Benefit of notification 67/95-CE available to molasses captively consumed for manufacture of rectified spirit

NSL Sugars Limited Vs Commissioner (CESTAT Bangalore)

CESTAT Bangalore held that benefit of notification no. 67/95-CE dated 16.03.1995 available in respect of molasses which is captively consumed for the manufacture of rectified spirit as rectified spirit is a dutiable excisable goods.

Facts- The appellants are engaged in the manufacture of sugar and in the course of manufacture of sugar, molasses emerges as a byproduct. Molasses is captively consumed in the manufacture of dutiable products like Ethyl Alcohol, Ethanol, denatured spirit and exempted products like rectified spirit etc. In the course of the manufacture of rectified spirit, carbon dioxide also emerges which is also liable to duty.

The appellants used to sell molasses on payment of duty as and when there is demand of those. However, for the molasses captively consumed, the appellants were availing the benefit of Notification No.67/95-CE dated 13.06.1995 as amended, which grants exemption from payment of duty on intermediary products, which are captively consumed in the manufacture of excisable goods. However, alleging that the appellant is manufacturing rectified spirit and Extra Neutral Alcohol by using molasses, which are exempted from payment of duty, thus the appellant is not eligible for the exemption in terms of the Notification No.67/95 dated 16.03.1995, proceedings were initiated. Thereafter Adjudicating Authority confirmed the allegations in the show cause notice vide the impugned order.

Conclusion- In Kothari Sugars & Chemicals Ltd. Vs. Comm. of C.Ex., Trichy it is held that the excisable goods are defined in the Central Excise Act, 1944 as goods specified in the tariff schedule as being subject to a duty of excise. Since undenatured ethyl alcohol is outside the purview of the central levy, it is not subject to a duty of excise under the Central Excise Act, 1944 and hence, not excisable. As a corollary, the same cannot be treated as either exempted goods or chargeable to nil rate of duty.

Held since the issue is squarely covered by the Final Order of Tribunal in the case of Manakpur Chini Mills Ltd. Vs. CCE and Bannari Amman Sugars Ltd. Vs. Commr. Of Cus., C.Ex & ST. Mysore, which was affirmed by the Hon’ble Apex Court in the case of of C. Ex. & Service Tax Vs. Dharani Sugars & Chemicals Ltd, the appeals are allowed with consequential relief, if any, as per law.

FULL TEXT OF THE CESTAT BANGALORE ORDER

The appellants are engaged in the manufacture of sugar and in the course of manufacture of sugar, molasses emerges as a byproduct. Molasses is captively consumed in the manufacture of dutiable products like Ethyl Alcohol, Ethanol, denatured spirit and exempted products like rectified spirit etc. In the course of the manufacture of rectified spirit, carbon dioxide also emerges which is also liable to duty. The appellants used to sell molasses on payment of duty as and when there is demand of those. However, for the molasses captively used for further manufacture of Ethyl Alcohol, Ethanol, Rectified Spirit, ENA, Denatured spirit etc., the appellants were availing the benefit of Notification No.67/95-CE dated 13.06.1995 as amended, which grants exemption from payment of duty on intermediary products, which are captively consumed in the manufacture of excisable goods. However, alleging that the appellant is manufacturing rectified spirit and Extra Neutral Alcohol by using molasses, which are exempted from payment of duty, thus the appellant is not eligible for the exemption in terms of the Notification No.67/95 dated 16.03.1995, proceedings were initiated. Thereafter Adjudicating Authority confirmed the allegations in the show cause notice vide the impugned order.

2. The appellant in the present appeal filed miscellaneous applications for bunching and early disposal of the appeals on the ground that the issue is covered and the appeal is regarding denial of Notification No.67/95-CE dated 16.03.1995 as amended in respect of molasses manufactured and captively consumed for the manufacture of ‘neutral alcohol’, ‘rectified spirit’ which is not appearing in the first schedule to Central Excise Tariff Act, 1985. The application for bunching and early hearing was allowed by this Tribunal vide order dated 23.03.2023. Hence appeals are posted for final hearing.

3. The details of the Appeals and the appellants are mentioned below:-

Appeal No. E/27009/2013 (NSL Sugars Limited)

NSL Sugars Ltd.

Sri Chamundeswari Sugars Ltd.

