2025 (9) TMI 1465 - AT - Central Excise

Residual zinc ash not excisable; requirement to issue invoice for captive consumption overruled, impugned orders set aside

CESTAT CHANDIGARH - AT held that the question of excisability of residual zinc ash and the requirement to issue an invoice for captive consumption is ... Excisability - residual Zinc Ash arising during the process of manufacture - requirement to issue invoice for captive consumption - HELD THAT:- This issue involved in these appeals is no more res integra and has been settled by the Hon’ble Supreme Court in the case of Union of India vs. Indian Sucrose Limited [2022 (7) TMI 353 - SC ORDER] which has been subsequently followed by the Tribunal in the case of Mahesh Chemicals Allied Industries [2024 (8) TMI 309 - CESTAT CHANDIGARH] as well as in the case of Shri Ram Ago Chemicals Pvt Ltd [2024 (10) TMI 893 - CESTAT CHANDIGARH] wherein this Tribunal has allowed the appeals of the appellants-assessees. The impugned orders are not sustainable in law and are liable to be set aside - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether residues/waste (zinc ash, skimmings, dross) arising during the process of manufacture constitute excisable goods such that issuance of invoices for captive consumption and levy/reversal of duty/CENVAT credit consequences are legally mandated. 2. Whether departmental reliance on a Board circular treating such residues as non-excisable (and/or treatable as exempted goods for Rule 6 purposes) can sustain demands, penalties and prosecution where subsequent higher judicial pronouncement and administrative rescission of that circular have occurred. 3. Whether demands, interest and penalties confirmed by adjudicating authorities based primarily on the earlier circular and associated Supreme Court precedent remain sustainable in light of later Supreme Court dictum and the Board's rescission. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Excisability of residues/waste (legal framework) Legal framework: Determination of excisability depends on whether a product is the result of a manufacturing process such that it becomes a 'manufactured' excisable product under the Central Excise law and the CENVAT Credit Rules; Rule 6 and its explanations govern treatment of exempted/non-excisable goods for reversal of credit and related compliance (invoice/register requirements and option under sub-rules). Precedent treatment: Earlier Supreme Court and High Court authority had treated certain residues as non-excisable (e.g., bagasse; dross/skimmings in some High Court decisions), while an earlier Supreme Court decision had been relied upon by department to issue an administrative circular treating such residues as non-excisable for Rule 6 purposes. Interpretation and reasoning: The Tribunal accepted the subsequent Supreme Court ruling which expressly held that the circular treating bagasse-like residues as non-excisable was unsustainable and that such residues are non-excisable to which CENVAT Credit Rules do not apply. The Tribunal reasoned that where a residue is non-excisable it cannot attract the legal consequences that follow excisable status (issuance of invoice for captive consumption or reversal of credit under Rule 6), absent a new distinct excisable product emerging from the process. Ratio vs. Obiter: Ratio - where residues/waste are found to be non-excisable by the Supreme Court, they are outside the purview of excise liability and the CENVAT regime; obiter - ancillary observations regarding factual processes in particular factories not essential to the general rule. Conclusion: Residues such as zinc ash/skimmings/dross, being non-excisable as per the controlling Supreme Court pronouncement, do not attract obligations to issue invoices for captive consumption or to reverse CENVAT credit under Rule 6 as if they were excisable goods. Issue 2 - Effect of subsequent Supreme Court decision and administrative rescission on pre-existing departmental demands and penalties Legal framework: Administrative circulars interpret law but cannot override or remain operative contrary to binding judicial decisions; the Board's rescission of a circular in light of a higher court order alters the administrative position applicable to adjudication and appeals; principles of law include that demands based solely on an administrative circular that is subsequently held unsustainable cannot stand where higher judicial precedent displaces the basis of demand. Precedent treatment: The Tribunal relied on the later Supreme Court order which held the earlier circular unsustainable and noted the Board's issuance of a fresh circular rescinding the previous one; Tribunal also cited its own recent consistent decisions applying that Supreme Court ruling and the rescission. Interpretation and reasoning: The Tribunal found that the impugned demands, interest and penalties were founded on the departmental show-cause and adjudication that in turn relied primarily on the earlier circular and the Supreme Court decision previously applied by the department. Because the Supreme Court later declared that circular unsustainable and the Board rescinded it, the foundational legal basis for the demands ceased to exist. The Tribunal treated subsequent administrative rescission as operative guidance to adjudicate pending matters in light of the law declared by the Supreme Court. Ratio vs. Obiter: Ratio - a demand/penalty based chiefly on a circular subsequently held unsustainable by the Supreme Court and rescinded by the Board is not sustainable; obiter - factual notes about register/non-option compliance particulars in the adjudication. Conclusion: Where departmental proceedings and confirmed orders rest primarily on an administrative circular or precedent later overruled/held unsustainable by the Supreme Court and the Board has rescinded the circular, such confirmed demands and penalties cannot be sustained and must be set aside. Issue 3 - Applicability of Tribunal's prior decisions and consistency of relief Legal framework: Principles of stare decisis and consistency in administrative/tribunal adjudication require application of binding higher-court decisions and allow the Tribunal to follow its recent precedents which apply the controlling Supreme Court law and subsequent administrative action. Precedent treatment: The Tribunal referenced and followed recent decisions of the same Tribunal that allowed appeals on identical issues after applying the Supreme Court decision and the Board's rescission; earlier administrative orders dropping proceedings were also noted as supportive developments. Interpretation and reasoning: The Tribunal held that identical legal questions already decided in favour of assessee-claimants by the Supreme Court and followed by the Tribunal's own orders compel grant of relief in the present appeals. Consistency required applying the same ratio and providing consequential relief where the earlier demands were based on the now-unsustainable circular. Ratio vs. Obiter: Ratio - identical cases invoking the same legal principle should be adjudicated consistently; obiter - references to administrative orders in other fora which are persuasive but not binding. Conclusion: The Tribunal applied its prior decisions and the Supreme Court ruling to allow the appeals and set aside the impugned orders with consequential relief as per law. Cross-reference For Issues 1-3 see interlinked reasoning: the determination that residues are non-excisable (Issue 1) under the controlling Supreme Court judgment removes the legal basis for demands premised on an administrative circular (Issue 2); consistency and precedent (Issue 3) require the Tribunal to apply that ruling and grant relief in identical cases.