Zinc ash and zinc skimming qualify for Cenvat Credit under Rule 6 following Mahesh Chemicals precedent

CESTAT Chandigarh allowed the appeal regarding applicability of Rule 6 of Cenvat Credit Rules, 2004 concerning zinc ash and zinc skimming. Following precedent from Mahesh Chemicals Allied Industries case, the Tribunal held that bagasse is non-excisable and Cenvat Credit Rules do not apply to it. The Tribunal declared the Circular dated 25.04.2016 unsustainable in law and set aside the impugned orders, ruling in favor of the appellant-assessee.

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Issues Involved:
1. Applicability of Rule 6 of the Cenvat Credit Rules, 2004 to Zinc Ash and Zinc Skimming.
2. Whether Zinc Ash and Skimming are considered non-excisable goods.
3. Legality of duty payment on non-excisable goods.
4. Requirement for reversal of Cenvat Credit.
5. Invocation of extended period of limitation for demand.

Detailed Analysis:

1. Applicability of Rule 6 of the Cenvat Credit Rules, 2004 to Zinc Ash and Zinc Skimming:
The core issue revolves around the applicability of Rule 6 of the Cenvat Credit Rules, 2004, which mandates the reversal of credit for inputs used in the manufacture of exempted goods. The department alleged non-compliance with this rule by the appellant, who was manufacturing Zinc Ingots and Zinc Sulphate fertilizer. The investigation by DGGI was based on intelligence suggesting the appellant's non-compliance. It was argued that the appellant did not avail the option under Rules 6(2) and 6(3) and failed to maintain separate accounts for dutiable and exempted products, leading to a demand for reversal of credit amounting to Rs.44,88,629/-.

2. Whether Zinc Ash and Skimming are Considered Non-Excisable Goods:
The judgment hinges on whether Zinc Ash and Skimming are classified as non-excisable goods. The appellant's argument was supported by the Supreme Court's decision in Union of India Vs. DSCL Sugar Ltd, which stated that by-products like bagasse do not amount to manufacture. Further, the Bombay High Court in M/s Hindalco Industries vs. UOI held that Ash and Skimming of Aluminium, Zinc, and other non-ferrous metals are not manufactured goods. The Board Circular No. 1027/15/2016-CX dated 25.04.2016 clarified that such by-products should not be treated like exempted goods for excise purposes.

3. Legality of Duty Payment on Non-Excisable Goods:
The tribunal found that the appellant could not whimsically choose to clear Zinc Ash on payment of duty when no such duty is leviable by law. The payment of duty through the Cenvat account on clearance of Zinc Ash was deemed contrary to the law. The tribunal noted that an invoice for captive consumption could only be issued if a new excisable product emerged, which was not the case here. Consequently, no Central Excise Duty was required to be paid on Zinc Ash, as it was non-excisable.

4. Requirement for Reversal of Cenvat Credit:
The tribunal addressed the requirement for reversal of Cenvat Credit under Rule 6 of the Cenvat Credit Rules, 2004. The appellant was accused of not reversing the credit for inputs used in the manufacture of exempted goods. However, the tribunal found that the entire demand was based on the now-rescinded Circular No. 1027/15/2016-CX, which was declared unsustainable by the Supreme Court in Union of India Vs. Indian Sucrose Limited. The subsequent Circular No. 1084/05/2022-CX dated 07.07.2022 rescinded the previous circular, affirming that such by-products are non-excisable.

5. Invocation of Extended Period of Limitation for Demand:
The tribunal examined whether the extended period of limitation was applicable. It was determined that the appellant had not suppressed any information from the department, as all facts were recorded in the books of accounts, and the appellant had been subject to regular audits. The tribunal cited several Supreme Court judgments, emphasizing that mere failure or negligence does not justify invoking the extended period. The demand was deemed time-barred, as the show cause notice was issued beyond the normal limitation period.

Conclusion:
The tribunal, following the precedent set in Mahesh Chemicals Allied Industries and considering the rescinded circular and Supreme Court rulings, concluded that the impugned orders were not sustainable in law. All four appeals were allowed, with consequential relief granted to the appellants.

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