2026 (1) TMI 1152 - AT - Central Excise

Applicability of CENVAT Rule 6 to bagasse as by-product and non-excisable waste; impugned order set aside

Applicability of Rule 6 of the CENVAT Credit Rules to bagasse is examined through its characterisation as an agricultural by-product/non-excisable waste, ... Applicability of Rule 6 of the CENVAT Credit Rules to by-product/waste (bagasse) - Non-excisable goods - Characterisation of bagasse as agricultural waste/by-product and absence of 'manufacture' - seeking for change of name and address of the respondent arising on account of change in territorial jurisdiction of the Central Excise authorities after introduction of GST regime vide Notification No.13/2017-C.E. (N.T) - HELD THAT:- We find that the issue of applicability of Rule 6(1) of CENVAT Credit Rules, 2004 to ‘bagasse’ which emerges during the course of manufacture of sugar and molasses, has been settled taking note of the judgment of Hon'ble Supreme Court in the case of Union of India Vs. DSCL Sugar Ltd. [2015 (10) TMI 566 - SUPREME COURT] in favour of the assessee in the aforesaid cases. Thus, no merits in the impugned order, insofar as it has upheld the order of original authority in confirmation of the adjudged demands and its recovery along with imposition of penalty on the appellants. Accordingly, we are of the considered view that the impugned order is liable to be set aside as the same does not stand the legal scrutiny. In the result, the impugned order is set aside and the appeal is allowed in favour of the appellants. Issues: Whether Rule 6 of the CENVAT Credit Rules, 2004 applies to bagasse (a by-product/waste) arising during the manufacture of sugar and molasses, thereby attracting recovery of CENVAT credit and penalty.Analysis: Rule 6 and its Explanation I extend to exempted or non-excisable goods only where such goods amount to a manufacture of excisable goods; the amended definitions and Explanation I do not convert agricultural waste or residue into a manufactured final product. A binding Supreme Court ruling holds that bagasse is agricultural waste/residue and not the result of a manufacturing process, and therefore outside the scope of excisable goods and of Rule 6. Coordinate Tribunal decisions applying that ratio conclude that by-products such as bagasse, press mud and boiler ash, which merely emerge as waste/residue during manufacture, do not fall within manufacturing activity and thus Rule 6 is not attracted. A departmental circular relied upon to sustain demands has been rescinded in view of this legal position.Conclusion: Rule 6 of the CENVAT Credit Rules, 2004 does not apply to bagasse as it is a by-product/agricultural waste and not a manufactured final product; the demands, interest and penalty confirmed under the impugned order are set aside and the appeal is allowed in favour of the assessee.