TaxTMI 
TaxTMI 
2023 (6) TMI 459
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.... as a manufactured product so as to attract the provisions of Rule 6 of the said Rules of 2004 is contemplated that where a manufacturer uses inputs and input services, on which Cenvat credit has been availed for manufacture of both taxable as well as exempted goods, the manufacturer is required to either reverse the proportionate Cenvat credit or pay an amount equal to 6% of the value of the exempted goods. Accordingly, the show[1]cause notices issued to the petitioner for various periods up to February, 2015 were dropped on the basis of the decision of the Apex Court in the case of UNION OF INDIA Vs. DSCL SUGAR LIMITED - 2015 (322) ELT 769 (SC), wherein it was held that bagasse is an agricultural waste and not a manufactured product and consequently, Rule 6 of the said Rules of 2004 was inapplicable to bagasse as well as electricity generated using bagasse by the petitioner. 3. On 01.03.2015, Rule 6 of the said Rules of 2004 was amended by inserting two explanations. Explanation No.1 provided that non-excisable goods cleared for consideration shall also be considered to be exempted goods or final products/finished goods for the purpose of explanation of the said Rule 6 referred ....
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....in the Statement of Objections and has reiterated the grounds and contentions urged in the petition and contended that the impugned Show Cause Notice and Statement of Demand deserve to be quashed. 7. Heard Sri. V. Raghuraman, learned Senior counsel appearing on behalf of Sri. C. R. Raghavendra, learned counsel for the petitioner and also Sri. Amit Anand Deshpande, learned Senior CGSC for the respondents and perused the material on record. 8. In addition to reiterating the various contentions urged in the petition and referring to the material on record, learned Senior counsel for the petitioner submits that the impugned Show cause notice and Statement of Demand were illegal, arbitrary and without jurisdiction or authority of law and contrary to the material on record including the judgment of the Apex Court in DSCL Sugar's case supra and the same were liable to be quashed. It was submitted that during the pendency of the present petition, the aforesaid Circular dated 25.04.2016 issued by the respondents pursuant to the amendment to Rule 6 of the said Rules of 2004 w.e.f. 01.03.2015 was struck down by the Division Bench of the Allahabad High Court in the case of BALARAMPUR CHINI M....
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....ods cleared without payment of duty under the provisions of that rule]." 11. The issue / question as to whether bagasse is an agricultural waste or a manufactured product so as to attract Rule 6 came up for consideration before the Apex Court in DSCL Sugar's case supra, wherein it was held as under:- "1. Leave granted in all the special leave petitions. All these appeals are filed by the Revenue and the question which arises for consideration is common, namely, whether Bagasse which emerges as residue/waste of sugarcane is subjected to excise duty or not. The excitability of the aforesaid residue depends on the answer to the question as to whether it is a manufactured product and falls within the definition of "manufacture" as contained in Section 2(f) of the Central Excise Act. 2. The facts in brief are as under : the respondents herein are manufacturer of sugar and molasses falling under Chapter Sub-headings 17011190 and 17031000 respectively, of the First Schedule to the Central Excise Tariff Act, 1985. In the process of manufacture of sugar, sugarcane is crushed, its juice is extracted and Bagasse emerges as residue/waste of sugarcane. 3. It is not in dispute that Bag....
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..... (f) "manufacture" includes any process- (i) incidental or ancillary to the completion of a manufactured product; (ii) which is specified in relation to any goods in the section or Chapter Notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or (iii) which in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer; and the word "manufacture" shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production of manufacture on his own account;" 8. The Revenue sought to cover the case under sub-clause (ii) as per which the process which is satisfied in relation to any goods in the section or Chapter Notes of the First Schedule to the Central Excise Tariff Act, 1985 would amount to "manufacture". Here again, fiction is created....
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....se supra. 13. By Notification bearing No.6 / 2015 - CE(NT), various provisions of the said Rules were amended including Rule 6 supra w.e.f. 01.03.2015; after amendment, Rule 6 reads as under:- "[Obligation of a manufacturer or producer of final products and a provider of ( output) service]. 6. (1) The CENVAT credit shall not be allowed on such quantity of [ input used in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service used in or in relation to the manufacturer of exempted goods and their clearance upto the palace of removal or for provision of exempted services], except in the circumstances mentioned in sub-rule (2): [Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule]." Explanation 1- For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shall include non[1]excisable goods cleared for a consideration from the factory. Explanation -2 Va....
