2009 (2) TMI 568 - AT - Central Excise

Summary

Issues: Admissibility of Cenvat credit on furnace oil sludge accumulated at the bottom of the storage tank for the manufacture of final product.

Analysis:
The central issue in this case pertains to the admissibility of Cenvat credit on furnace oil sludge, which is considered a waste of mineral oil formed through natural gravitational force at the bottom of the storage tank. The appellant, a manufacturer of spun yarn of polyester and viscose, argued that the sludge formed should be treated as issued for the manufacture of the final product, thus exempting the need to reverse the credit. However, the tribunal found no merit in this argument. The tribunal highlighted that the sludge accumulated in the storage tank and was not issued for use in the captive power plant. Referring to precedent cases, the tribunal emphasized that credit is not admissible on inputs destroyed before being used for the final product's manufacture. The tribunal cited the cases of CCE, Meerut v. U.P. Co-op. Sugar Factories and Timex Watches Ltd. v. CCE, Meerut to support this stance. These judgments clarified that credit should only be denied if inputs are wasted during the manufacturing process. The tribunal distinguished the present case from Jaypee Rewa Plant v. CCE, Bhopal, which involved mixed oil sludge in cement and clinker manufacturing. The tribunal rejected the analogy drawn between sludge and packing materials, emphasizing that packing materials are integral for safeguarding goods during the manufacturing process. Consequently, the tribunal upheld the impugned order and dismissed the appeal, reinforcing the inadmissibility of Cenvat credit on the furnace oil sludge in question.

This judgment underscores the significance of distinguishing between waste materials accumulated in the manufacturing process and inputs utilized for the final product. It clarifies that Cenvat credit cannot be claimed on materials that are not directly utilized in the manufacturing process or are wasted before contributing to the final product. The decision reinforces the principle that credit eligibility is contingent on the direct relevance of inputs to the manufacturing process and the production of the final goods.