CCE Vs. DHARANI SUGARS AND CHEMICALS LTD.

JUDGEMENT

(1.) THE respondents were engaged in the manufacture of Sugar from Sugarcane, wherein Molasses was a by -product. They were also manufacturing 'Denatured Spirit' (SH No. 2204.10 of the CETA Schedule), 'Rectified Spirit' (SH No. 2204.90) and 'Extra Neutral Alcohol' (SH No. 2204.90) from Molasses in their Distillery Division. Out of these three products, 'Denatured Spirit' was dutiable and the other two products falling under SH No. 2204.90 were exempt from payment of duty. The process of manufacture was such that the exempted products namely, 'Rectified Spirit' and' 'Extra Neutral Alcohol' were manufactured from Molasses and the same were, further, used in the manufacture of the dutiable product namely, 'Denatured Spirit'. During certain months between Apr. 1998 -May 1999 (periods of dispute in one of these appeals) and Apr. 2000 -Feb. 2001 (period of dispute in the second appeal), the respondents had manufactured only 'Rectified Spirit' and 'Extra Neutral Alcohol' and did not manufacture 'Denatured Spirit'. But, during these periods also, they worked under Rule 57CC (1)/57AD of the erstwhile Central Excise Rules, 1944 by paying an amount equal to 8% of the price of the said exempted products in their Modvat/Cenvat account, just as they ordinarily did during other periods when they manufactured both dutiable and exempted products. During the aforesaid periods, they had also taken Modvat/Cenvat credit on Molasses. The Department issued show -cause notices to the party proposing to disallow such the Modvat/Cenvat credit taken on Molasses used in the manufacture of the exempted products, under Rule 571, as also to impose penalties on them under Rules 173Q and 209. The proposal was contested. The original authority disallowed the credit to the assessee and imposed on them penalties. The orders passed by the original authority were set aside by the Commissioner (Appeals). Hence the present appeals of the Revenue.

(2.) HEARD both sides. Ld. SDR reiterated the grounds of the appeals. Ld. Counsel for the appellants submitted that, admittedly, they were engaged in the manufacture of both dutiable and exempted products. Denatured Spirit was dutiable at the rate of 16% ad valorem, while Rectified Spirit and Extra Neutral Alcohol were exempted from payment of duty. Molasses was a common input for these three products. Therefore, it was open to the appellants to avail Modvat/Cenvat credit on Molasses and to pay an amount equal to 8% of the price of the exempted products in terms of Rule 57CC(1)/57AD. The benefit of Rule 57CC(1)/Rule 57AD was not liable to be denied merely on account of the fact that only the exempted products were manufactured during some period. Ld. Counsel also pointed out that, while directing them to reverse the entire credit taken on Molasses during the periods of dispute, the Department did not take into account the payments made by them under Rule 57CC(1)/57AD.