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Issues: Whether Rule 6(3)(b) of the CENVAT Credit Rules, 2004 could be applied to demand an amount equal to 10% of the value of exempted by-products/waste cleared during manufacture of dutiable final products.
Analysis: The disputed products were found to be by-products, waste, or residue arising in the course of manufacture of dutiable final products. The liability under the CENVAT Credit scheme was held to arise in respect of exempted goods manufactured and cleared as such, not in respect of waste or by-products emerging incidentally during manufacture. The view taken by the lower authorities based on the Larger Bench decision was not accepted, as the later High Court view treating such by-products differently was applied.
Conclusion: Rule 6(3)(b) of the CENVAT Credit Rules, 2004 was held inapplicable to the exempted by-products in question, and the demand and penalty were set aside in favour of the assessee.
Final Conclusion: The appeals succeeded and the assessee obtained consequential relief, as the exempted outputs were treated as incidental by-products rather than goods attracting reversal or payment under Rule 6.
Ratio Decidendi: Liability under Rule 6 does not extend to by-products, waste, or residue arising incidentally in the manufacture of dutiable final products, even if such incidental outputs are exempted and cleared without duty.
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