Non-excisable sludge from furnace oil storage does not justify reversal of proportionate Cenvat credit

Sludge generated naturally during storage of furnace oil was treated as a non-excisable residue, not as clearance of furnace oil itself. Because the furnace oil had already been consumed in manufacture and the sludge was regarded as refuse, there was no basis to require reversal of proportionate Cenvat credit attributable to the sludge. The Board Circular referred to in the text also supported the view that sludge was not excisable during the relevant period. The Revenue's objection therefore failed, and reversal of Cenvat credit was held unwarranted.

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Issues: Whether Cenvat credit attributable to furnace oil was required to be reversed on the quantity of sludge deposited during storage and cleared, and whether such sludge was liable to be treated as excisable during the relevant period.

Analysis: Sludge arising in the storage of furnace oil was held to be a natural residue beyond the assessee's control and not a clearance of furnace oil as such. The furnace oil itself had been consumed in manufacture, and the sludge was treated as refuse. The relevant Board Circular also indicated that sludge was not excisable during the period in question. On that basis, there was no justification to require reversal of Cenvat credit on the proportionate quantity of furnace oil attributable to the sludge.

Conclusion: Reversal of Cenvat credit was not warranted and the Revenue's objection failed.

Ratio Decidendi: Where sludge is a non-excisable residue arising naturally during storage of furnace oil and the input itself has been consumed in manufacture, proportionate Cenvat credit cannot be reversed merely because sludge is cleared.

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