Waste arising during manufacture is not an exempt final product; Rule 6 credit reversal was held inapplicable.

Iron ore fines arising incidentally during handling, sorting, grading and screening of iron ore used for sponge iron manufacture were treated as waste, not as a separate manufactured final product. Because the fines were neither the intended output nor exempted goods manufactured by the assessee, the common input service credit reversal provisions under Rule 6(3)(b) of the Cenvat Credit Rules, 2004 did not apply. The demand for reversal of credit was therefore held unsustainable.

---

---

Issues: Whether iron ore fines emerging during manufacture of sponge iron are exempted final products so as to attract reversal of input service credit under Rule 6(3)(b) of the Cenvat Credit Rules, 2004.

Analysis: Iron ore fines arose only incidentally during handling, sorting, grading and screening of iron ore used for manufacture of sponge iron. They were found to be smaller pieces of the same raw material, not a separate manufactured product, and were sold as waste. The liability under Rule 6 was held to arise only in relation to final products, not waste emerging in the course of manufacture. Since the fines were neither the intended final product nor exempted goods manufactured by the assessee, the common input service credit provisions were not attracted.

Conclusion: The demand for reversal of credit under Rule 6(3)(b) was not sustainable and the assessee succeeded.

Ratio Decidendi: Waste or inevitable by-products arising during manufacture do not become exempted final products for the purpose of Rule 6 reversal under the Cenvat Credit Rules, 2004.

---