By TIOL News Service

MUMBAI, JUNE 15, 2018: THE appellants are engaged in the manufacture of sugar and molasses which are cleared on payment of Central Excise duty.

During manufacture, bagasse is generated and which is used for captive generation of electricity. The electricity so generated is partly used in the manufacturing process and partly sold out to Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL).

It is the case of the department that in respect of the electricity sold to MSEDCL, the appellant is liable to pay an amount of 6% in terms of Rule 6(3)(i) of the CCR, 2004.

As the demand was confirmed and upheld by the lower appellate authority, an appeal came to be filed before the CESTAT.

None appeared on behalf of the appellants for the hearing.

The AR submitted that in terms of Explanation-1 to rule 6(1) of CCR, 2004, inserted by notification 6/2015-CE(NT) dt. 01.03.2015, 'exempted goods' also include non-excisable goods cleared for a consideration from the factory. Therefore, electricity supplied by the appellant are 'exempted goods' and the appellant is liable to pay an amount of 6% of the value of the 'electricity' sold.

The Bench observed that although electricity can be considered as exempted goods since non-excisable but the fact is that electricity is generated from by-product i.e. bagasse, which is neither a dutiable goods nor liable for payment of 6% in terms of Supreme Court judgement in DSCL Sugar Ltd. - 2015-TIOL-240-SC-CX; that for generation of electricity, except the use of bagasee no other cenvatable input is used and, therefore, Rule 6 does not come into play; that rule 6(3)(i) is applicable only when a common input on which credit is availed is used in the manufacture of exempted and dutiable goods, that since no cenvatable input was used for generation of electricity, the demand under rule 6 does not sustain.

Noting that the issue has been considered by the Allahabad High Court in the case of GulariaChini Mills - 2013-TIOL-568-HC-ALL-CX and where it is held that since in the generation of electricity from bagasee, no other inputs or input services were used and, therefore, the electrical energy is neither excisable under Section 2 (b) of the Central Excise Act, nor exempted goods and, therefore, Rule 6 is not applicable, the impugned order was set aside and the appeal was allowed.

(See 2018-TIOL-1845-CESTAT-MUM)