Bagasse-Generated Electricity Sold To State Utility Not Liable For 6% CENVAT Reversal: CESTAT Mumbai

The Mumbai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that electricity generated from bagasse and sold to a state electricity authority cannot attract the 6% payment under Rule 6(3) of the CENVAT Credit Rules, 2004.

The tribunal observed that “electricity produced from bagasse and sold to electricity authority of State Government cannot be subjected to payment of amount equal to 6% of the value of electricity sold by them under Rule 6(3)”.

A Bench comprising Judicial Member Ajay Sharma and Technical Member M.M. Parthiban dismissed the Revenue's appeal against Shree Renuka Sugars Limited, holding that the issue was already settled by the Supreme Court.

Shree Renuka Sugars manufactures sugar, molasses, denatured ethyl alcohol and other products. During the manufacturing process, crushing sugarcane produces bagasse, which is burned as fuel in a boiler to generate steam. The steam is then used to generate electricity.

The electricity generated is partly consumed within the factory, while the surplus is sold to Maharashtra State Electricity Distribution Company Limited (MSEDCL).

The dispute arose because the Revenue contended that electricity generated and wheeled out to MSEDCL was exempt from central excise duty. It therefore argued that Shree Renuka Sugars was required to follow Rule 6(3) of the CENVAT Credit Rules and pay an amount equal to 6% of the value of the electricity sold.

Rule 6(3) sets out the amount a manufacturer is required to pay when common inputs or input services are used in relation to exempted goods or services. In this case, the Revenue sought to apply that provision to the electricity sold outside the factory.

The department issued a demand-cum-show cause notice seeking ₹1.67 crore for the period from November 2015 to March 2016, along with interest and penalties.

The original authority confirmed the demand. On appeal, however, the Commissioner (Appeals) set it aside, relying on an earlier CESTAT decision in Jawahar SSK Ltd. v. Commissioner of Central Excise, Pune-II. The Revenue then challenged that order before the tribunal.

Shree Renuka Sugars relied on several earlier decisions, including the Supreme Court's ruling in Union of India v. DSCL Sugar Ltd. and earlier CESTAT decisions involving the company.

In DSCL Sugar, the Supreme Court held that bagasse is agricultural waste and residue and is not the result of a manufacturing process. Since it is not manufactured, the Supreme Court held that Rule 6 of the CENVAT Credit Rules, 2004 would not apply.

The Mumbai bench also relied on an earlier decision involving Shree Renuka Sugars, which held that electricity generated from bagasse and cleared outside the factory through a state electricity authority did not require the manufacturer to reverse CENVAT credit.

The tribunal therefore found that the issue was “no more res integra”, meaning that the legal position was already settled. It found no merit in the Revenue's appeal, upheld the Commissioner (Appeals)' order and dismissed the appeal.

For the Appellant/Revenue: Tanuj Bisht, Authorised Representative

For the Respondent/Assessee: Rahul Patil, Chartered Accountant