Exempted by-product liability under Cenvat Credit Rules not attracted for by-products arising during manufacture

Rule 6(3)(b) of the Cenvat Credit Rules, 2004 was held inapplicable to an exempted by-product arising during manufacture. In a dispute concerning barley malt manufacturing, barley malt roots emerged as a by-product and the demand for 10% of the value of the exempted goods was challenged. The appellate authority, following the Bombay High Court in Rallis India Ltd., concluded that liability under Rule 6(3)(b) does not arise in respect of an exempted by-product. As the Revenue failed to show why that precedent did not apply, the demand was held unsustainable.

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Issues: Whether amount equivalent to 10% of the value of exempted goods was payable under Rule 6(3)(b) of the Cenvat Credit Rules, 2004 in respect of exempted by-product emerging during manufacture.

Analysis: The respondent manufactured barley malt and barley malt roots arose during the course of manufacture as a by-product. The demand had been raised on the footing that 10% of the value of exempted goods was payable under Rule 6(3)(b). The appellate authority relied on the Bombay High Court decision in Rallis India Ltd. and held that liability under the rule does not arise in respect of exempted by-product. The Revenue did not demonstrate why that decision was inapplicable, and the cited High Court ruling was found to squarely govern the dispute.

Conclusion: The demand under Rule 6(3)(b) was not sustainable against the respondent for the exempted by-product.

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