Custom, Excise & Service Tax TribunalM/S Naranja Sahakari Sakkare Karkhane ... vs Commissioner Of Central Excise, ... on 23 June, 2016CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH
BANGALORE

Appeal(s) Involved:
E/26222/2013-DB 

[Arising out of Order-in-Appeal 40/2013/BM dated 14.3.2013, passed by Commissioner of Central Excise (Appeals), Mysore]
For approval and signature:

HON'BLE Mr. S. S. GARG, JUDICIAL MEMBER

1	Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?	    No
2	Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?	
3	Whether Their Lordships wish to see the fair copy of the Order?	  Seen 
4	Whether Order is to be circulated to the Departmental authorities?	  Yes

M/s NARANJA SAHAKARI SAKKARE KARKHANE LTD., 
IMAMPUR VILLAGE,
NEAR JANWADA  
BIDAR  585401.	Appellant(s)
	Versus	

COMMISSIONER OF CENTRAL EXCISE,  BELGAUM 
NO. 71, CLUB ROAD,
CENTRAL EXCISE BUILDING, 
BELGAUM  590001.	Respondent(s)Appearance:Shri Pradyumna, Advocate	For the Appellant
Shri Pakshi Rajan, A.R. 	For the Respondent

Date of Hearing: 21/06/2016
Date of Decision: 23/06/2016
CORAM :HON'BLE Mr. S.S. GARG, JUDICIAL MEMBERFinal Order No.  20452/ 2016The present appeal is directed against the Order-in-Appeal No. 40/2013/BM dated 14.3.2013, whereby the Commissioner (Appeals) rejected the appeal of the appellant and upheld the order-in-original dated 08.11.2012, passed by the Deputy Commissioner of Central Excise, Gulbarga Division, Gulbarga.2.	Briefly the facts of the present case are that appellant is engaged in manufacture and clearance of sugar and molasses falling under Chapter 17 of theFirst Schedule to Central Excise Tariff Act, 1985.  The appellant is availing Cenvat credit on inputs/inputs services under the provisions of Cenvat Credit Rules, 2004.  The appellant was issued a Show-Cause Notice dated 1.5.2012 by Assistant Commissioner of Central Excise alleging that part of electricity generated in their captive power plant has been sold during the period from April 2011 to December 2011 to Karnataka Power Transmission Corporation Ltd. (KPTCL) for consideration and hence, proportionate Cenvat credit amounting to Rs. 1,33,752/- attributable to electricity sold to KPTCL was liable to be paid as per Rule 14 of Cenvat Credit Rules, 2004 as the same was not used for manufacture of sugar and molasses within the factory.3.     Show-cause notice was adjudicated by the Deputy Commissioner of Central Excise, wherein he has inter-alia held that during the course of manufacture of dutiable final products i.e. sugar and molasses in the appellants factory, bagasse emerges as by-product which in turn is used for generation of electricity in the factory; that electricity so generated was used in the manufacture of sugar and molasses and part of the same was sold to KPTCL; that as per Rule 6(1) of the Cenvat Credit Rules,  Cenvat credit can  be availed  only in respect of dutiable final products and where Cenvat credit is used for manufacture of exempted goods like bagasse, Cenvat credit was inadmissible and hence, proportionate Cenvat credit attributable to the exempted goods was liable to be reversed inasmuch as the part of the electricity generated in the factory has been sold to KPTCL.  Accordingly, the original adjudicating authority has demanded Cenvat credit of Rs. 1,33,752/- along with interest besides imposition of penalty of Rs. 25,000/- under the provisions of Rule 15(1) of the Cenvat Credit Rules, 2004.4.	Learned counsel for the appellant submitted that in the present case,  inputs / inputs services on which Cenvat credit has been availed by the appellant were admittedly used for manufacture of sugar and molasses.  The question of following procedure laid down under Rule 6 of Cenvat Credit Rules arises only in such cases where both dutiable and exempted final products are manufactured by the assessee and Cenvat credit has been availed on common inputs / input services.   The only final products manufactured by the appellant are sugar and molasses.  