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Issues: (i) Whether the demand of 7% of the job work charges under Rule 6(3) of the CENVAT Credit Rules, 2004 could be sustained where the goods were cleared under Notification No. 214/86-CE and the appellant had reversed credit under Rule 6(3A); (ii) Whether waste and scrap arising in the course of manufacture could be treated as exempted goods so as to attract demand under Rule 6(3) of the CENVAT Credit Rules, 2004.
Issue (i): Whether the demand of 7% of the job work charges under Rule 6(3) of the CENVAT Credit Rules, 2004 could be sustained where the goods were cleared under Notification No. 214/86-CE and the appellant had reversed credit under Rule 6(3A).
Analysis: The job work activity was treated by the department itself as manufacture, and clearance was permitted under Notification No. 214/86-CE on the footing that the principal would discharge duty. The same activity could not simultaneously be characterised as an exempted service for recovery under Rule 6(3). The reversal made under Rule 6(3A) was undisputed, and the absence of a formal intimation was treated as a technical requirement that could not justify a second levy under Rule 6(3).
Conclusion: The demand of 7% of the job work charges was not sustainable and was set aside in favour of the assessee.
Issue (ii): Whether waste and scrap arising in the course of manufacture could be treated as exempted goods so as to attract demand under Rule 6(3) of the CENVAT Credit Rules, 2004.
Analysis: Waste and scrap were held not to be manufactured goods; they merely arose incidentally in the course of manufacturing the final product. Rule 6(1) applies only where inputs or input services are used in or in relation to the manufacture of exempted goods, and mere emergence of saleable waste or scrap does not satisfy that requirement. Accordingly, the waste and scrap cleared by the appellant could not attract the reversal or payment mechanism under Rule 6(3).
Conclusion: The demand relating to waste and scrap was not sustainable and was set aside in favour of the assessee.
Final Conclusion: All three appeals succeeded and the impugned orders were set aside with consequential relief.
Ratio Decidendi: Rule 6 of the CENVAT Credit Rules, 2004 cannot be invoked where the underlying activity is treated as manufacture and credit has already been reversed under the prescribed proportionate mechanism, and waste or scrap that merely arises incidentally in manufacture does not become exempted goods manufactured by the assessee for the purpose of that rule.
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