Cenvat credit rule on exempted goods does not extend to by-products, leaving the sale-value demand unsustainable.

Rule 6(3)(b) of the Cenvat Credit Rules, 2002 was held to apply only to exempted final products and not to by-products, waste or refuse arising inevitably in manufacture. On that basis, de-oiled cakes and residue cleared without duty did not attract the 8% payment requirement based on sale value, and the related demand could not be sustained. The Tribunal also held that the provision was pari materia with earlier credit scheme rules, so prior decisions excluding by-products from the payment obligation continued to apply. As a result, the connected penalty and interest did not survive.

---

---

Issues: Whether Rule 6(3)(b) of the Cenvat Credit Rules, 2002 applied to by-products such as de-oiled cakes and residue emerging in the course of manufacture, and whether the demand of 8% of the sale price and the connected penalty and interest were sustainable.

Analysis: The dispute turned on whether the goods cleared without duty were exempted final products or merely by-products arising inevitably in the course of manufacture. The Tribunal held that Rule 6(3)(b) is attracted only in relation to exempted final products and not to by-products, waste or refuse. It further held that the rule was pari materia with the earlier credit scheme provisions, so the prior decisions holding that by-products are outside the sweep of the 8% payment requirement remained applicable. On that basis, the demand based on non-maintenance of separate accounts could not be sustained.

Conclusion: The demand of 8% on the sale price of the by-products was not payable, and the connected penalty and interest did not survive.

Final Conclusion: The appeal succeeded and the assessee obtained consequential relief.

Ratio Decidendi: A provision requiring payment of a percentage of the sale price for exempted goods applies only to exempted final products and not to by-products, waste or refuse that emerge as an inevitable consequence of manufacture.

---