Circular No.615/6/2002-CX.
4th February, 2002

F.No.267/80/98-CX.8
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs

Subject:-Availment of accumulated MODVAT /CENVAT Credit on molasses for payment of duty on sugar.

            I am directed to state that it has been brought to the notice of the Board that divergent practice is being adopted by the field formations regarding utilisation of credit of duty paid on molasses for payment of duty on sugar being cleared by the sugar manufacturing units. It has been reported by some of the Commissionerates that molasses is a finished product and hence no credit of the duty paid on the molasses can be utilised for payment of duty on sugar. On the other hand, some field formations have reported that the credit of the duty paid on molasses is being allowed to be utilised for payment of duty on the sugar being cleared from the factory after following the due procedure laid down in view of the proviso to the erstwhile Rule 57F(12).

2.            The matter has been examined. Molasses is generated as a by-product in the sugar manufacturing units and attracts specific rate of duty. The molasses generated can be captively consumed for further manufacture of ethyl alcohol either in the same unit or in a distinct distillery unit. However, ethyl alcohol which is manufactured using the molasses may be dutiable or exempted or non-excisable. The utilisation of credit may vary depending onthe situation. All such possible situations are discussed as follows.

(a)	A composite unit may manufacture sugar, molasses and Ethyl Alcohol dutiable, exempted and non-excisable. In case, Ethyl Alcohol non-excisable or exempted is manufactured, the duty becomes payable on molasses and no credit of duty paid on "in-house" manufactured molasses shall be available . In case, the ethyl alcohol is cleared on payment of duty, no duty is required to be paid on molasses and hence, no question of availing credit arises.
(b)	A composite unit may manufacture sugar, molasses and ethyl alcohol and also procure duty paid molasses from outside. In such an event, the credit of duty paid on molasses used as input in the manufacture of dutiable ethyl alcohol shall be available which can be utilised for the payment of duty on any finished product manufactured in the same factory. In case, exempted/non-excisable ethyl alcohol is produced, no credit of duty paid on molasses procured from outside shall be available.
(c)	Where sugar unit and distillery unit are two distinct entities, molasses is produced in sugar unit and cleared on payment of duty. No question of availing credit of duty paid on molasses arises in such case. However, if molasses so produced is used as input in distillery unit which is altogether a separate entity, credit of duty paid on such molasses can be utilised by the latter entity.

3.            It would thus be clear from the above clarification that each case has to be decided on its merits in the light of above guidelines and Cenvat issue settled accordingly.

4.            Trade and field formations may be suitably informed.