Spent solvent from manufacturing not dutiable as non-marketable waste, CENVAT credit allegations fail without proof

CESTAT Ahmedabad allowed the appeal, setting aside demands for central excise duty on spent solvent and waste scrap. The tribunal held that spent solvent (DMF) from manufacturing dutiable goods is not marketable and therefore not dutiable, following SC precedent in Commissioner v. Aurobindo Pharma Ltd. Regarding waste scrap clearance, the department failed to prove CENVAT credit was availed on materials generating the waste. The tribunal relied on SC decision in Commissioner v. West Coast Industrial Gases Ltd, ruling that waste drums/packaging materials don't constitute dutiable waste from credited inputs. Personal penalties under Rule 26 were also set aside as the merit-based issues were decided favorably for the appellant.

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Issues Involved:
1. Excisability of "spent solvent" (DMF).
2. Reversal of CENVAT Credit on clearance of waste and scrap.
3. Personal penalties imposed under Rule 26 of Central Excise Rules, 2002.

Summary:

1. Excisability of "Spent Solvent" (DMF):
The Tribunal addressed whether the demand of Central Excise duty of Rs. 2,02,242/- on spent solvent (DMF) arising during the course of manufacturing of dutiable "Sucralose" is sustainable. The learned Advocate for the appellant argued that "spent solvent" is not excisable, citing the Supreme Court decision in Commissioner Vs. Aurobindo Pharma Ltd., which held that "spent solvent" is not taxable. The Tribunal upheld this view, stating that the issue is no longer res integra and has been consistently decided in favor of the assessee in multiple cases, including CCE, Hyderabad Vs. Aurobindo Pharma Ltd. and M/s. Orchid Chemicals & Pharmaceuticals Ltd. Therefore, the demand of Rs. 2,02,242/- was not sustainable.

2. Reversal of CENVAT Credit on Clearance of Waste and Scrap:
The Tribunal examined whether credit of Rs. 13,84,146/- needs to be reversed under Rule 3(5A) of the CENVAT Credit Rules, 2004 on the clearance of waste and scrap arising from items on which CENVAT Credit was not availed. The appellant contended that the waste and scrap, including MS, SS, and GI scraps, arose from parts and components of capital goods on which no CENVAT Credit was taken. The Tribunal found no evidence from the department to contradict this claim. It relied on the decision in M/s. Padmashri Dr. Vitthalrao Vikhe Patil SSK Vs. CCE, Aurangabad, which held that waste and scrap generated during maintenance of machinery is not excisable if no CENVAT Credit was availed on the items. Similarly, waste from drums and packaging material was also deemed non-dutiable, supported by the Supreme Court decision in CCE Vs. West Coast Industrial Gases Ltd. Consequently, the Tribunal set aside the demand.

3. Personal Penalties:
The Tribunal addressed the appeals of Shri J.D Gandhi & C.J. Lohani regarding personal penalties imposed under Rule 26 of Central Excise Rules, 2002. Since the main issues were decided in favor of the appellant, the cause for penalizing the appellants was extinguished. Therefore, no penalties were imposable, and the appeals were allowed.

Conclusion:
All three appeals were allowed, setting aside the impugned order-in-appeal. The Tribunal pronounced this decision in the open Court on 31.10.2023.

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