Incidental by-products in manufacturing are not final products for Rule 6(3)(b), preserving CENVAT credit entitlement.

Incidental by-products arising in the manufacture of a main dutiable product are not to be treated as final products for Rule 6(3)(b) of the CENVAT Credit Rules, 2002. On that basis, the requirement to pay 8% of the sale price of such exempt by-products was held inapplicable, and credit attributable to inputs used in relation to them was not denied. The distinction between intended final products and by-products or fall-outs was accepted for CENVAT purposes, and the assessee's credit position was upheld.

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Issues: Whether exempted by-products emerging incidentally in the manufacture of the main dutiable product were to be treated as final products for the purpose of requiring payment of 8% of their sale price under Rule 6(3)(b) of the CENVAT Credit Rules, 2002, and whether credit attributable to inputs used in such by-products could be denied.

Analysis: The exemption mechanism under Rule 6(3)(b) was considered in the context of goods which arose only as by-products or fall-outs in the course of manufacturing the principal duty-paying product. The Board's circulars and the Tribunal's earlier view were relied upon to recognise that inputs used in relation to manufacture of such by-products should not be disqualified merely because the by-products were exempt. The distinction between the intended final product and incidental by-products was accepted for CENVAT purposes.

Conclusion: The by-products were not to be treated as final products for the purpose of demanding 8% of their sale price, and the assessee was entitled to the credit position claimed. The issue was decided in favour of the assessee.

Ratio Decidendi: Incidental by-products emerging in the manufacture of the main dutiable product are not to be equated with the intended final product for the purpose of Rule 6(3)(b) of the CENVAT Credit Rules, 2002.

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