Cenvat credit reversal is not required for waste and rejected material cleared as incidental by-products of manufacture.

Rule 6(3)(b) of the Cenvat Credit Rules, 2004 applies only when exempted final products are manufactured and cleared, not when waste, floor sweepings, defective cakes or contaminated flour arise incidentally during manufacture and are removed from the factory. The Tribunal followed settled precedent and held that the amendment to section 2(d) of the Central Excise Act, 1944 did not alter that position. On that basis, reversal of credit or payment of an amount could not be demanded for clearance of such waste or rejected material, and the demand was held unsustainable.

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Issues: Whether Rule 6(3)(b) of the Cenvat Credit Rules, 2004 could be invoked to demand reversal of credit or payment of an amount when waste, floor sweepings, defective cakes and contaminated flour arising in the course of manufacture were cleared from the factory.

Analysis: The dispute turned on whether the cleared goods were exempted final products or merely waste/by-products generated during manufacture. The Tribunal followed the settled line of decisions relied upon by the appellant and held that, notwithstanding the amendment to Section 2(d) of the Central Excise Act, 1944, Rule 6(3)(b) applies only where an exempted final product is manufactured and cleared. Waste, floor sweepings, defective cakes and contaminated flour are not exempted final products for the purpose of that rule.

Conclusion: The demand under Rule 6(3)(b) was not sustainable, the appellant's appeal was allowed, and the Revenue's appeal was dismissed.

Final Conclusion: Credit reversal could not be insisted upon for clearance of waste or rejected material arising incidentally in manufacture, as the rule applies only to exempted final products.

Ratio Decidendi: Rule 6(3)(b) of the Cenvat Credit Rules, 2004 is attracted only when exempted final products are manufactured and cleared, not when waste or incidental by-products emerging during manufacture are removed.

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