Cenvat credit on by-product waste cannot be denied under Rule 6(3) when no exempted final product exists.

Rule 6(3) of the Cenvat Credit Rules, 2002 was considered inapplicable to non-granulated slag arising as a by-product in the course of steel manufacture, because the provision operates only where exempted final products exist. Cenvat credit could not be denied merely because inputs were contained in waste, refuse, or by-products generated during manufacture, and the Board's clarification supported that position. The view that non-granulated slag was not excisable further reinforced the assessee's case. On that basis, the demand raised under Rule 6(3), together with the related penalty and interest, was not sustainable.

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Issues: Whether Rule 6(3) of the Cenvat Credit Rules, 2002 could be invoked in respect of non-granulated slag arising in the course of manufacture of steel, and whether the demand, penalty and interest based on that provision were sustainable.

Analysis: Non-granulated slag was treated as a by-product arising in the course of manufacture and not as a final product. On that basis, the condition precedent for applying Rule 6(3), which proceeds on the basis of exempted final products, was absent. The Board's clarification was also relied upon for the proposition that Cenvat credit is admissible in respect of inputs contained in waste, refuse or by-product, and that credit should not be denied merely because such material emerges during manufacture. The subsequent departmental view that non-granulated slag was not excisable also supported the assessee's case.

Conclusion: Rule 6(3) of the Cenvat Credit Rules, 2002 was held inapplicable to non-granulated slag, and the demand founded on that provision, along with the related penalty and interest, could not survive.

Ratio Decidendi: Rule 6(3) does not apply to waste or by-product arising in manufacture where the material is not a final product, and Cenvat credit cannot be denied on that basis.

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