2013 (1) TMI 525 - HC - Central Excise

Rule 6 Excludes Bagasse as Manufactured Product; Refunds Allowed for Duty Paid Under Protest

Balrampur Chini Mills Ltd. & Others Versus Union of India and others

The HC held that Rule 6 does not apply to bagasse, a waste by-product from sugarcane crushing, as it is not a manufactured product but emerges during the ... Cenvat Credit - waste bagasse, a by-product of sugar manufacturing - Applicability of Rule 6 for production of exempted and non-dutiable goods - Held that:- In the instant case 'sugar' is the final product and molasses is an intermediary product or by-product, therefore, for applicability of Rule 6, the manufacture of dutiable goods and manufacture of exempted goods are conditions precedent. Since waste is never manufactured and it only emerges in the process of manufacture of final product, Rule is not applicable to bagasse which is admittedly a waste, which emerges from the crushing of sugarcane for the manufacture of final product, namely, sugar. The Apex Court while dismissing the Civil Appeal preferred by the department in the case of CCE v. Shakumbhari Sugar & Allied Industries Ltd. [2005 (8) TMI 615 - SC ORDER], uphold the findings recorded by the Tribunal in the case of Shakumbhari Sugar & Allied Industries Ltd., (supra) whereby it has been held that the 'Bagasse' obtained during the course of manufacture of sugar out of sugarcane may find an entry in Schedule to the Central Excise Tariff, but it does not become a final product merely on such entry. As some of the petitioners deposited the entire duty and interest under protest, it should be returned to them, within a maximum period of four weeks, from the date of presentation of a certified copy of this order. - Decided in favor of assessee. Issues Involved:1. Whether Bagasse can be subjected to any duty under the Central Excise Act.2. Applicability of Rule 6 of the CENVAT Credit Rules, 2004 to Bagasse.3. Validity of the Circulars dated 28.10.2009 and 3.10.2009 and the demand notice dated 24/27.9.2010.Issue-wise Detailed Analysis:1. Whether Bagasse can be subjected to any duty under the Central Excise Act:The primary issue was whether Bagasse, a by-product of sugar manufacturing, could be subjected to duty under the Central Excise Act. The petitioners argued that Bagasse is a waste product and not a manufactured product, as established by the Supreme Court in the case of Balrampur Chini Mills Ltd. The court noted that Bagasse emerges as a residue/waste during the sugar manufacturing process and is not a final product of the sugar industry. The court referenced the Tribunal's decision in the case of Commissioner of Central Excise vs. Shakumbhari Sugar and Allied Industries Ltd., which held that Bagasse is a waste product and not a final product, hence not subject to duty. The Supreme Court dismissed the civil appeal against this judgment, reinforcing that Bagasse is not a manufactured product.2. Applicability of Rule 6 of the CENVAT Credit Rules, 2004 to Bagasse:The petitioners contended that Rule 6 (1) of the CENVAT Credit Rules, which disallows CENVAT credit on inputs used in the manufacture of exempted goods, was not applicable to Bagasse. Rule 6 (2) and Rule 6 (3) were also discussed, which require manufacturers to maintain separate accounts for dutiable and exempted goods or pay a percentage of the value of exempted goods if separate accounts are not maintained. The court found that since Bagasse is not a manufactured product but a waste, Rule 6 does not apply. The court emphasized that Bagasse is a residue that emerges during the sugar manufacturing process and is not an exempted final product. Therefore, the obligations under Rule 6, including maintaining separate accounts or paying a percentage of the value of exempted goods, do not apply to Bagasse.3. Validity of the Circulars dated 28.10.2009 and 3.10.2009 and the demand notice dated 24/27.9.2010:The court examined the Circulars issued by the Central Board of Excise and Customs and the Chief Commissioner, Central Excise, which directed the authorities to take action under Rule 6 of the CENVAT Credit Rules regarding Bagasse. The court noted that these Circulars were based on the amended Section 2 (d) of the Central Excise Act, which included an explanation that 'goods' include any article capable of being bought and sold. However, the court concluded that this amendment did not change the nature of Bagasse as a waste product. The court held that the Circulars and the subsequent demand notice were invalid as they contradicted the established legal position that Bagasse is not a manufactured product. Consequently, the court quashed the Circulars dated 28.10.2009 and 3.10.2009 and the demand notice dated 24/27.9.2010. The court also ordered that any duty and interest paid by the petitioners under protest should be returned within four weeks.Conclusion:The court allowed the writ petitions, ruling that Bagasse is not subject to duty under the Central Excise Act as it is a waste product and not a manufactured final product. The court quashed the relevant Circulars and demand notice and directed the return of any amounts paid by the petitioners under protest.