4. The learned counsel for the appellant submitted that the issue was not properly appreciated by the Adjudicating Authority while denying the benefit of Notification. Learned counsel further draws our attention to the flowchart mentioned below:-

5. The learned counsel draws our attention to finding in the impugned order that ‘ethyl alcohol’ and/or ‘rectified spirits’, a non–excisable product, and thus are ‘exempted goods.’, and submitted that such a pedantic view in the impugned order is clearly opposed to law and contrary to the decision of the Hon’ble Tribunal in the case of Kothari Sugars & Chemicals Ltd. Vs. Comm. of C.Ex., Trichy-2010 (262) ELT 545 (Tri.-Chennai), wherein it was held as

follows:

“5. From the appeal memorandum, we find that the appellants have taken another plea that the impugned goods are not excisable at all. They have also taken the plea that the benefit of Notification No. 67/95 cannot be denied as the department has not shown that the rectified spirit cleared by the appellants is a dutiable excisable goods and is either exempted or carries nil rate of duty. We find this line of argument attractive as prima facie undenatured ethyl alcohol is outside the scope of the central excise levy. For the purpose of the main provision of Notification No. 67/95, we find that molasses will be covered under column 2 of the table as input, and undenatured ethyl alcohol will be covered under final products under coloum 3 of the table as the same has been included in the tariff schedule under Chapter 22. However, to attract the mischief of the proviso which denies the exemption for exempted and nil rated final product, the goods must be excisable. The excisable goods are defined in the Central Excise Act, 1944 as goods specified in the tariff schedule as being subject to a duty of excise. Since undenatured ethyl alcohol is outside the purview of the central levy, it is not subject to a duty of excise under the Central Excise Act, 1944 and hence, not excisable. As a corollary, the same cannot be treated as either exempted goods or chargeable to nil rate of duty.”

6. The Appellant further submits that the process of manufacture of sugar carried out in their factory is a continuous process during which the ‘molasses’ emerges and is removed to their own distillery for further fermentation and distillation process, which result in emergence of ethyl alcohol. Ethyl alcohol, which is also known as rectified spirit is an excisable goods classifiable under CETH 22072000, and thus finds specific mention in the CETA after its amendment in 2005 (when it was made into 8 digits). The appellants submits that they are following the provisions of Rule 6 of CENVAT Credit Rules, 2004 by reversing the attributable credit of duty availed on the chemicals and other inputs along with duty of credit availed on various input services used in the manufacture of ‘Molasses’, which is incidentally a by-product of ‘Sugar’. The appellant have placed statement showing the details of such reversals, which will clearly indicate that there is no ambiguity in the said reversals. The appellant have submitted ER1 Returns, filled electronically from time to time wherein these details have been duly incorporated. In this reference, the attention of the Hon’ble Tribunal is invited to the decision of the Hon’ble Tribunal in the case of Manakpur Chini Mills Ltd. Vs. CCE-2017 (6) GSTL 188 (T) and also referred the decision of the Tribunal in the case of Bannari Amman Sugars Ltd. Vs. Commr. of Cus., C.Ex & ST. Mysore reported in 2018 (362) ELT 705 (Tri.-Bang), wherein it was held as follows:

“6. After hearing both sides and perusal of the records, we note that the crux of the dispute is regarding duty liability on molasses which is captively consumed, to the extent used in the manufacture of alcohol for human consumption. Such alcohol is not levied to Central Excise duty but are cleared on payment of State Excise duty.

6.1 The Notification No. 67/95 is not available in respect of inputs used in the manufacture of final products which are exempted from whole of duty or chargeable to ‘nil’ rate of duty. The question for consideration is whether alcohol for human consumption which is not charged to Central Excise duty will fall under either of the above categories. The above question is answered in favour of the appellant in the case of Manakpur Chini Mills Ltd. (supra). The findings recorded in para 6 of the Tribunal’s decision is reproduced herein below:-

