By TIOL News Service

CHENNAI, APR 02, 2013: THE Revenue authorities seem to have developed a sweet relation with the Sugar industry. And this sweetness is more than exhibited by the innumerable demand notices they issue to this industry by invoking the provisions of rule 6 of the CENVAT Credit Rules, 2004.

Thanks to the CESTAT decision in Indian Potash Ltd. [2012-TIOL-1402-CESTAT-DEL] the fallacy in the SCNs issued to this industry was exposed to the hilt. The Bench had while setting aside the demands had observed thus -

“6. We have considered the rival submissions. We find that bagasse emerges in course of crushing of the sugarcane. It may be noted that crushing of sugarcane is necessary to extract cane sugar juice which in turn is processed for production of sugar and molasses. Bagasse is the waste product left after the crushing of sugarcane. Therefore, by no stretch of imagination it can be said that the assessee possibly could have maintained separate accounts for the inputs for production of sugar and molasses (excisable item) and bagasse. Thus, in our considered view, the amendment in Finance Act, cited by Shri Nagesh Pathak, AR and the Board Circular would not make any difference in the facts and circumstances of the case. Moreover neither the show cause notice nor the impugned order in appeal mentions as to which common Cenvat credit availed inputs have been used in manufacture of sugar and molasses (dutiable final product) and bagasse (exempted final product). Since Bagasse emerges at sugarcane crushing stage, there is no possibility of any input-chemicals etc. having been used at that stage. Accordingly, we find merit in the contention of the appellant. The impugned order is set aside. The appeal and stay applications are allowed.”

The observations of the Bench clearly reveal the lackadaisical attitude with which demand notices are issued inasmuch as it is apparent that the authorities do not even bother to visit the ‘sugar factory' for ascertaining whether the allegations they propose to level in the notices issued are factually true or not. Sitting in offices and culling out the provisions of rule 6 viz. ‘common inputs have been used in the manufacture of dutiable and exempted final product without maintaining separate records ' more often than not give the Rule 6 a bad name.

A similar incident happened in the present case which involves the grandfatherly rule 57CC of the erstwhile CER, 1944.

The Revenue is in appeal against the final order dated 1.12.2003 passed by the CESTAT, South Zonal Bench, Chennai wherein the Bench held that the provisions of Rule 57CC are not applicable.

The respondent is a manufacturer of Sugar, Molasses and Denatured Ethyl Alcohol. It was noticed by the Preventive Officers that the respondent manufactured Bio-compost fertiliser falling under Chapter Heading 3105.00 of the Central Excise Tariff Act, 1985 and availed credit of duty on inputs viz., Molasses, Acetaldehyde, Benzene and Toluene, Tyridin, Light Taoutchocine, Sulphuric Acid, Chloroform and Methonol which are the common inputs for both Bio-compost fertiliser as well as Denatured Ethyl Alcohol. Bio-compost fertiliser is exempted from payment of duty vide Notification No. 8/96 dated 23.7.1996 etc., whereas Denatured Ethyl Alcohol is a dutiable product. During the course of manufacture of sugar, a waste product called Press mud emerged and during the manufacture of denatured ethyl alcohol, another bi-product viz., spent wash emerged. The press mud and spent wash were treated together for about 40 days and out of such treatment, an organic manure viz., Bio-compost emerged. The said organic manure is sold as "Farm boon" and "Garden bloom" by the first respondent. On further verification of the lab report, in respect of spent wash, it was noted that the same contained chemicals such as chlorides, sulphides, di-phosphates, potassium, sodium and nitrogen. Thus, from the lab report of the final product viz., "Farm boon" and "Garden bloom", it was noted that the above said chemicals were present in those final products. The first respondent manufactured and cleared bio-compost fertiliser during the period from 21.8.1996 to 28.3.2000 without following the Central Excise Procedures.

On this ‘bio-compost fertilizer' cleared without payment of any Central Excise duty, the Revenue has sought 8% of the price of the final product charged for the sale of bio-compost fertiliser citing rule 57CC of the CER, 1944.

The adjudicating authority confirmed the demand vide O-in-O dated 20.9.2000.

By an order dated 1.12.2003, the Tribunal allowed the appeal and set aside the demand.

The Revenue is before the High Court challenging the said order of the Tribunal, and raises the following substantial questions of law:-

1. Whether the Tribunal is correct in holding that the inputs used in the manufacture of Denatured Ethyl alcohol are not used in the non-duty paying product (Bio-compost fertiliser)?

2. Whether the Tribunal is correct in holding that the provisions of erstwhile Rule 57CC Central Excise Rules, 1944 is not applicable in this case?

