The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, has held that electricity generated from bagasse and sold to the State electricity distribution company does not attract payment of 6% of its sale value under Rule 6(3) of the CENVAT Credit Rules, 2004.
The bench of Ajay Sharma (Judicial Member) and M.M. Parthiban (Technical Member) upheld the Commissioner (Appeals)’ decision setting aside the demand and found that the controversy was already settled by the Supreme Court and consistent decisions of the Tribunal favouring sugar manufacturers.
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The appellant/assessee manufactures sugar, molasses, denatured ethyl alcohol and other products. It availed CENVAT credit of central excise duty paid on inputs and capital goods, as well as service tax paid on input services, for utilisation towards excise duty on its final products.
During sugar manufacturing, crushing sugarcane generates bagasse, a waste residue. The company burns bagasse in boilers to produce steam, which is used in turbines to generate electricity. While electricity is consumed within the factory during the sugar crushing season, surplus electricity is sold to Maharashtra State Electricity Distribution Company Limited (MSEDCL).
The department contended that electricity generation and its clearance to MSEDCL were exempt from central excise duty. On that basis, it argued that the company was required to comply with Rule 6(3) of the CENVAT Credit Rules and pay an amount equal to 6% of the value of electricity sold to the distribution company.
A demand-cum-show cause notice dated November 22, 2017, sought recovery under Rule 14 of the CENVAT Credit Rules read with Section 11A(1) of the Central Excise Act, 1944. It also sought interest and proposed penalties under Section 11AC and Rule 27 of the Central Excise Rules.
The Joint Commissioner confirmed the proposals in the show cause notice. The company then challenged the adjudication order before the Commissioner of Central Tax (Appeals-I), Pune.
Relying on the Tribunal’s decision in Jawahar SSK Ltd. v. Commissioner of Central Excise, Pune-II, the Commissioner (Appeals) set aside the adjudication order and allowed the company’s appeal.
The Revenue approached CESTAT against that relief, reiterating the grounds raised in its appeal memorandum.
The company relied on several precedents, including Gularia Chini Mills v. Union of India, the Supreme Court’s judgment in Union of India v. DSCL Sugar Limited, and earlier Tribunal decisions involving Shree Renuka Sugars and other sugar manufacturers.
CESTAT identified the central question as whether electricity cleared outside the factory attracted the disputed CENVAT demand and whether the Commissioner (Appeals) had correctly set aside the adjudication order.
The bench recorded that both sides agreed that the issue had already been decided in favour of sugar manufacturers in several Tribunal decisions.
It noted that those decisions consistently held that electricity produced from bagasse and sold to a State electricity authority could not be subjected to payment of 6% of its value under Rule 6(3).
The Tribunal particularly relied on its earlier decision in Olam Agro India Private Limited, Shree Renuka Sugars Limited & Others v. Commissioner of CGST & Central Excise, Pune-I, which involved an identical factual situation. That decision had referred to an adjudication order concerning Vaidyanath SSK Limited and other manufacturers, where similar proceedings were dropped. The earlier bench had also noted that the department accepted that adjudication order and did not appeal against it.
The bench relied on the Supreme Court’s judgment in DSCL Sugar Limited, which held that bagasse is agricultural waste and residue rather than a product resulting from manufacture.
The Supreme Court had consequently held that, in the absence of manufacture, bagasse could not attract excise duty and Rule 6 of the CENVAT Credit Rules would not apply on that basis.
CESTAT also referred to an earlier Bengaluru bench decision involving Shree Renuka Sugars. That ruling had applied the same principles to electricity generated from bagasse and sold outside the factory, rejecting the demand for payment calculated at 6% of the electricity’s value.
Following these authorities, the Mumbai bench held that the legal position was settled and the present dispute required no fresh determination of the issue.
CESTAT concluded that the Revenue’s appeal lacked merit and that the Commissioner (Appeals)’ order required no interference.
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