2015 (10) TMI 566 - SC - Central Excise

Bagasse Not Subject to Excise Duty: Court Upholds Decision

UNION OF INDIA Versus DSCL SUGAR LTD.

The Court ruled that Bagasse, as an agricultural waste and residue of sugarcane, did not qualify as a manufactured product under the Central Excise Act. ... Duty demand / Reversal of cenvat credit - Bagasse - Manufacture - generation of electricity - whether Bagasse which emerges as residue/waste of sugarcane is subjected to excise duty or not - Held that:- It could not be pointed out as to whether any process in respect of Bagasse has been specified either in the Section or in the Chapter notice. In the absence thereof this deeming provision cannot be attracted. Otherwise, it is not in dispute that Bagasse is only an agricultural waste and residue, which itself is not the result of any process. Therefore, it cannot be treated as falling within the definition of Section 2(f) of the Act and the absence of manufacture, there cannot be any excise duty. - Since it is not a manufacture, obviously Rule 6 of the Cenvat Rules, 2004, shall have no application as rightly held by the High Court. - Since Bagasse is held not to be result of any manufacture - Decided against Revenue. Issues:1. Whether Bagasse, a residue of sugarcane, is subject to excise duty under the Central Excise Act.2. Interpretation of the definition of 'manufacture' under Section 2(f) of the Central Excise Act.3. Application of the deeming provision regarding marketability of goods under the Act.4. Assessment of whether Bagasse qualifies as a manufactured product for excise duty purposes.5. Validity of show cause notices issued by the Revenue regarding excise duty on Bagasse.Analysis:1. The case involved a series of appeals by the Revenue questioning the excisability of Bagasse, a residue of sugarcane, under the Central Excise Act. The main issue was whether Bagasse should be subjected to excise duty as a manufactured product falling within the definition of 'manufacture' under Section 2(f) of the Act.2. The Respondents, sugarcane manufacturers, argued that Bagasse was classified under a different heading in the Central Excise Tariff Act and attracted nil rate of duty. The High Court had ruled in favor of the Respondents, stating that Bagasse being a waste and not a manufactured product, was not liable for excise duty.3. The Court analyzed the amended Section 2(d) and 2(f) of the Act, which defined 'excisable goods' and 'manufacture,' respectively. The explanation under Section 2(d) broadened the definition of 'goods' to include any article capable of being bought or sold for consideration, deeming them marketable. This provision was crucial in determining the excisability of Bagasse.4. The Court emphasized that for goods to be considered excisable, they must undergo a process falling within the definition of 'manufacture' as per Section 2(f) of the Act. The Revenue sought to classify Bagasse under sub-clause (ii) of Section 2(f) by linking it to a specified process in the Tariff Act. However, as no such process was identified for Bagasse, the deeming provision could not be applied.5. Ultimately, the Court held that Bagasse, being an agricultural waste and residue without undergoing a specific manufacturing process, did not meet the criteria for excisability. As Bagasse was not considered a manufactured product under Section 2(f), it was not liable for excise duty. The Court dismissed the appeals by the Revenue, upholding the High Court's decision that no duty was payable on Bagasse.6. Additionally, other related appeals regarding Cenvat Credit for electricity were dismissed as Bagasse was not found to attract excise duty, rendering Rule 6 of the Cenvat Credit Rules inapplicable. The judgment clarified the excisability of Bagasse and set a precedent for similar cases involving agricultural residues and waste.