Rule 6(3) Cenvat Credit liability does not extend to waste and by-products arising inevitably during manufacture.

Rule 6(3) of the Cenvat Credit Rules, 2004 was held inapplicable to clearance of bagasse, press-mud, boiler ash and compost generated inevitably as waste or by-products in the manufacture of sugar and molasses. The tribunal relied on precedent limiting Rule 6 liability to final products and not waste arising during manufacture, and distinguished the later amendment expanding exempted goods because the dispute concerned waste and by-products. It also noted the circular acknowledging CENVAT credit where inputs are contained in waste, refuse or by-products. The 6% demand was therefore rejected.

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Issues: Whether Rule 6(3) of the Cenvat Credit Rules, 2004 requires payment of 6% of the sale value on clearance of bagasse, press-mud, boiler ash and compost treated as waste or by-products arising during manufacture.

Analysis: The goods cleared without duty were found to be waste or by-products arising inevitably in the course of manufacture of dutiable sugar and molasses. The jurisdictional precedent had already held that provisions analogous to Rule 6 do not apply to waste arising during manufacture, and that liability under the rule is confined to final products and not waste. The later amendment expanding the definition of exempted goods was distinguished because the present dispute concerned waste/by-products, and the circular relied upon also recognized that CENVAT credit is admissible where inputs are contained in waste, refuse or by-products. On that basis, the Court held that reversal under Rule 6(3) was not warranted.

Conclusion: Rule 6(3) was held to be inapplicable to the clearance of the waste/by-products, and the demand for 6% was rejected in favour of the assessee.

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