Rule 6 CENVAT credit does not apply to bagasse treated as residue from sugar manufacture.

Bagasse, generated as residue or waste in sugar manufacture, is not treated as an exempted final product for Rule 6 of the CENVAT Credit Rules, 2004. The settled position applied is that Rule 6 operates only where common inputs, capital goods or input services are used in the manufacture of both dutiable final products and exempted goods. Mere marketability under Section 2(d) of the Central Excise Act, 1944 does not convert waste into a manufactured excisable final product. On that basis, reversal or payment under Rule 6, together with interest and penalty, was not sustainable.

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Issues: Whether bagasse, being a waste/residue arising in the manufacture of sugar, could be treated as exempted final product so as to require payment under Rule 6 of the CENVAT Credit Rules, 2004 when common inputs, capital goods and input services were used and separate accounts were not maintained.

Analysis: The Tribunal followed the settled position that Rule 6 applies only where there is manufacture of dutiable final products and exempted goods. Bagasse was found to be a residue/waste emerging from the crushing of sugarcane in the process of manufacture of sugar and not a manufactured final product. The amendment to Section 2(d) of the Central Excise Act, 1944, dealing with marketability, did not alter this position because marketability alone does not convert waste into a manufactured excisable final product. The Tribunal also noted that the rule against reversal or payment linked to exempted final products, as interpreted in prior decisions, was not applicable to bagasse.

Conclusion: Rule 6 of the CENVAT Credit Rules, 2004 was held not applicable to bagasse, and the demand based on reversal/payment, interest and penalty could not be sustained. The appeals were allowed with consequential relief.

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