“6. We have taken the rival contentions into consideration and also have gone through the case records and paper books submitted during the hearing. We find that the appellant have a composite unit where sugar and molasses are manufactured. Further the molasses on fermentation in the distillery, ethyl alcohol is obtained. Ethyl alcohol is denatured by mixing certain chemicals which make ethyl alcohol unfit for human consumption. Before 1-3-2005 chapter sub-heading 2204.10 covered denatured ethyl alcohol of any strength and chapter sub-heading No. 2204.90 covered ethyl alcohol except alcoholic liquor for human consumption and undenatured ethyl alcohol. From 1-3-2005 tariff item No. 2207 20 00 covered ethyl alcohol and other spirits denatured of any strength. This led the Central Excise authorities to think that pre-denatured ethyl alcohol does not find place in Central Excise Tariff. We find that the show cause notice contends that rectified spirit is manufactured in between the process to manufacture denatured spirit and rectified spirit does not find place in Central Excise Tariff with effect from 1-3-2005 and therefore Cenvat credit is not admissible as inputs & input services and capital goods going into manufacture of rectified spirit and hence going into manufacture of denatured spirit. Before 1-3­2005, department accepted that rectified spirit is covered under chapter sub-heading No. 2204.90. As stated above, 2204.90 covers ethyl alcohol except one for human consumption and which are undenatured. Therefore, the issue to be decided is whether ethyl alcohol and rectified spirit are two different commodities or one and the same commodity. We find that the Hon’ble Supreme Court in the case of State of Uttar Pradesh v. Modi Distillery and others (supra) in para 9 has observed as follows :-

“The ISI specifications had divided ethyl alcohol into several kinds of alcohol. Beverages and industrial alcohols were clearly and differently treated. Rectified spirit for industrial process was defined as spirit purified by distillation having a strength of not less than 95% by volume of ethyl alcohol.”

It is very clear from the observation of Hon’ble Supreme Court that ethyl alcohol and rectified spirit are one and the same. We, therefore, hold that rectified spirit which is not used for human consumption is nothing but ethyl alcohol and is finding place in tariff item No. 2207 20 00. We, therefore, hold that the show cause notices are not sustainable. As a result, we set aside the impugned orders and allow the appeals with consequential relief. No costs.

7. By following the above decision, we set aside the impugned order and allow the appeal filed by the appellant.”

7. The learned counsel further submitted that the issue is squarely covered by the findings in the matter of M/s Kothari Sugars & Chemicals Ltd. Vs. Commr. of C.EX, Trichy reported as 2010 (262) E.L.T. 545 (Tri.-Chennai), as also in the case of M/s Mankapur Chini Mills Ltd. Vs. Commissioner of C.EX. & S.T., Lucknow reported as 2017 (6) G.S.T.L. 188 (Tri.-All.) and in the case of M/s Bannari Amman Sugar Ltd. Vs. Commr. of Cus., C. Ex. & S.T., Mysore reported as 2018 (362) E.L.T. 705 (Tri.-Bang.), which was affirmed by the Hon’ble Apex Court in the case of of C. Ex. & Service Tax Vs. Dharani Sugars & Chemicals Ltd reported in 2022 (379) E.L.T. 556 (S.C.). Further, in the case of appellant M/s Chamundeshwari Sugars Ltd. the issue was considered by this Tribunal and vide Final Order No.964 dated 21.08.2007, appeal was allowed.

8. The learned D.R. reiterated the findings in the impugned order and submitted that the molasses has been used in the manufacture of ‘ethyl alcohol and/or ‘rectified spirit’, a non-excisable product, and thus are ‘exempted goods.’ ‘Neutral Alcohol’ and ‘Rectified Spirit’ manufactured by the assessee do not get covered by column (2) of the table annexed to Notification No. 67/95-CE, as they do not find place in the First Schedule to the Central Excise Tariff, 1985.

9. We have gone through the submissions made by both the sides and on perusal of the case laws, since the issue is squarely covered by the Final Order of Tribunal in the case of Manakpur Chini Mills Ltd. Vs. CCE-2017 (6) GSTL 188 (T) and Bannari Amman Sugars Ltd. Vs. Commr. Of Cus., C.Ex & ST. Mysore reported in 2018 (362) ELT 705 (Tri.-Bang), which was affirmed by the Hon’ble Apex Court in the case of of C. Ex. & Service Tax Vs. Dharani Sugars & Chemicals Ltd reported in 2022 (379) E.L.T. 556 (S.C.), the appeals are allowed with consequential relief, if any, as per law.

(Order pronounced in the Open Court on 25/08/2023)