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.... zinc or other non- ferrous metal. 3. In the light of the above judgments, circulars of the Board on the subject viz, 904/24/2009-CX, dated: 28.10.2009, 941/02/2011-CX, dated: 14.02.2011 and instruction issued vide F.No. 17/02/2009-cx(Pt.), dated: 12.11.2014 have become non est and are hereby rescinded. Cases kept in Call book on the above issue may be taken out and adjudicated. 4.1. It may also be noted that rule 6 of the Cenvat, Credit Rule (CCR), 2004 was amended with effect from 1.3.2015 by inserting explanation 1 and explanation 2 in sub-rule (1) of rule 6. These explanations continue in the present rule 6 also and are reproduced below for ease of reference:- Explanation 1. For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shall include non-excisable goods cleared for a consideration from the factory. Explanation 2, - Value of non- excisable goods for the purposes of their rule, shall be the invoice value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder.....
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.... of the 1st schedule of Central Excise Tariff Act, 1985. The petitioner has set up its plant to manufacture sugar, which is an excisable product. During the process of Manufacture of sugar, waste in the form of Bagasse emerges, and the manufacturer cannot control the process and prevent the emergence of Bagasse. 4. The petitioner is availing credit of Central Excise Duty held on inputs, input services and capital goods as provided under CENVAT Credit Rules, 2004 for the payment of Central Excise Duty on the final product, namely sugar. That in the process of manufacture of sugar, sugar cane is crushed, its juice is extracted and "Bagasse" emerges as a residue/waste of the sugar cane which is neither a manufactured product not a final product of the sugar industry. It is further been submitted that there is a fixed proportion of raw material (sugar cane, lubricants, grease etc) that is required to manufacture a particular quantity of sugar; the petitioner cannot use lesser quantity of input/materials so as to avoid the emergence of waste in the form of Bagasse. 5. In the schedule to the Central Excise Tariff Act, 1985, in the six digit tariff, Bagasse is classified under headi....
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.... goods cleared for a consideration from the factory may have the effect of treating Bagasse to be an exempted good, but cannot result in Bagasse being a manufactured good, as the nature of Bagasse namely, that it is an agricultural waste or residue and not a manufactured product and therefore despite the aforesaid amendment, and also in light of the ratio laid down by the Hon'ble Supreme Court in the case of Union of India v. DSCL Sugar Ltd. (supra) remains unaffected, and therefore the petitioner cannot be saddled with the liability of reversal of CENVAT credit. 10. Sri. Deepak Seth, appearing on behalf of respondent no. 2 to 4 raised preliminary objection and submitted that the petitioner has challenged the show cause notice dated 24/03/2017, wherein he has full opportunity to place his claim/reply before the respondents who would consider the same and pass necessary orders, and the writ petition in this regard would not be maintainable. It is further submitted that the effect of amendment in Rule 6 of the CENVAT Credit Rules 2004 is only to the effect that for the purposes of Rule 6 the exempted goods or final product as defined in the Clauses (d) & (h) of Rule 2 shall in....
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.... of the CENVAT Credit Rules, 2004, Bagasse being a non-excisable goods cleared for consideration from the factory and needs to be treated like exempted good for the purpose of reversal of credit input and input services, and therefore the respondents are bound to follow the circular of the Central Board of Excise and Customs and any argument to the contrary is bound to be rejected, and therefore the petitioner's need not be relegated to the alternative remedy. 14. In the present case by means of circular dated 25th April, 2016 The Central Board of Excise and Customs have interpreted the amendment dated 01/03/2015 of the CENVAT Credit Rules 2004 so as to treat Bagasse as an exempted good for the purpose of reversal of credit of input in terms of Rule 6 of the CENVAT Credit Rules 2004. The show cause notice has been issued by Asst. Commissioner, Central Excise, Faizabad Division, Faizabad relying on the amendment dated 01/03/2015, to the effect as to whether the petitioner was reversing CENVAT Credit Rules, 2004, related with the Bagasse and pressmud after introduction of Notification dated 01/03/2015. The Circular dated 25/04/2015 is a policy decision of the Department and th....
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....erefore, right in overruling the preliminary objection raised by the respondents." 17. In the instant case the petitioner has challenge the show cause notice which seeks to saddle it with the liability to reverse the CENVAT Credit claimed by it, in the light of the amendment in CENVAT Credit Rules dated 01/03/2015, and further elaborated by means of Circular dated 25/04/2016 which treats Bagasse as an exempted good for the purpose of reversal of credit of input in terms of rule 6 of the CENVAT Credit Rules 2004. We are inclined to agree with the argument of the petitioner, that relegating them to the competent authority to decide the issue after receiving the reply from the petitioner would be just an empty formality in as much as the argument of the petitioner that despite the amendment dated 01/03/2015 the CENVAT credit claimed by them cannot be reversed in as much as the bagasse not being a manufactured product is out of the purview of Rule 6 of the CENVAT Credit Rules 2004. We are also in full agreement with the argument that the competent authority deciding the claim of the petitioner consequent to the Show Cause Notice, would be bound by the departmental Circular dated 25/....
