Discarded material during processing is not a separate final product, so Rule 6 demand fails for Cenvat purposes.

Iron ore chips emerging during sieving and grinding of iron ore fines for pellet manufacture were treated as discarded waste, not as a separate final product. On those facts, the emergence of chips did not amount to manufacture of an independent excisable output from Cenvat inputs, so Rule 6 of the Cenvat Credit Rules, 2002 could not be invoked to demand 8% of sale value. The demand was therefore unsustainable where the material was only incidental waste in the principal manufacturing process.

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Issues: Whether iron ore chips emerging during sieving and grinding of iron ore fines could be treated as final products so as to attract the demand of 8% under Rule 6 of the Cenvat Credit Rules, 2002.

Analysis: The process involved sieving and grinding of iron ore fines for pellet manufacture. The particles larger than 10 mm were discarded during sieving and were treated as waste in relation to pellet production. On these facts, the emergence of iron ore chips was not held to involve manufacture of a separate final product. Since the chips were not treated as final products manufactured out of Cenvat inputs, the application of Rule 6 for demanding 8% of the sale value was found unsustainable.

Conclusion: The demand under Rule 6 was not justified and the order allowing the respondent's appeal was affirmed in favour of the assessee.

Ratio Decidendi: Mere emergence of discarded material during processing does not amount to manufacture of a separate final product for the purpose of Rule 6 where the material is only waste in relation to the principal manufacturing activity.

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