Tribunal sets aside recovery order for by-products, rules waste not subject to Cenvat Credit Rules

The Tribunal allowed the appeal, setting aside the order that upheld the recovery of 6% of the sale value of certain by-products under Rule 6(3) of the Cenvat Credit Rules, 2004. The Tribunal determined that the by-products, including bagasse, press mud, and boiler ash, being waste or residue and not manufactured goods, do not fall under Rule 6, based on previous decisions and a Supreme Court ruling. The appeal was allowed, concluding that the appellant is not liable to pay the demanded amount for the period in question.

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Issues involved:
The appeal challenges the order upholding the recovery of 6% of the sale value of certain by-products under Rule 6(3) of the Cenvat Credit Rules, 2004.

Issue 1: Liability for payment of 6% of sale value of exempted goods
The main issue is whether the appellant is liable to pay an amount equal to 6% of the sale value of Bagasse, press mud, boiler ash, and sludge generated during the manufacturing of sugar/molasses under Rule 6(3) of the Cenvat Credit Rules, 2004.

The appellants, as sugar and molasses manufacturers, generated by-products like bagasse, press mud, boiler ash, and sludge during manufacturing. The department alleged that the appellant availed cenvat credit on inputs used for both dutiable and exempted products, leading to a demand for payment under Rule 6(3) for the period April 2016 to June 2017. The Adjudicating Authority confirmed the demand, citing amendments to Rule 6(1) effective from March 1, 2015. The appeal was rejected by the Commissioner (Appeals) based on the same amendments.

Issue 2: Interpretation of Rule 6 in relation to by-products
The Tribunal considered the nature of the by-products, asserting that bagasse, press mud, and boiler ash are waste or residue and not manufactured goods. The Tribunal referred to a previous decision where it was held that such by-products fall outside the scope of Rule 6. The Tribunal emphasized that the by-products emerged as waste during the manufacturing process and did not involve a separate manufacturing activity. The Tribunal also highlighted that the circular dated 25.4.2016, which was relied upon by the authorities, was rescinded in view of a Supreme Court decision regarding the non-excisability of bagasse. Relying on the Supreme Court's ruling and previous Tribunal decisions, the Tribunal concluded that the by-products in question do not fall under Rule 6 and allowed the appeal.

In conclusion, the Tribunal set aside the impugned order and allowed the appeal, determining that the by-products, being waste or byproducts, do not come under the purview of Rule 6 of the Cenvat Credit Rules, 2004.

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