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...., opting not to maintain separate accounts, shall follow either of the following options as applicable to him, namely:- i. the manufacturer of the goods shall pay an amount equivalent to five percent of the value of the exempted goods and the provider of output service shall pay an amount equal to six percent of the value of the exempted services; or ii. ............." 20. The union of India amended CENVAT Credit Rules, 2004 with effect from 01/03/2015 by inserting Expression 1 and 2 in Rule 6(1), which reads as under:- "Explanation 1. - For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shall include non[1]excisable goods cleared for a consideration from the factory. Explanation 2. - Value of non-excisable goods for the purposes of this rule, shall be the invoice value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder." 21. A perusal of Rule 6(1) clearly shows that the manufacturer has to manufacture dutiable goods as well as exempted goods. Since Bagass....
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....te 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, Rule 6 of the CENVAT Credit Rules 2004, shall have an application rightly held by the High Court." 27. After the aforesaid judgement which has clearly held Bagasse not to be a manufactured product, and therefore Rule 6 of the CENVAT Credit Rules, 2004 shall have no application, Section 6(1) has been amended by inserting the 2 Explanations, which the respondent contends is sufficient to include Bagasse within the fold of Section 6, and further to justify the stand for a reversal of CENVAT Credit Rules, 2004. 28. A perusal of the Explanation 1 to Rule 6 would indicate that it provides that the exempted good and final product as defined in Clause (d) & (h) of Rule 2 shall include non-excisable goods cleared for a consideration from the factory. 29. Explanation 1, talks about the inclusion of non[1]excisable goods cleared for consideration from the factory within the category of exempted ....
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....Union of India v. DSCL Sugar Ltd. (supra) still holds the field. Rule 6 of the CENVAT Credit Rules would have no application for reversal of CENVAT Credit in relation to Bagasse. The Circular No. 1027/15/2016-CX, dated 25/04/2016, contained in Annexure - 1 to the writ petition to the extent that it includes Bagasse under the purview of the reversal of credit of input services in terms of Rule 6 of the CENVAT Credit Rules, 2004, as well as the impugned show cause notice dated 24/03/2017 contained in Annexure - 2, are hereby quashed. 35. The writ petition is accordingly allowed. 36. No order as to costs." 18. As can be seen from the aforesaid judgment, the Allahabad High Court quashed the said Circular as well as the impugned show-cause notice; while doing so, the Allahabad High Court came to the categorical conclusion that despite the 2015 amendment to Rule 6 of the said Rules of 2004, bagasse were not manufactured products, but continued to remain agricultural waste and residue and that the judgment of the Apex Court in DSCL Sugar's case supra, continued to apply and operate and govern bagasse even after the 2015 amendment. The High Court also held that the 2015 amendment w....
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....n M/s. Indian Sucrose's case supra before the Apex Court, which dismissed the said SLP(c) No.1700/2021 vide order dated 04.03.2022, by holding as under: "Heard the learned counsel for the parties. In view of the judgment of this Court in Union of India vs. DSCL Sugar Ltd., & Ors. reported in 2015 (322) ELT 769 holding Bagasse to be non-excisable to which the Cenvat credit Rules had no application, the circular dated: 25.04.2016 is unsustainable in law. The special leave petition is, therefore, dismissed. Pending application, if any, shall stand disposed of." 21. Subsequently, the respondents-Revenue took cognizance of the aforesaid facts and circumstances including the judgments of the Apex Court referred to supra and issued Circular No.1084/05/22 dated 07.07.2022, whereunder the earlier Circular dated 24.05.2016 was rescinded and withdrawn as under: CBIC-110267/33/2022-CX-VIIISECTION CBSE Government of India Ministry of Finance Department of Revenue Central Board of Indirect Tax & Customs (CX & ST Wing) New Delhi, dated: 7th July, 2022. To, 1. The Principal Chief Commissioner/Chief Commissioner, CGST & CX( ALL) 2. The Principal Director General/Director Ge....
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....t in Call Book on the above issue, if any, may be taken out and adjudicated in light of the law decided by the Apex Court. 6. Difficulty experienced, if any, in implementing the circular should be brought to the notice of the Board. 7. Hindi version will follow." 22. The aforesaid facts and circumstances clearly establish that the Circular dated 25.04.2016, which was the basis on which the respondents-Revenue issued the impugned Show cause notice and the impugned Statement of Demand has been quashed and finally rescinded/revoked/withdrawn by the respondents vide Circular dated 07.07.2022, thereby leading to the inescapable conclusion that the impugned Show cause Notice and Statement of Demand at Annexures-A and B deserve to be quashed. 23. The material on record also discloses that the show cause notice dated 21.10.2016 for the period October-2015 to March-2016 issued by the respondents to the petitioner was dropped and the appeal by the respondents was dismissed by the Appellate Authority on 09.08.2021. In this context, it is relevant to state that the impugned Statement of Demand at Annexure-B dated 25.10.2017 for the period October-2015 to June-2017 includes the aforesa....