2013 (12) TMI 928 - AT - Central Excise

Appellate Tribunal rules against 10% demand on exempted goods under CENVAT Credit Rules

The Appellate Tribunal CESTAT CHENNAI set aside the demand of 10% amount on exempted goods 'sludge' under Rule 6(3)(i) of the CENVAT Credit Rules, 2004, ... Sludge emerged during the process of manufacture - Whether in terms of Rule 6(3)(i), an amount equal to 10%/5% would be payable – Held that:- The goods are definitely in the nature of ‘by-product' and ‘waste' – Following Rallies India Ltd. Vs Union of India [2008 (12) TMI 46 - HIGH COURT BOMBAY] - when common inputs are used in the manufacture of dutiable and exempted products, the liability to pay the amount of 8% as it was applicable at the relevant time would arise only for final products and not for 'waste'. The Board's Circular No.345/61-97-CX, to the effect that there should be no denial of credit even if a part of an inputs is contained in scrap, waste, residue etc., notwithstanding the fact that the erstwhile Rule 57D is no longer in force – further in the CBEC's Central Excise Manual, states that CENVAT credit is also admissible respect of amounts of inputs contained in any of the waste, residue or by-product - the basic idea is that CENVAT credit is admissible so long as the inputs are used in or in relation to the manufacture of final products – thus, the 'sludge' is in the nature of by-product or waste and demand of amount of 10% on the value of the 'sludge' under Rule 6(1)(i) of the said Rules 2004 is not sustainable – Decided in favour of Assessee. Issues:Waiver of pre-deposit of duty under CENVAT Credit Rules, 2004; Demand of 10% amount on exempted goods 'sludge' under Rule 6(3)(i) of the CENVAT Credit Rules, 2004.Analysis:1. Waiver of Pre-Deposit of Duty:The appellant sought waiver of pre-deposit of duty amounting to Rs.1,02,810/- confirmed under Rule 6 and 14 of the CENVAT Credit Rules, 2004, along with interest and penalty. The Tribunal decided to take up the appeal for disposal after granting a stay of operation of the impugned order due to the narrow compass of the issue involved. The appellant, engaged in the manufacture of 'paper' and 'paper board,' availed CENVAT credit on various inputs. The key contention revolved around the demand of 10% amount on the value of exempted goods 'sludge' cleared during a specific period under Rule 6(3)(i) of the CENVAT Credit Rules, 2004.2. Interpretation of Exempted Goods and CENVAT Credit Rules:The appellant argued that a similar issue in their subsequent period was decided in their favor by the Tribunal in a previous case, citing a relevant order. The Tribunal analyzed the classification of the goods 'press mud' and 'sludge' under the Central Excise Tariff Act, 1985, highlighting that although these goods were specified in the First Schedule, they were not subject to a duty of excise due to a 'Nil' rate. The Tribunal examined the definition of 'exempted goods' under Rule 2(d) of the CENVAT Credit Rules, emphasizing that even though 'press mud' and 'sludge' were considered exempted goods, they did not meet the criteria of excisable goods subject to duty.3. Application of CENVAT Credit Rule 6(1) and Precedents:The Tribunal delved into the application of CENVAT Credit Rule 6(1), which disallows credit on inputs used for manufacturing exempted goods. Referring to judicial precedents, including a decision by the Bombay High Court, the Tribunal concluded that the liability to pay a specific amount on such goods arises only for final products, not for 'waste' or 'by-products.' The Tribunal also cited the CBEC's Central Excise Manual, emphasizing that CENVAT credit is admissible for inputs contained in waste, residue, or by-products used in the manufacture of final products.4. Decision and Ruling:After thorough consideration of the legal provisions, precedents, and expert opinions, the Tribunal held that the demand of 10% amount on the 'sludge' under Rule 6(1)(i) of the CENVAT Credit Rules, 2004, was not sustainable. Consequently, the impugned order was set aside, and the appeal filed by the appellant was allowed with consequential relief. The Tribunal's decision was based on the classification of goods, interpretation of relevant rules, and established principles governing CENVAT credit and exempted goods.In conclusion, the judgment by the Appellate Tribunal CESTAT CHENNAI addressed the issues of waiver of pre-deposit of duty and the demand of 10% amount on exempted goods, providing a detailed analysis of the legal provisions, precedents, and expert opinions to arrive at a well-reasoned decision in favor of the appellant.