2011 (4) TMI 796 - AT - Central Excise

Tribunal grants relief based on High Court interpretation: exempted products not subject to rule

The Tribunal set aside the lower authorities' orders and granted relief to the appellant based on the Mumbai High Court's interpretation. The High Court ... Non maintenance of separate MODVAT account - required to pay 10% of the value of their final product in terms of provisions of Rule 6(3)(b) of CENVAT Credit Rules, 2004 - Waste/byproduct - Held that:- As per RALLIS INDIA LTD. Versus UNION OF INDIA [2008 (12) TMI 46 - HIGH COURT BOMBAY] it is held that where common inputs are used in the manufacture of dutiable and exempted product, liability to pay amount under erstwhile Rule 57CC of Central Excise Rules, 1944 arises only for product and not for waste/byproduct. As find from the impugned order that the exempted products are admittedly in the nature of byproduct/ waste/residue arising during the course of manufacture of dutiable final product, the ratio of above decision of Mumbai High Court would squarely apply to the same.In favour of assessee. Issues:Interpretation of Rule 6(3)(b) of CENVAT Credit Rules, 2004 regarding payment obligations for dutiable and non-dutiable products manufactured using common inputs.Analysis:The appellant, engaged in the manufacture of dutiable products, was availing CENVAT Credit for duty paid on inputs. By-products exempted from duty were also being produced during the manufacturing process. The Revenue contended that since common inputs were used for both dutiable and exempted products without maintaining separate MODVAT accounts, the appellant must pay 10% of the value of the final product as per Rule 6(3)(b) of the CENVAT Credit Rules, 2004.The lower authorities rejected the appellant's argument that by-products were waste and hence not subject to Rule 6 obligations. They relied on a previous Tribunal decision in M/s Rallis India Ltd. Vs. CCE, which held that exempted by-products regularly cleared for sale are liable for payment under Rule 6. The authorities determined that since the exempted products were not directly manufactured from the primary product and were regularly sold for profit, the appellant was obligated to pay 10% of the total price of the exempted products.However, the appellant pointed out a subsequent decision by the Mumbai High Court that overturned the Tribunal's ruling. The High Court decision clarified that liability under the rules arises only for the final product and not for waste or by-products when common inputs are used for dutiable and exempted products. Since the exempted products in this case were considered by-products or waste arising during the manufacturing process, the Mumbai High Court's decision was deemed applicable.Consequently, the Tribunal set aside the lower authorities' orders, allowing the appeals and granting relief to the appellant based on the Mumbai High Court's interpretation of the law.This judgment clarifies the application of Rule 6(3)(b) of the CENVAT Credit Rules, 2004 in cases where common inputs are used for manufacturing both dutiable and exempted products, particularly addressing the treatment of waste or by-products in such scenarios.