Cenvat credit reversal does not apply to waste by-products like bagasse and press mud sold without duty, the Tribunal said.

Rule 6(3) of the Cenvat Credit Rules, 2004 was held inapplicable to bagasse and press mud, as these were waste/by-products arising during sugar manufacture and sold without payment of excise duty. On those facts, the absence of separate accounts for inputs and input services did not justify a demand for 10% of the value under Rule 6(3). The Tribunal treated the cited precedent as directly applicable and concluded that no reversal or payment obligation arose in respect of such waste products. The demand was therefore unsustainable and relief was granted to the assessee.

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Issues: Whether Rule 6(3) of the Cenvat Credit Rules, 2004 could be invoked to demand 10% of the value of bagasse and press mud, being waste/by-products arising during manufacture of sugar and sold without payment of duty, on the ground that separate accounts were not maintained for inputs and input services.

Analysis: The Tribunal noted that the disputed items were waste products arising in the course of sugar manufacture and were sold without payment of excise duty. It accepted that the cited precedent applied directly to these facts and that, in such circumstances, there was no requirement to maintain separate accounts or to pay 10% of the value under Rule 6(3).

Conclusion: The demand under Rule 6(3) was not sustainable and the appeal was allowed in favour of the assessee.

Ratio Decidendi: Rule 6(3) of the Cenvat Credit Rules, 2004 does not apply to waste products arising in manufacture and sold as such without duty, when no separate reversal or payment obligation is attracted on those facts.

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