Pre-deposit waiver under Cenvat credit rules granted where exempt waste by-product and impossible input segregation were shown.

Where exempted goods arise only as an inevitable and unavoidable waste or by-product in manufacture, Rule 6(3) of the Cenvat Credit Rules, 2004 cannot be mechanically invoked on a prima facie basis to demand an amount linked to sale value. The Tribunal noted that the rule is in pari materia with the earlier Rule 57CC and accepted that, where separate accounts for common inputs used in dutiable and exempted outputs cannot be maintained because it is impossible in practice, the law does not compel impossibilities. On that footing, the appellant showed a prima facie case and undue hardship, so pre-deposit was waived and recovery stayed pending disposal of the appeal.

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Issues: Whether, in a case where waste sludge emerges inevitably during manufacture and separate accounts/inventory of common inputs cannot be maintained, pre-deposit of the amount demanded under Rule 6(3) of the Cenvat Credit Rules, 2004, interest and penalty should be waived and recovery stayed.

Analysis: The appellant's waste sludge arose as an inevitable and unavoidable by-product in the manufacture of paper and paper board. The Tribunal noted that the provisions of Rule 6(2) and Rule 6(3) of the Cenvat Credit Rules, 2004 are in pari materia with the earlier Rule 57CC, and that in an identical situation it had been held that an amount equal to a percentage of sale value could not be insisted upon where the exempted product emerged as an unavoidable by-product. The Tribunal also accepted, prima facie, that where it is impossible to maintain separate accounts for inputs used in dutiable and exempted outputs, the rule cannot be mechanically invoked and the principle that the law does not compel impossibilities applies in taxation matters.

Conclusion: The appellant had established a prima facie case and undue hardship was made out; pre-deposit was waived and recovery stayed till disposal of the appeal.

Ratio Decidendi: Where exempted goods arise only as an inevitable and unavoidable waste or by-product and maintenance of separate input accounts is impossible, the pre-deposit requirement under Rule 6(3) cannot be insisted upon on a prima facie basis.

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