Cenvat credit on manufacturing waste and by-products is not barred under Rule 6(3) of the Cenvat Credit Rules.

Rule 6(3) of the Cenvat Credit Rules, 2004 does not apply to clearance of waste, refuse or by-products generated during manufacture, including bagasse, pressmud, boiler ash and compost. The Tribunal noted that such materials stand on a different footing from non-excisable goods and that judicial precedent and departmental circulars recognise admissibility of Cenvat credit where inputs are contained in such manufacturing residues. The later explanation inserted in Rule 6(1) did not alter this settled position, so reversal of credit on their clearance was not exigible. The demand was therefore unsustainable.

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Issues: Whether reversal of Cenvat credit or payment under Rule 6(3) of the Cenvat Credit Rules, 2004 is exigible on clearance of waste, refuse or by-products such as bagasse, pressmud, boiler ash and compost.

Analysis: The Tribunal followed its earlier decision on identical facts and held that waste or by-products arising in the course of manufacture stand on a different footing from non-excisable goods. It noted that judicial precedent and the departmental circular recognise that Cenvat credit is admissible where inputs are contained in waste, refuse or by-products generated during manufacture. The later explanation inserted in Rule 6(1) did not displace the settled position that Rule 6(3) is not attracted to such waste or by-products.

Conclusion: Rule 6(3) has no application to clearance of waste or by-products, and the demand for reversal of credit was unsustainable.

Final Conclusion: The impugned orders were set aside and the appeals succeeded.

Ratio Decidendi: Rule 6(3) of the Cenvat Credit Rules, 2004 does not apply to waste, refuse or by-products generated in the manufacturing process, and Cenvat credit cannot be denied on their clearance.

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