Rule 6 levy on incidental by-product rejected where no separate manufacture or exclusive input nexus was shown.

Rule 6 of the Cenvat Credit Rules, 2002 did not require payment of an 8% amount on Hydrol, because it arose only as an incidental by-product or residual waste during manufacture of Dextrose and was not shown to be a separately manufactured exempt final product using independent inputs. The legal position applied was that Rule 6 does not extend to exempt by-products or waste emerging incidentally in the course of manufacturing the main dutiable product. As no separate manufacture or exclusive input nexus was established, the demand was unsustainable, and the connected penalty and interest also could not survive.

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Issues: Whether 8% amount under Rule 6 of the Cenvat Credit Rules, 2002 was payable on Hydrol, an exempted by-product arising during manufacture of the main dutiable product, and whether the consequential duty, penalty and interest demand could survive.

Analysis: Hydrol emerged only as a residual/by-product in the course of manufacturing Dextrose and was not shown to be a separately manufactured exempt final product using independent inputs. The demand proceeded on the footing that any exempt clearance attracted the percentage levy, but the applicable legal position was that Rule 6 does not apply where an exempt by-product or waste arises incidentally during manufacture of the main product. The issue had already been consistently answered against the Revenue in the cited authorities, and the facts showed no basis for treating Hydrol as a separate exempt final product for the purpose of demanding 8% of its value.

Conclusion: The demand under Rule 6 was not sustainable, and the connected penalty and interest also could not stand. The Revenue's appeal was rejected.

Ratio Decidendi: No amount under Rule 6 of the Cenvat Credit Rules, 2002 is payable on an exempt by-product or waste that arises incidentally in the manufacture of the main product, where no separate manufacture or exclusive input nexus is established.

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