The Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT)held that the Undenatured Ethyl Alcohol is not excisable and once the goods are not excisable, they cannot be considered exempt to fall within the scope of Rule 6(3) of the Cenvat Credit Rules(CCR), 2004.
Salem Cooperative Sugar Mills Ltd, the Appellant cleared ‘Undenatured Ethyl Alchohol’ from its factory in the period between 01.03.2005 and 31.12.2005. In the manufacture of these goods, the Appellant used molasses.
Until 28.02.2005, the ‘Undenatured Ethyl Alcohol’ was classifiable under the ̇ heading 2204 titled “Ethyl Alcohol of any strength whether denatured or not, but not including alcoholic liquor for human consumption.” There were two sub-headings under this heading: 2204.10 is “Denatured Ethyl Alcohol of any strength” while 2204.90 is “other.” Therefore, ‘Undenatured Ethyl Alcohol’ would fall under 2204.90 and the rate of duty was Nil.
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On and after 01.03.2005 consequent to the change in the tariff system, “Ethyl Alcohol and other spirits, denatured, of any strength” was tariff item 2207 20 00 and a rate of 16% was applicable. Undenatured Ethyl Alcohol was thus not covered by this tariff item. It is undisputed that there was no other tariff item in which it fell and that Undenatured Ethyl Alcohol was, on and after 01.03.2005, not ‘excisable goods’ at all. This view too is affirmed by this Tribunal in the aforesaid order in the Appellant’s own case.
Until 28.02.2005, the Appellant treated the goods as exempt. Rule 6 of the CENVAT Credit Rules, 2004 contemplates two different methods for the payment of the CENVAT credit claimed in respect of the manufacture of exempted goods. Sub-rule (2) contemplates a situation where, for the receipt, consumption and inventory of inputs and input services meant for use in the manufacture of dutiable and exempted goods, separate accounts are maintained. Sub-rule (3) contemplates a situation where no such separate accounts are maintained. Before us, there is no dispute that the Appellant has resorted to sub-rule (3).
From Rule 6(3)(a) it will be seen that if the exempted goods fall within the heading 22.04 (as the undenatured ethyl alcohol manufactured by the Appellant does), the manufacturer is required to pay an amount equivalent to the CENVAT credit attributable to the inputs and input services used in or in relation to the manufacture of such goods at the time of their clearance. Until 28.02.2005, the Appellant did so.
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Even after 28.02.2005 (i.e., from 01.03.2005 until 31.12.2005), the Appellant claims that it proceeded on the misconception that the same position would continue to apply and continued to pay amounts equivalent to the aforesaid CENVAT credit. It is the Appellant’s contention that subsequently, the Appellant discovered that since Undenatured Ethyl Alcohol found no mention in the tariff on and after 01.03.2005 it was no longer an item of ‘exempted goods’ but were not ‘excisable goods’ at all, and accordingly, filed a claim for the refund of the CENVAT credit paid by it on the basis of this ‘mistake’, for the period from 01.03.2005 to 31.12.2005.
The Adjudicating Authority holds that the credit taken by the Appellant in relation to the manufacture of the Undenatured Ethyl Alcohol (described by the Adjudicating Authority as being non-excisable) was without the authority of law. He holds that Rule 6(3)(a) would be inapplicable both in the availment and expunging of credit. The said Authority reasons that the credit was wrongly availed and was not within the purview of Rule 6(3)(a). He reasons that the debit made in the CENVAT credit and the expunging of the CENVAT credit cannot be said to have been done erroneously. He finally rejects the claim, observing that what was wrongly availed had been reversed and that there was thus no question of a claim for refund.
In first appeal, the Commissioner (Appeals) has upheld the findings of the Adjudicating Authority. The Commissioner (Appeals) reasoned that non-excisable goods could not be treated at par with exempted goods. The Commissioner (Appeals) then holds that the Appellant had thus wrongly availed CENVAT credit in respect of the non-excisable goods, and, like the Adjudicating Authority, has held that the wrongly availed CENVAT credit had been reversed by the payment of the like sum, and that that sum could therefore not be refunded.
The Appellant reversed credit in terms of rule 6(3)(b) at 10% of the price of the non-dutiable Undenatured Ethyl Alcohol. However, the Department contended that the Appellant ought to have reversed the whole of the credit attributable to the Molasses that were used as inputs in the production of the Undenatured Ethyl Alcohol.
Following the decision of co-ordinate Bench in the Appellant’s own case, the two member bench of P. Dinesha, Member (Judicial) and Vasa Seshagiri Rao, Member (Technical) held that the Undenatured Ethyl Alcohol is not excisable.
Further held that “Once the goods are not excisable, they cannot be considered exempt to fall within the scope of Rule 6(3). The Commissioner (Appeals) in the impugned order was thus right in holding that the Appellant could not have claimed credit in the first place so as to reverse the same by payment, and that the reversal of such credit by payment p ut the Appellant in a position in which it was compliant with the law. Hence, the Commissioner (Appeals) was also right in holding that there was no question of granting refund as claimed.”
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