2016 (11) TMI 352 - AT - Central Excise

Appeal allowed: Press-mud not an exempted product under Cenvat Credit Rules.

The appeal was filed challenging a demand notice issued under Rule 6(3)(b) of the Cenvat Credit Rules 2004 concerning the treatment of Press-mud as an ... Applicability of Rule 6(3) of the Cenvat Credit Rules, 2004 to by-products - Cenvat credit recovery where separate records for inputs used in dutiable and exempted goods are not maintained - Distinction between 'manufacture' and emergence of waste/by-product - Liability to pay 5% of value under Rule 6(3) where exempted goods are manufacturedApplicability of Rule 6(3) of the Cenvat Credit Rules, 2004 to by-products - Distinction between 'manufacture' and emergence of waste/by-product - Cenvat credit recovery where separate records for inputs used in dutiable and exempted goods are not maintained - Press-mud, which emerges as a by-product/waste in the manufacture of sugar/molasses, is not an exempted 'manufactured' good for the purpose of invoking Rule 6(3) and therefore Rule 6(3) is not applicable to require recovery of 5% of its value for failure to maintain separate input records. - HELD THAT: - The Tribunal accepted the settled view in earlier decisions that Rule 6(1)-(3) applies where a manufacturer actually manufactures both dutiable and exempted goods and is required to maintain separate accounts for inputs used for each. A material distinction exists between goods that are 'manufactured' and materials that merely 'emerge' as waste or by-products in the process of manufacturing a final dutiable product. Press-mud emerges incidentally during the manufacture of sugar/molasses and is a by-product/waste; it is not a separately manufactured exempted good. Consequently the preconditions for operation of Rule 6(3), including liability to pay 5% of the value for non-maintenance of separate records for inputs meant for manufacture of exempted goods, are not satisfied. The Tribunal therefore set aside the demand and penalty confirmed by the adjudicating authority and Commissioner (Appeals) which had applied Rule 6(3) to press-mud.Impugned order confirming demand under Rule 6(3) and imposing equal penalty set aside; appeal allowed.Final Conclusion: The appeal succeeds: press-mud, being a by-product/waste arising in sugar manufacture, is not an exempted 'manufactured' good for purposes of Rule 6(3) of the Cenvat Credit Rules, 2004, and the demand and penalty under that provision are set aside. Issues:1. Whether Press-mud emerging as a by-product during the manufacture of Sugar/Molasses is subject to Rule 6(3) of the Cenvat Credit Rules or not.Analysis:The appeal was filed against an order passed by the Commissioner (Appeals), Central Excise, Customs, and Service Tax-SURAT-II. The appellant, engaged in manufacturing excisable goods, availed Cenvat Credit on Inputs and Input Services. A demand notice was issued for recovery under Rule 6(3)(b) of Cenvat Credit Rules 2004 due to the lack of separate records on the consumption of inputs used in the manufacture of dutiable goods and Press-mud, considered an exempted product. The demand was confirmed, and a penalty imposed, leading to the appeal. The appellant argued that Press-mud, a by-product, should not be considered an exempted excisable good. This argument was supported by judgments from the Allahabad High Court and the Tribunal. The issue was whether Press-mud, as a by-product, should be subjected to Rule 6(3) of the Cenvat Credit Rules. The judgment cited the Allahabad High Court's observation that waste products emerging during the manufacture of final products are not considered the manufacture of exempted goods, thus exempting Press-mud from the rule's application. Consequently, the impugned order was set aside, and the appeal was allowed.This detailed analysis of the legal judgment highlights the key issues involved, the arguments presented by the parties, the relevant legal provisions, and the final decision rendered by the tribunal.