Zinc Ash for captive consumption held non-excisable after Supreme Court ruling makes Board Circular unsustainable

CESTAT Chandigarh allowed the appeal regarding excisability of residual Zinc Ash for captive consumption. The department's demand was based on SC judgment in Union of India vs DSCL Sugar Ltd and Board Circular 1027/15/2016-CX treating Zinc Ash as non-excisable goods requiring credit reversal under Rule 6 of Cenvat Credit Rules, 2004. However, SC subsequently held in Union of India vs Indian Sucrose Limited that the circular was unsustainable, leading to its rescission. CESTAT found no suppression of facts by appellant as all information was recorded in books, making extended limitation period inapplicable. The show cause notice dated 20.05.2019 for period March 2015-June 2017 was time-barred.

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Issues Involved:
1. Whether Zinc Ash is non-excisable and if its clearance for consideration makes it an exempted good requiring reversal of Cenvat credit.
2. Applicability of Rule 6 of the Cenvat Credit Rules, 2004.
3. Appropriation of duty paid on Zinc Ash under Section 11D of the Central Excise Act, 1944.
4. Invocation of extended period of limitation for demand.

Detailed Analysis:

1. Non-excisability of Zinc Ash and Reversal of Cenvat Credit:
The primary issue revolves around whether Zinc Ash is non-excisable and if its clearance for consideration makes it an exempted good under Rule 6 of the Cenvat Credit Rules, 2004. The department's stance, based on the Supreme Court judgment in Union of India Vs. DSCL Sugar Ltd and Board Circular No. 1027/15/2016-CX, was that Zinc Ash is non-excisable and should be treated as exempted goods. Consequently, the appellant was required to reverse the credit of inputs or input services used in the manufacture of Zinc Ash.

However, the appellant argued that the Supreme Court in Union of India Vs. Indian Sucrose Limited held that the Circular dated 25.04.2016 is unsustainable in law, as non-excisable goods like bagasse do not attract Cenvat credit rules. This was further supported by the rescission of the Circular through Circular No. 1084/05/2022-CX dated 07.07.2022, which clarified that non-excisable goods cleared for consideration do not necessitate the reversal of Cenvat credit.

2. Applicability of Rule 6 of the Cenvat Credit Rules, 2004:
The appellant contended that during the period in question, they consumed and sold Zinc Ash, paying excise duty on it. They argued that since they paid CVD and SAD on imported Zinc Ash, they were entitled to avail Cenvat credit and utilize it for duty payment on Zinc Ash. The department's reliance on Rule 6(3) of the Cenvat Credit Rules, 2004, was challenged on the grounds that the duty paid by the appellant was higher than the amount required to be reversed under Rule 6(3).

3. Appropriation of Duty Paid Under Section 11D:
The department sought to appropriate the duty paid by the appellant under Section 11D(1A) of the Central Excise Act, 1944. The appellant argued that Section 11D is applicable to excisable goods which are exempt or chargeable to nil rate of duty, but Zinc Ash, as per the department's own admission, is non-excisable. Therefore, Section 11D is not applicable in this case.

4. Invocation of Extended Period of Limitation:
The demand was confirmed by invoking the extended period of limitation, alleging suppression of facts by the appellant. The appellant countered that all facts were recorded in their books of accounts and were subject to internal audits. They argued that mere failure to declare does not amount to willful suppression, and there was no intent to evade duty. The Supreme Court has consistently held that for invoking the extended period, there must be a positive act of suppression with intent to evade duty.

Conclusion:
The Tribunal found that the entire proceedings were based on the now-rescinded Circular No. 1027/15/2016-CX and the judgment in Union of India Vs. DSCL Sugar Ltd. The subsequent Supreme Court judgment in Union of India Vs. Indian Sucrose Limited and Circular No. 1084/05/2022-CX clarified that non-excisable goods do not attract Cenvat credit rules. The Tribunal also noted that the appellant paid a higher amount of duty than required and that the invocation of the extended period of limitation was unwarranted.

The impugned order was set aside, and both appeals were allowed with consequential relief as per law.

(Order pronounced in the court on 30.07.2024)

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