The learned counsel further submitted  that bagasse is a waste by-product arising during the course of crushing of sugarcane cannot be equated with exempted goods and hence, there is no requirement to follow the procedure or adhering to the conditions laid down under Rule 6 of Cenvat Credit Rules.In support of this submission, he relied upon the judgement of Honble Allahabad High Court  in case ofBalrampur Chini Mills Ltd. Vs. Union of India[2014 (300) E.L.T. 372 (All.)] wherein it has been held by Honble High Court that bagasse emerging as waste/intermediary/by-product during the course of  crushing of sugarcane for manufacture of sugar could not be equated with exempted goods and hence, as there was no manufacture of both dutiable as well as exempted goods, Rules 6(1), 6(2) and 6(3) of Cenvat Credit Rules, were not applicable.The learned counsel also cited the judgement in case ofGularia Chini Mills Vs. Union of India[2014 (34) S.T.R. 175 (All.)] wherein Honble High Court of Allahabad held that bagasse, which emerged as residue of sugarcane, used as fuel in boiler for generation of steam for running turbine and boiling juice for manufacture of sugar; turbine generated electrical energy which was used for running plant and machinery, and surplus energy was sold; also bagasse was used as fuel in factory for manufacture of final product and no specific input was used up to stage of emerging of bagasse; held bagasse was waste and hence, it was not manufacture of exempted goods; and also electricity was not classifiable under Chapter 27 of Central Excise Tariff which covered electrical energy generated from sources other than bagasse; electrical energy was neither excisable underSection 2(d)of Central Excise Act, 1944 nor exempted goods under Rule 2(d) of Cenvat Credit Rules, 2004.He further submitted that the above cited decision of the Honble High Court of Allahabad was affirmed by Honble Supreme Court in case ofUnion of India Vs. DSCL Sugar Ltd.reported in 2015 (322) E.L.T. 769 (S.C.) wherein Honble Supreme Court has held that bagasse is not the result of manufacture and hence not excisable.The learned  counsel also submitted that this Tribunal in case ofKCPL Sugar & Industries Corpn. Ltd. Vs. Commissioner[2015 (321) E.L.T. 538 (Tri.-Bang.)] has also held that bagasse is not the result of manufacture and this decision of CESTAT, Bangalore was affirmed by Honble High Court of Andhra Pradesh.He further submitted that similar view was taken by the Tribunals Mumbai Bench  in case ofSharad SSK Ltd. Vs. Commissioner[2015 (321) E.L.T. 468 (Tri.-Mumbai)] wherein the decision of Honble High Court in case ofBalrampur Chini Mills(supra) was followed.He also submitted that similar view was taken by the Tribunals Delhi Bench in  case ofKumbh Chini Mills Vs. Commissioner[2015 (321) E.L.T. 459 (Tri.-Del.)] wherein it has been held that bagasse produced during manufacture of sugar is exempted from Central Excise duty and demand under Rule 6(3) of Cenvat Credit Rules, 2004 is not sustainable.  This decision has been affirmed by Honble High Court of Allahabad. The learned counsel further submitted that once bagasse cannot be termed as  exempted final product, there is no requirement of maintaining separate records in respect of the same or reversing proportionate Cenvat credit as required under Rule 6 of Cenvat Credit Rules and therefore, the demand of proportionate Cenvat credit attributable to bagasse used for generation of electricity and sold outside the factory has no basis.5.	On the other hand, the learned A.R. has reiterated the findings of the Commissioner (Appeals).6.	After careful consideration of the submissions by both the parties and perusal of the records and the judgements cited by the learned counsel, I am of the considered opinion that the issue is squarely covered in favour of the appellant-assessee by various judgments cited supra wherein it has been consistently held that bagasse which is  waste/by-product emerging during the course of crushing of sugarcane for manufacture of sugar could not be equated with exempted goods and hence, Rule 6 of Cenvat Credit Rules are not applicable.  In this view of the matter, I set aside the impugned order by allowing the appeal of the appellant with consequential relief, if any.(Pronounced in open court on 23/06/2016)

														(S.S. GARG)
JUDICIAL MEMBER
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