Court quashes Circular treating Bagasse as exempted, deems writ petition maintainable.

The court quashed Circular No. 1027/15/2016-CX treating Bagasse as an exempted good for credit reversal under Rule 6 of the CENVAT Credit Rules, 2004. The show cause notice challenging the circular was also quashed. The writ petition was deemed maintainable as referring the petitioner back to the competent authority would be futile due to the binding nature of the circular. No costs were awarded.

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Issues Involved:

1. Maintainability of the writ petition challenging the show cause notice.
2. Legitimacy of Circular No. 1027/15/2016-CX dated 25/04/2016 treating Bagasse as an exempted good for the purpose of reversal of credit of input and input services under Rule 6 of the CENVAT Credit Rules, 2004.

Issue-wise Detailed Analysis:

1. Maintainability of the writ petition challenging the show cause notice:

The respondent argued that the petitioner should respond to the show cause notice dated 24/03/2017 before approaching the High Court. They cited several judgments, including *Union of India vs Guwahati Carbon Ltd* and *Rahat Industries vs Commissioner of Central Excise*, which emphasized exhausting alternative remedies before invoking writ jurisdiction under Article 226 of the Constitution of India.

However, the petitioner contended that the show cause notice was a mere formality, as the respondents were bound by the Circular dated 25/04/2016. The petitioner argued that relegating them to the competent authority would be futile since the authority was bound by the departmental circular and could not deviate from it.

The court agreed with the petitioner, referencing *Dhampur Sugar Mills Ltd. v. State of U.P.*, where the Supreme Court held that in cases where a policy decision has already been taken, the remedy of appeal is not an equally efficacious alternative. The court concluded that the writ petition was maintainable as it would be an "empty formality" to refer the petitioner back to the competent authority.

2. Legitimacy of Circular No. 1027/15/2016-CX dated 25/04/2016:

The petitioner challenged the circular on the grounds that Bagasse is not a manufactured product but an agricultural waste and residue, as established by the Supreme Court in *Union of India vs M/s DSCL Sugar Ltd*. The petitioner argued that despite the amendment to Rule 6 of the CENVAT Credit Rules on 01/03/2015, Bagasse could not be considered a manufactured good, and thus, Rule 6 should not apply.

The court examined Rule 6 and its amendments, noting that the rule applies to the manufacture of dutiable and exempted goods. Since Bagasse is not a manufactured product but a byproduct of sugar production, it does not fall within the scope of Rule 6. The court reiterated that the Supreme Court's ruling in *DSCL Sugar Ltd* still holds, stating that Bagasse is not a manufactured product and therefore, Rule 6 does not apply.

The court found the circular dated 25/04/2016 to be erroneous in treating Bagasse as a non-excisable good for the purpose of reversal of credit. The circular's interpretation was inconsistent with the nature of Bagasse as an agricultural waste and residue, and thus, it could not be considered a manufactured product.

Conclusion:

The court quashed the Circular No. 1027/15/2016-CX dated 25/04/2016 to the extent that it included Bagasse under the purview of reversal of credit of input services under Rule 6 of the CENVAT Credit Rules, 2004. The show cause notice dated 24/03/2017 was also quashed. The writ petition was allowed, and no order as to costs was made.

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