consumption and sold for industrial use. Denatured alcohol is subject to Central Excise Duty (and not state Excise duty as it is not included in List II (State List) of the Seventh Schedule of the Constitution).
The appellant availed the Capital Goods CENVAT Credit on the capital goods used in setting up the distillery plant during the period of exemption. It also availed CENVAT credit on the input services used in setting up the distillery unit. The undisputed legal position is that if the final products are exempted, no CENVAT credit on the inputs, input services or capital goods can be availed.
According to the Revenue, the appellant, having opted for full exemption under area-based exemption notification no. 50/2003, cannot also avail of the CENVAT credit on the Capital Goods and input services used in setting up the distillery unit which is also part of the same factory. According to the appellant, the distillery unit is separate and it had paid Central Excise Duty on the denatured alcohol and carbon dioxide produced in the distillery unit therefore, it was entitled to the CENVAT credit.
The Tribunal in the first round of litigation held that it was not tenable to hold that some products can avail area-based exemption and others need not avail area-based exemption. However, since the appellant had, evidently paid duty on the CO2 and denatured alcohol which were manufactured in the distillery unit, it was felt that there was a contradiction in the order and felt that the issue relating to the recognition of the distillery unit and sugar unit as separate entities for Central Excise and Cenvat Credit Rules requires a fresh consideration and remanded the matter.
The appellant had obtained a single Central Excise Registration for the sugar factory and set up the distillery plant within its premises. Further, it also filed single returns with the excise department covering both the sugar plant and the distillery. It was found that the sugar factory and the distillery are one unit as far as the Central Excise is concerned. Central Excise Act, Rules and notifications should be applied accordingly.
A two-member bench comprising Justice Dilip Gupta, President And P V Subba Rao, Member ( Technical ) that all assessees are required to self-assess and pay duty. If duty is paid more than what is due or paid when it is not due, the assessee can claim the refund. There is no mechanism to refund suo moto the duty paid under the Central Excise law. There is also a mechanism of issuing a Show Cause Notice under section 11A to recover duty not levied, not paid, short levied, short paid or erroneously refunded.
The bench viewed that the denatured alcohol and CO2 manufactured by the distillery were fully exempted from duty and therefore, no CENVAT credit of capital goods used in setting up the plant could be availed by the appellant.
The Tribunal modified the order to the extent of setting aside the denial of CENVAT credit on input services to the extent of Rs. 32,82,816/- for taking credit after six months from the invoice as there is no violation of notification no. 21/2004-CE (NT) consequent interest and reducing penalty under section 11AC to this extent. The court upheld the rest of the demand.
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