February 18, 2026 : The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has set aside demands requiring sugar manufacturers to pay 6 percent of the value of electricity sold to the state grid, holding that Rule 6(3) of the CENVAT Credit Rules, 2004 is not applicable in such cases.
A Division Bench comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) allowed a batch of appeals led by M/s Olam Agro India Pvt. Ltd. and several cooperative sugar factories, and quashed the Order-in-Appeal dated 03.08.2017 passed by the Commissioner of Central Tax (Appeals-I), Pune.
Common Issue Across Appeals
The appeals arose from a common Order-in-Appeal No. PUN-EXCUS-000-APP-206 to 218/2017-18 dated 03.08.2017. The lead matter was Excise Appeal No. 87506 of 2017, M/s Olam Agro India Pvt. Ltd. vs Commissioner of CGST & Central Excise, Pune-I.
The appellants are engaged in the manufacture of sugar, molasses and ethyl alcohol under Chapter 17 of the Central Excise Tariff Act, 1985. They avail CENVAT credit on inputs and input services used for manufacturing dutiable final products.
In addition, they generate electricity from bagasse, a by-product of sugar manufacturing. The electricity, classifiable under Tariff Item 2716 0000 as “Electrical Energy,” is partly used captively and the surplus is sold to the Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL).
Department’s Stand: Electricity as Non-Dutiable Goods
Since no rate of excise duty is prescribed for electricity under the Tariff Act, the Department treated the sale of electricity as clearance of non-dutiable goods.
It alleged that the assessees had availed CENVAT credit on common inputs and input services but had not maintained separate accounts for inputs used in dutiable goods and those used for generation of non-dutiable electricity. Invoking Rule 6(3) of the CENVAT Credit Rules, 2004, the Department demanded payment of an amount equal to 6 percent of the value of electricity sold to MSEDCL.
The adjudicating authorities confirmed the demands, and the Commissioner (Appeals) upheld them, leading to the present appeals before the Tribunal.
Reliance on Earlier Aurangabad Order
Before the Tribunal, the appellants pointed out that an identical issue had been decided by the Commissioner of GST, Aurangabad in M/s Vaidyanath SSK Ltd. & others, vide Order-in-Original dated 17.11.2021. In that case, similar show cause proceedings were dropped.
The Aurangabad order had relied on the Supreme Court’s judgment in Union of India v. DSCL Sugar Ltd., as well as decisions of the Allahabad High Court in Balrampur Chini Mills Ltd. v. Union of India and the Delhi High Court in Commissioner of Central Excise and S. Tax LTU, Delhi v. Nangalamal Sugar Complex.
It was held that electricity produced from bagasse and sold to the grid cannot be subjected to payment of 6 percent under Rule 6(3).
Tribunal’s Findings
The Tribunal noted that the period involved in the Aurangabad order was February 2015 to June 2017, whereas the present appeals covered March 2015 to December 2015. There was no change in statutory provisions during the relevant period.
Importantly, the Aurangabad order dated 17.11.2021 had been accepted by the Committee of Chief Commissioners in its meeting held on 11.02.2022, and no appeal had been filed against it.
The Bench observed that since the earlier order dropping similar proceedings had attained finality and the facts and legal provisions were identical, a different interpretation could not be adopted in the present batch of appeals.
Holding that the confirmation of 6 percent demands under Rule 6(3) was unsustainable, the Tribunal set aside the impugned Order-in-Appeal dated 03.08.2017 and allowed all the appeals in favour of the appellants.
Case Reference : M/s Olam Agro India Pvt. Ltd. (Formerly known as M/s Hemarus Industries Ltd.) vs Commissioner of CGST & Central Excise, Pune-I
Appearance
Counsel for the Appellants: J.N. Somaiya, Advocate
Counsel for the Respondent: A.K. Shrivastava, Authorized Representative.