The Revenue representative inter alia relied on the decision of the Apex Court in the case of Solaris Chemtech Ltd. (2007-TIOL-135-SC-CX) and submitted that the respondent assessee is liable to pay an amount of 8% on the price of the bio-compost under Rule 57CC of the CER, 1944.

The submissions made by the respondent are as under -

+ They are engaged in the manufacturer of Sugar, molasses, de-natured Ethyl Alcohol.

+ There is no allegation in the notice that factory where Bio-compost fertiliser was manufactured was part of registered premises wherein sugar was manufactured.

+ When the first respondent initiated the activity of manufacturing of Bio-compost fertiliser, the department was intimated about the same and also about the fact that no registration is required under Rule 174.

+ The requirement to pay 8% of price of exempted products would arise only at the time of removal of goods from factory. Both dutiable and exempted goods must have been produced in the same factory. Since the fertiliser was not manufactured within the factory, the provision of Rule 57C read with Rule 57CC is not attracted.

+ Press mud was removed to compost yard where it was mixed with spent wash to get the product viz., bio-compost fertiliser. Both press mud and spent wash are waste products emerging in the process of manufacture of sugar.

+ Rule 57C read with Rule 57CC contemplates payment of 8% of price of exempted products only when the manufacturer took credit of specific duty on any input which was used in or in relation to manufacture of final product. The mixture of press mud and spent wash did not derive their characteristics of manure from any of the MODVATTED or CENVATTED items, but from the characteristics of sugar cane, water and natural organic substances contained in them.

+ None of the credit availed inputs had been used in or in relation to manufacture of Bio-compost fertiliser inasmuch as inputs were brought into factory for manufacture of sugar.

+ Sugar cane itself contained chemicals such as potassium, Fluoride, Calcium, Magnesium, Phosphorous, Phosphatic, Iron, Carbonite Ash etc., and therefore the characteristics of press mud were relatable to sugar cane only and not to any MODVATTED input.

+ No CENVATTED inputs or chemicals have been used in such a process of conversion of press mud and effluent waste (spent wash).

+ Both press mud and spent wash are wastes that emerged during the process of manufacturing sugar. So long as bio-compost is not the final product of the sugar industry and so long as it is not produced out of CENVATTED inputs, it does not come under the description of final products for the purpose of invoking Rule 57CC.

+ When two waste materials arise, inevitably, during the process of manufacture of final product viz., sugar, the mixture of such waste materials cannot be said to have been produced or manufactured from the CENVATTED inputs.

+ The following decisions were inter alia relied upon -

J.S.W Steel Ltd., Vs. CCE, Belgaum (2006-TIOL-1880-CESTAT-BANG)

Navabharat Ventures Ltd., Vs. CCE, Vishakapatnam = (2008-TIOL-1869-CESTAT-BANG)

CCE, Visakhapatnam Vs. Sri Sarvarya Sugars Ltd. = (2010-TIOL-114-CESTAT-BANG)

Rallis India Ltd Vs., Union of India = (2009-TIOL-16-HC-MUM-CX)

Commissioner of Central Excise Vs. Sterling Gelatin = (2010-TIOL-897-HC-AHM-CX)

The High Court observed -

“15. We find force in the submission made by the first respondent assessee. Certainly, the cenvated inputs were brought into the factory by the assessee for using it in the manufacture of their final products viz., sugar, molasses, Denatured Ethyl Alcohol. Once they use those cenvated inputs at the initial stage and obtain certain final products as well as wastes such as press mud and spent wash, there was no further application or usage of those inputs either in or in relation to the manufacture of final products once again. In other words, the commencement of journey of those cenvated inputs used either in or in relation to the manufacturer of final products ends with the emergence of those final products along with inevitable wastes. Their usage cannot be traced beyond the first degree. The same inputs cannot be considered to have been utilised or used even indirectly in the manufacture of disputed item viz., bio-compost fertiliser, especially under the factual circumstances that the same came to be manufactured only by adding those two waste materials together. May be those two waste materials contained the trace of certain chemicals with the characteristics of original inputs. That itself cannot be taken to mean that the product emerged out of those wastes was also manufactured by using those cenvated credit inputs.

16. As rightly contended by the learned counsel for the assessee, the characteristic of sugar cane containing various chemicals cannot be stopped or prevented by the manufacturer to pass on even to the wastes, as it is undoubtedly a natural flow of in born character from one stage to another. Only when there is a further addition of inputs or chemicals with similar characteristics externally by the manufacturer, the Revenue can invoke Rule 57CC. In other words, when spent wash and press mud had emerged as inevitable wastes during the process of manufacturing of final products viz., sugar and Denatured Ethyl Alcohol and the said wastes are combined and treated together to form another final product viz., bio-compost, the said final product cannot be brought under Rule 57CC.

