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25 November 2019

No demand under Cenvat Rule 6 on electricity generated from bagasse

Relying upon Supreme Court decision in the case of DSCL Sugar Ltd., the Delhi High Court has held that since bagasse is non-marketable, sale of electricity generated entirely from such non-excisable bagasse, will not attract demand under Rule 6(3)(i) of the Cenvat Credit Rules, 2004.

The department in this case was of the view that as the assessee was manufacturing dutiable goods (sugar and molasses) as well as exempted goods (bagasse and electricity), using common inputs and input services, and was neither maintaining separate accounts, nor reversing the Cenvat Credit of the duty/tax paid on the manufacture of electricity, the assessee was liable to pay an amount equal to 10%/5% of the value of electricity (bagasse was not sold).

The High Court in the case Commissioner v. Nangalamal Sugar Complex, however, recorded its disagreement with the Allahabad High Court’s decision in the case of Gularia Chini Mills v. UoI and held that non-specification of any rate of duty, against a particular sub-heading of the Tariff, would not result in the product becoming non-excisable.

It thus held that electricity was ‘excisable’. Reliance in this regard was placed by the Court on Additional Note to the General Rule of Interpretation of the Schedule, in respect of the Central Excise Tariff (Amendment) Act, 2004.

Supreme Court decision in the case of Maruti Suzuki was distinguished by the High Court observing that the said decision by the Apex Court was not a case in which electricity was generated out of bagasse. It also observed that no issue regarding the applicability of Rule 6(3)(i) of the Cenvat Credit Rules, in the context of electricity generated from bagasse and sold by the assessee, arose in that case.

The Court in its judgement dated 31-10-2019 also rejected the preliminary objection of the department that the Tribunal was limited by the stand taken by the parties before it. It held that no judicial authority can be constrained, insofar as application of the law is concerned, by the pleadings of the parties, or by submissions urged at the bar. The legal position, as it exists, is required to guide the judicial authority and not the legal position as is urged before it.