Electricity Generated from Bagasse and Sold to Grid Not Liable for 6% Reversal Under Rule 6(3): CESTAT Mumbai
Pranav B Prem
The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has set aside demands requiring payment of 6% of the value of electricity sold to the state grid, holding that Rule 6(3) of the CENVAT Credit Rules, 2004 is not applicable in such cases. The Tribunal allowed a batch of appeals filed by leading sugar manufacturers, including M/s Olam Agro India Pvt. Ltd. and several cooperative sugar factories, and set aside the impugned Order-in-Appeal dated 03.08.2017. The Bench comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) noted that all the appeals arose from a common order passed by the Commissioner of Central Tax (Appeals-I), Pune, and involved an identical issue.
The appellants are engaged in the manufacture of sugar, molasses and ethyl alcohol falling under Chapter 17 of the Central Excise Tariff Act, 1985. They avail CENVAT credit on inputs and input services used for manufacture of dutiable final products. In addition to manufacturing excisable goods, they also generate electricity, classifiable under Tariff Item 2716 0000 as “Electrical Energy.” The electricity generated from bagasse, a by-product of sugar manufacture, is partly used captively within the factory and the surplus electricity is sold to the Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL).
Since no rate of central excise duty is prescribed for electricity under the Tariff Act, the Department treated the sale of electricity as clearance of non-dutiable goods. It was alleged that the appellants had availed CENVAT credit on common inputs and input services but had not maintained separate accounts for inputs used in dutiable goods and non-dutiable electricity. Accordingly, invoking Rule 6(3) of the CENVAT Credit Rules, 2004, the Department demanded payment of an amount equal to 6% of the value of electricity sold to MSEDCL. The adjudicating authorities confirmed the demands and the Commissioner (Appeals) upheld the same.
Before the Tribunal, it was pointed out that an identical issue had been adjudicated by the Commissioner of GST, Aurangabad in the case of M/s Vaidyanath SSK Ltd. & others vide Order-in-Original dated 17.11.2021, wherein similar show cause proceedings were dropped. In that decision, reliance was placed on the judgment of the Supreme Court in Union of India v. DSCL Sugar Ltd., as well as decisions of the Allahabad High Court in Balrampur Chini Mills Ltd. v. Union of India and the Delhi High Court in Commissioner of Central Excise and S. Tax LTU, Delhi v. Nangalamal Sugar Complex. It was held therein that electricity produced from bagasse and sold to the grid cannot be subjected to payment of 6% under Rule 6(3).
The Tribunal noted that the period involved in the Aurangabad order was from February 2015 to June 2017, while the present appeals concerned the period from March 2015 to December 2015. There was no change in the statutory provisions during the relevant time. Importantly, the Aurangabad order had been accepted by the Committee of Chief Commissioners in their meeting held on 11.02.2022, and no appeal had been filed against it.
The Bench observed that since the earlier order dropping similar proceedings had been accepted by the Department and not challenged further, the issue had attained finality. In such circumstances, a different interpretation could not be adopted in the present batch of appeals when the facts and legal provisions remained identical.
Holding that the confirmation of 6% demands under Rule 6(3) was unsustainable, the Tribunal set aside the impugned Order-in-Appeal dated 03.08.2017. All the appeals were allowed in favour of the appellants. The Tribunal thus concluded that no amount equal to 6% of the value of electricity sold to the grid was payable under Rule 6(3) of the CENVAT Credit Rules, 2004 in the facts of the case.
Appearance
Counsel For Petitioner: J.N. Somaiya, Advocate
Counsel For Respondent: A.K. Shrivastava, Authorized Representative
Cause Title: M/s Olam Agro India Pvt. Ltd. Versus Commissioner of CGST & Central Excise, Pune-I
Case No.: Excise Appeal No. 87506 of 2017
Coram: S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member)