17. We are conscious of the fact that what is in dispute is not the question as to whether bio-compost fertiliser is a final product or not, but on the other hand the question is as to whether such final product is liable to be brought under Rule 57CC of the Central Excise Rules or not. Press mud is an unavoidable and inevitable waste which arises when the cane juice obtained after crushing the sugar cane is further processed for manufacture of sugar. Press mud is nothing but impurities present in the cane juice. Likewise, spent wash is an inevitable waste product when molasses is treated to bring out ethyl alcohol or denatured spirit. Both press mud and spent wash are exempted from duty by virtue of certain notifications. Bio-compost is the mixture of two waste products viz., press-mud and spent wash and is marketed by the assessee. What is to be seen is as to whether such final product had emerged by using any cenvated inputs either in or in relation to such manufacture of final product. As we have already found that no cenvated inputs or chemicals were used either in or in relation to the manufacture of such exempted final product viz., bio-compost fertiliser, we are of the view that demand made by the Revenue is unsustainable.”

The High Court then proceeded to distinguish the apex court decision in Solaris Chemtech Ltd. cited by the Revenue by observing thus -

“19. …, the facts of the present case is in converse. Here, the cenvat credited inputs were, in fact, used in the manufacture of excisable products and thereafter during the course of such manufacture, two inevitable wastes emerged which are combined together to manufacture an exempted final product. Therefore, the stage at which the inputs were used is very crucial and relevant for consideration as to whether Rule 57CC is applicable to the facts of particular case or not. As we have already found in this case that the inputs were used only one time that too during the course of manufacture of final product viz. sugar, molasses and Denatured Ethyl Alcohol and that the consequent emergence of inevitable wastes are subjected to certain treatment to manufacture exempted final product viz., bio-compost fertiliser, the facts of the present case are totally different and distinguishable with the facts of the case in Solaris Chemtech Limited and the above decision is not applicable to the case on hand.”

After discussing the decisions cited by the respondent assessee, the High Court adverted to the issue raised of ‘place of manufacture of bio-compost' and mentioned -

“30. Though the learned counsel for the assessee has raised another issue with regard to the place of manufacture of bio-compost to contend that the same was not manufactured within the registered premises so as to attract Rule 57C read with Rule 57CC, we do not wish to go into that issue and give any finding in view of the fact that the same was not contended before the Tribunal and no finding to that effect had also been given by it. The Revenue has also not raised any question of law in that aspect.”

The High Court also observed that the very same Commissioner(A) had in a similar case taken a view in favour of the assessee but in the present case had taken a different stand and noted -

+ Only in this case, one of the very same Commissioner who passed an order in favour of the assessee in other case, has taken a different stand.

+ We fail to understand as to how the Department is justified in taking different stand for different assessees in respect of the same issue.

+ Certainly there must be some consistency.

+ They are entitled to take a different view or stand only when there is change of law or any other binding decision of the superior forum warranting such change of view.

+ The very same Tribunal considered the same issue and given a finding in favour of the assessee in the case reported in 2008 (232) ELT 633 (Tri - Chennai) (Commissioner of Central Excise, Tirunelveli Vs. Dharani Sugars & Chemicals Ltd.,). It is also claimed by the assessee and not disputed by the Revenue that the said decision of the Tribunal had become final and conclusive. If that being the position, we wonder as to how the Revenue is justified in contesting the very same issue in this appeal in respect of another assessee.

+ If an issue is decided in favour of any party and had attained finality and accepted by the parties, the affected party in that case is certainly precluded from questioning its correctness in an another case.

The High court then referred to the decisions in Commissioner of Central Excise, Navi Mumbai Vs. Amar Bitumen & Allied Products Pvt. Ltd. (2006-TIOL-96-SC-CX-LB) & Jayaswals Neco Limited Vs. Commissioner of Central Excise, Nagpur (2006-TIOL-21-SC-CX) and observed -

“33. Going by the above decisions of the Apex Court, we are of the firm view that the Revenue cannot pick and choose between the assessees of same nature to file appeal in respect of the very same issue. The Tribunal has also pointed out that the Commissioner who had taken the view in this case in favour of the Revenue is the very same Commissioner, who as an appellate authority took different view in favour of the assessee in another case. This sort of inconsistency needs to be avoided.”

In the result, the appeal filed by the Revenue was dismissed by answering the questions of law in favour of the assessee and against the Revenue.