Cenvat credit on sludge settled in furnace oil tanks was not required to be reversed where waste, not input, was removed.

Cenvat credit did not require proportionate reversal for sludge settled in furnace oil tanks during storage, because the sludge was treated as waste removed from the tank and not as an input removed as such. Rule 3(3) of the Cenvat Credit Rules, 2002 was therefore inapplicable on these facts. The analysis also noted that credit had been taken on furnace oil and mineral oil received with the sludge content, and duty had been paid on the sludge component, reinforcing that the removal was of waste and not of an excisable input. The Revenue's challenge failed.

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Issues: Whether proportionate Cenvat credit was required to be reversed in respect of sludge settled in furnace oil tanks during storage, and whether Rule 3(3) of the Cenvat Credit Rules, 2002 applied to such removal.

Analysis: The credit had been taken on furnace oil and mineral oil received along with the sludge content, and duty had also been paid on the sludge component. The sludge was treated as waste settled at the bottom of the storage tank and removed as waste, not as an input removed as such. In that situation, the rule invoked by the Revenue did not apply. The reasoning was supported by the view that sludge is not an excisable item.

Conclusion: Proportionate reversal of credit was not warranted, and the Revenue's challenge failed.

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