Electricity generated from Bagasse – Demand under Rule 6(2)/ 6(3) of CENVAT Credit Rules, 2004 is not sustainable: High Court
By TIOL News Service
ALLAHABAD, JULY 22, 2013: AFTER the last drop of juice is extracted from sugarcane in a sugar factory, what is left is a waste called Bagasse . There are a number of disputes on this Bagasse as revenue is making relentless efforts to squeeze a few drops of revenue from this waste. After the insertion of explanation in Section 2(d) of the Central Excise Act, 1944 vide Finance Act, 2008, fresh demands were issued under Rule 6 by distinguishing the earlier decisions in the light of amendment to Section 2(d).
However, the High Court of Allahabad in 2013-TIOL-557-HC-ALL-CX held that the demands under Rule 6 do not sustain even for the period after the amendment to Section 2(d). We carried this order recently.
Even after the above judgment, department started yet another dispute by applying the provisions of Rule 6 of the CENVAT Credit to the electricity manufactured from such bagasse . According to the revenue, Electricity is goods falling under Chapter 27 of the Central Excise Tariff and the above judgement of Allahabad High Court is not applicable as in that case, bagasse was sold by the factories and in this case, is captively used for manufacture of Electricity and Electricity was sold by the units.
Several assessees filed Writ Petitions challenging the demands.
Respondent department raised a preliminary objection on maintainability of the Wirt Petitions in view of the alternative remedy available to the Petitioners.
However, the High Court held:
The question whether the court should entertain the writ petition under Article 226 of the Constitution of India even though alternative remedy is available, the Court has to exercise its jurisdiction looking to the facts of each and every case. In view of the proposition of law laid down by the Apex Court in State of U.P. vs. Mohd . Nooh ; AIR 1958 SC 86, A.V. Vankateswaram , Collector of Customs vs. Ramchand Sobhraj Wadhwani ; AIR 1961 SC 1506, Whirlpool Corporation vs. Registrar of Trade Marks; 1998(8) SCC 1 , the rule of alternative remedy does not oust the jurisdiction of this Court under Article 226 of the Constitution of India, if it is found necessary for promotion of justice and prevention of injustice.
After hearing both sides on merits, the High Court held:
On perusal of the judgment and order dated 18th May, 2012, it is clear that Rule 6 of 2004 Rules will only apply where a manufacturer manufactures both the excisable dutiable final products and also manufactures excisable exempted goods. Furthermore, for the applicability of Rule 6, manufacture of dutiable goods and manufacture of exempted goods are condition precedent. Thus, the law is well settled that bagasse is not manufactured goods but is a waste product, which emerges/ comes into existence in the process of manufacture of sugar. Hence, it is not manufacture of exempted goods. Similarly, electricity is not exempted excise goods as held by the Supreme Court in Solaris Chemicals Ltd - ( 2007-TIOL-135-SC-CX ) .
It is not in dispute that petitioners do not avail CENVAT Credit on any input and input services used in generation of electricity insofar as this fact has been admitted by the Assistant Commissioner as well as Commissioner, Central Excise
Electrical energy, which is mentioned in Chapter 27 of the Central Excise Tariff Act, covers only those electrical energy which are generated from mineral fuels, mineral oils and products of their distillation, bituminous, substances, mineral waxes etc. The electrical energy generated from Bagasse is not covered under Chapter 27. Similarly, Chapter 27 does not cover electrical energy produced by solar power, hydro power, wind power or from bagasse . Therefore, we are of the view that electrical energy is not an excisable goods nor it is exempted goods as defined in Rule 2(d) of the 2004 Rules.
Rule 6 referred to both dutiable/excisable goods and exempted goods, which are final products. Only then, it is necessary for the manufacturer to maintain separate accounts. Rule 6 of the CENVAT Credit Rules, 2004, (which is pari materia to the erstwhile Rule 57CC) provides that if CENVAT Credit has been taken on the inputs which are used for manufacture of dutiable and exempted final products then the assssee is required to reverse the proportionate credit or pay 10%/5% amount of the value of the exempted final products. Electricity is not excisable goods under Section 2(d) of the Act, hence Rule 6 of the CENVAT Credit Rules, 2004 is not applicable as held by the Apex Court in the case of Solaris Chemtech Ltd.
(See 2013-TIOL-568-HC-ALL-CX)
