2026 (2) TMI 1270 - AT - Central Excise

Cenvat credit reversal: agricultural residues used as by products are not subject to Rule 6 proportionate reversal, so demands fail.

Cenvat credit need not be reversed under Rule 6 for sale of by products/waste (bagasse, press mud, bio compost) when those materials constitute ... Excisability of waste, residue or by products (bagasse, press mud, bio compost) - application of Rule 6 of the Cenvat Credit Rules, 2004 (reversal/pay 5%) - distinction between 'manufacture' and emerging waste/residue - effect of Explanation to Section 2(d) of the Central Excise Act, 1944 on marketability and excisability - withdrawal of Board Circular treating non excisable by products as 'exempted goods' for Rule 6 purposes - HELD THAT:- We agree with the learned Counsel for the appellant that issue involved in the present appeals is no more res-integra as the issue is well settled in favour of the appellant in view of various judgments and orders pronounced by CESTAT Delhi, Hon'ble Allahabad High Court and the Hon'ble Supreme Court. It is pertinent to mention here that by issuing Circular No. 1084/05/2022-CX dated 07.07.2022, the Circular No. 1027/15/2016-CX dated 25.04.2016 has been withdrawn by the Board. The issue raised in these appeals is finally settled in favour of the appellant. Therefore, in the light of law laid down by the Hon'ble Allahabad High Court in Balrampur Chini Mills Limited vs. Union of India & Ors. [2013 (1) TMI 525 - ALLAHABAD HIGH COURT] and by the Hon'ble Supreme Court in UOI vs. DSCL Sugar Limited [2015 (10) TMI 566 - SUPREME COURT], The Hon'ble Supreme Court has held that in the present case it could not be pointed out as to whether any process in respect of bagasse has been specified either in the Section or in the Chapter notice. In the absence thereof this deeming provision cannot be attracted. Otherwise, it is not in dispute that Bagasse is only an agricultural waste and residue, which itself is not the result of any process. Therefore, it cannot be treated as falling within the definition of Section 2(f) of the Act and the absence of manufacture, there cannot be any excise duty. Since it is not a manufacture, obviously Rule 6 of the Cenvat Credit Rules, 2004 shall have no application as rightly held by the High Court. And in view of the Circular No. 1084/05/2022-CX dated 07.07.2022 the impugned order passed by learned Commissioner cannot be sustained. Since the demand itself is not sustained, the penalty imposed on the appellant also cannot be sustained. Therefore, the appeals are liable to be allowed and the impugned orders passed by learned Commissioner/ Commissioner (Appeals) through which the demand of duty has been confirmed on the appellant and penalty was imposed upon them, are liable to be set-aside. Consequently, the appeals are allowed. Issues: Whether the appellant is liable to reverse proportionate Cenvat credit or pay 5% under Rule 6 of the Cenvat Credit Rules, 2004 in respect of by-products/waste (bagasse, press mud, bio-compost) arising during manufacture of sugar where such materials were cleared for consideration.Analysis: The legal framework includes Section 2(d) of the Central Excise Act, 1944 (as amended), Rule 6 of the Cenvat Credit Rules, 2004, and related provisions invoked by the adjudicating authorities. Judicial decisions of the CESTAT, the Hon'ble Allahabad High Court in Balrampur Chini Mills Limited v. Union of India, and the Hon'ble Supreme Court in UOI v. DSCL Sugar Limited have held that bagasse and similar residues are agricultural waste or residues which emerge in the course of manufacture and are not manufactured final products; consequently Rule 6 (and its predecessors) does not apply to such waste. The Board circulars seeking to treat such waste as exigible for reversal of credit have been quashed or rescinded and later circulars withdrawing inconsistent directions have been issued. Applying these authorities and the rescission of the departmental circular, the impugned demands founded on treating the by-products as excisable or as exempted final products for the purpose of reversing credit cannot be sustained.Conclusion: The appellant is not liable to reverse proportionate Cenvat credit or to pay 5% under Rule 6 in respect of the by-products/waste (bagasse, press mud, bio-compost) cleared for consideration; the impugned demand and penalties are set aside in favour of the assessee.