Principal Commissioner Of CGST And Central Excise vs. M/S. Himadri Speciality Chemical Limited

Held

The Court held that the Tribunal rightly allowed the appeal filed by the assessee and set aside the order of adjudication. On the issue of classification and 'exempted goods', the Court referred to the Supreme Court's decision in Union of India Versus DSCL Sugar Ltd., which affirmed that electricity generated from agricultural waste like bagasse, without a process specified in the Section or Chapter notes of the Central Excise Tariff Act, 1985, does not fall within the definition of 'manufacture' under Section 2(f) of the Act. Therefore, it cannot be treated as excisable goods, and consequently, the demand under Rule 6(3) of the Cenvat Credit Rules, 2004, is unsustainable. The Court found no reason to interfere with the Tribunal's finding that the waste gas generated was not an excisable product and the electricity generated therefrom was not excisable or exempted goods. The Court also noted the factual mistake by the adjudicating authority regarding the nature of the gas generated. The substantial questions of law were answered against the revenue. The appeal filed by the revenue was dismissed.

Facts

The Principal Commissioner of CGST & Central Excise (appellant/revenue) filed an appeal against an order of the Customs, Excise and Service Tax Appellate Tribunal (tribunal). The tribunal had allowed an appeal filed by M/s. Himadri Speciality Chemical Limited (respondent/assessee). The assessee is engaged in manufacturing carbon black, on which Central Excise duty is remitted. During this process, waste gas is generated, which the assessee is mandated to use for generating electricity to prevent pollution. A portion of this electricity is captively consumed, and the rest is supplied to the grid. A show cause notice was issued demanding Central Excise Duty at 6% of the sale value of electricity sold outside the factory, invoking Rule 6(3) of the Cenvat Credit Rules, 2004, on the grounds that electricity is an 'exempted good' and the assessee had not reversed proportionate Cenvat credit. The Commissioner confirmed the demand, but the tribunal set aside the order.

Key Issues

1. Whether the respondent is liable to pay 6% of the sale value of electricity sold outside the factory, given that they reversed the proportionate credit of inputs and input services attributable to the sale of electricity? (Question of law turning on Rule 6(3) of Cenvat Credit Rules, 2004). The appellant argued that the assessee did not follow the prescribed procedure for reversal of proportionate credit. The respondent argued that they had reversed the proportionate credit, even if not strictly following the procedure, and that the demand was disproportionate to the credit availed. 2. Whether electricity generated from waste gas is classifiable under Chapter Heading 2716 00 00 and can be considered 'exempted goods'? (Question of law turning on Chapter Heading 2716 00 00 and the definition of 'exempted goods'). The respondent contended that waste gas is not an excisable product, and electricity generated from it is neither excisable nor exempted, relying on High Court and Supreme Court decisions concerning electricity generated from waste products like bagasse. 3. Whether the Learned Tribunal erred in not considering that 'waste gas or tail gas' obtained from the manufacturing process, when transformed into electricity, constitutes a new article with a distinct character and commercial identity, thus falling under the definition of 'manufacture'? (Question of mixed law and fact turning on Section 2(f) of the Central Excise Act, 1944). The appellant argued that the transformation of waste gas into electricity constitutes manufacture. The respondent argued that waste gas is not a manufactured product and electricity generated from it is not excisable. 4. Whether the extended period of limitation could be invoked against the respondent for suppression of material facts and withholding information regarding non-reversal of proportionate credit? (Question of law turning on Section 11A of the Central Excise Act, 1944). The appellant argued that the respondent suppressed facts. The respondent contended that the department was aware of their operations through audits and disclosures, thus the extended period of limitation was not applicable.