2022 (12) TMI 6 - AT - Central Excise

Tribunal rules agricultural waste like bagasse, press mud not subject to duty under Cenvat Credit Rules

The Tribunal allowed the appeal, ruling that Rule 6(3) of the Cenvat Credit Rules, 2004 does not apply to waste or by-products like bagasse, press mud, ... Definition of 'manufacture' - by-product/waste not being goods - application of Rule 6(2) and Rule 6(3) of Cenvat Credit Rules - liability under amended Rule 6 for sale of exempted goods - excisability of by-products - binding precedent of the Hon'ble Supreme Court - judicial discipline in following higher court decisionsDefinition of 'manufacture' - by-product/waste not being goods - application of Rule 6(2) and Rule 6(3) of Cenvat Credit Rules - liability under amended Rule 6 for sale of exempted goods - Whether amended Rule 6(2)/6(3) of the Cenvat Credit Rules, 2004 attracts liability to pay a percentage of the sale value on disposal of pressmud, bagasse and boiler ash where separate accounts for inputs used in manufacture of dutiable and exempt goods were not maintained - HELD THAT: - The Tribunal applied the binding principle laid down by the Hon'ble Supreme Court in DSCL Sugar Ltd. that pressmud, bagasse and boiler ash emerge as unavoidable agricultural waste or residue during crushing of sugarcane and are not produced by any manufacturing process; hence they are not 'manufactured' goods. The amendment to Rule 6 w.e.f. 01.03.2015 extends Rule 6 to inputs used in relation to manufacture of exempted goods, but its scope presupposes a manufacturing activity producing final products. Since the impugned by-products are wastes/by-products (not final manufactured goods) the amended Rule 6 cannot be invoked to impose liability under Rule 6(3). The Tribunal further noted that subordinate authorities are bound to follow the Supreme Court's decision and could not distinguish it to sustain demand. Consistent decisions of the Tribunal were also relied upon to confirm that sale of such waste/by-products falls outside Rule 6. Applying these principles to the facts for the period December, 2015 to June, 2017, the demand confirmed by lower authorities could not be sustained. [Paras 6, 7, 9, 10]Demand under amended Rule 6(2)/6(3) on sale of pressmud, bagasse and boiler ash is unsustainable as these are agricultural waste/by-products and not manufactured goods; appeals allowed.Final Conclusion: Appeals allowed; demand under Rule 6(2)/6(3) confirmed by lower authorities set aside for the periods December, 2015 to June, 2017, with consequential relief as per law. Issues:- Interpretation of Rule 6(3) of Cenvat Credit Rules, 2004 post-amendment- Liability to pay @5% /6% of the sale value of waste or by-products exempted during manufacturing of sugar/molasses- Failure to maintain separate accounts for dutiable and exempted goods as per Rule 6(2)Analysis:1. The main issue in this judgment revolves around the interpretation of Rule 6(3) of the Cenvat Credit Rules, 2004 post-amendment. The question at hand is whether the appellant is liable to pay a percentage of the sale value of waste or by-products that are exempted, such as press mud, bagasse, and boiler ash, generated during the manufacturing of sugar/molasses due to the failure to maintain separate accounts for dutiable and exempted goods as required under Rule 6(2).2. The appellant, a manufacturer of sugar and molasses, faced demands from the department for not maintaining separate accounts for exempted goods like press mud, bagasse, and boiler ash. The Adjudicating Authority and the first appellate authority upheld the demands, leading to the filing of appeals. The appellant argued that these by-products were waste/residue and cited relevant case laws to support their position.3. The Tribunal, after considering the arguments presented, referred to the decision of the Hon'ble Supreme Court in DSCL Sugar Ltd., which clarified that press mud, bagasse, and boiler ash are agricultural waste and not manufactured goods. The Tribunal concluded that Rule 6 of the Cenvat Rules does not apply to such waste or by-products as they are an unavoidable agricultural residue and not goods subject to duty.4. The Tribunal criticized the Commissioner for trying to distinguish the Supreme Court's decision in DSCL Sugar Ltd. and emphasized the importance of following binding decisions. The Tribunal reiterated that waste products like bagasse, press mud, and boiler ash fall outside the scope of Rule 6 and cannot be considered manufactured goods subject to duty.5. Ultimately, the Tribunal allowed the appeal filed by the appellant, stating that the provisions of Rule 6(3) do not apply to waste or by-products like bagasse, press mud, and boiler ash, as they do not meet the definition of manufactured goods. The demand raised by the revenue was deemed unsustainable in light of the nature of these waste products.6. The judgment, pronounced on 30.11.2022, provides a detailed analysis of the legal principles involved, emphasizing the distinction between waste products and manufactured goods under the Cenvat Credit Rules.