The Bangalore CESTAT has held that rectified spirit not used for human consumption is ethyl alcohol and allowed excise duty exemption.

The appellants are engaged in the manufacture of sugar and in the course of manufacture of sugar, molasses emerges as a byproduct. Molasses is captively consumed in the manufacture of dutiable products like Ethyl Alcohol, Ethanol, denatured spirit and exempted products like rectified spirit etc. In the course of the manufacture of rectified spirit, carbon dioxide also emerges which is also liable to duty. The appellants used to sell molasses on payment of duty as and when there is demand of those. 

However, for the molasses captively used for further manufacture of Ethyl Alcohol, Ethanol, Rectified Spirit, ENA, Denatured spirit etc., the appellants were availing the benefit of Notification No.67/95-CE dated 13.06.1995 as amended, which grants exemption from payment of duty on intermediary products, which are captively consumed in the manufacture of excisable goods. 

However, alleging that the appellant is manufacturing rectified spirit and Extra Neutral Alcohol by using molasses, which are exempted from payment of duty, thus the appellant is not eligible for the exemption in terms of the Notification No.67/95 dated 16.03.1995, proceedings were initiated. Thereafter Adjudicating Authority confirmed the allegations in the show cause notice vide the impugned order.

The appellant filed miscellaneous applications for bunching and early disposal of the appeals on the ground that the issue is covered and the appeal is regarding denial of Notification No.67/95-CE dated 16.03.1995 as amended in respect of molasses manufactured and captively consumed for the manufacture of ‘neutral alcohol’, ‘rectified spirit’ which is not appearing in the first schedule to Central Excise Tariff Act, 1985. The application for bunching and early hearing was allowed by this Tribunal vide order dated 23.03.2023. 

The Appellant further submits that the process of manufacture of sugar carried out in their factory is a continuous process during which the ‘molasses’ emerges and is removed to their own distillery for further fermentation and distillation process, which result in emergence of ethyl alcohol. Ethyl alcohol, which is also known as rectified spirit is an excisable goods classifiable under CETH 22072000, and thus finds specific mention in the CETA after its amendment in 2005 (when it was made into 8 digits).

The department submitted that the molasses has been used in the manufacture of ‘ethyl alcohol and/or ‘rectified spirit’, a non-excisable product, and thus are ‘exempted goods.’ ‘Neutral Alcohol’ and ‘Rectified Spirit’ manufactured by the assessee do not get covered by column (2) of the table annexed to Notification No. 67/95-CE, as they do not find place in the First Schedule to the Central Excise Tariff, 1985.

“ethyl alcohol and rectified spirit are one and the same. We, therefore, hold that rectified spirit which is not used for human consumption is nothing but ethyl alcohol and is finding place in tariff item No. 2207 20 00. We, therefore, hold that the show cause notices are not sustainable. As a result, we set aside the impugned orders and allow the appeals with consequential relief,” the tribunal said.

Case Title: M/s NSL Sugars Limited V/s Commissioner, Central Excise, Mysore