2010 (8) TMI 292 - AT - Central Excise

Cenvat credit input used in manufacture of dutiable and exempted goods - Tobacco refuse as a by-product exempted - Tobacco refuse is a specified item against a particular entry in Central Excise Tariff and has been exempted by virtue of the notification, will not change the character of Tobacco refuse from by-product to final product - assessee is not liable to pay amount of 8%/10% in terms of Rule 6 of cenvat credit rules, 2004, set aside

Summary

Issues:
Identification of by-product "Tobacco refuse" during the manufacture of Cigarettes and Cut Tobacco, applicability of Rule 6 of Cenvat Credit Rules, 2004, exemption under Notification No. 3/2005-C.E., interpretation of the judgment of Hon'ble High Court of Mumbai in relation to final product classification.

Analysis:
The judgment by Appellate Tribunal CESTAT, Ahmedabad involved appeals related to the manufacturing of Cigarettes and Cut Tobacco, where the appellants were availing Cenvat Credit for inputs used. The issue centered around the classification of a by-product called "Tobacco refuse" under Chapter Heading 24013000, which was exempted from duty under Notification No. 3/2005-C.E. The Revenue argued that 10% of the value of the exempted by-product should be paid under Rule 6 of Cenvat Credit Rules, 2004, due to the lack of separate accounts for inputs used in dutiable and exempted final products.

The original adjudicating authority confirmed duty demand, interest, and penalty, which was challenged before the Commissioner (Appeals) by the appellants. The Commissioner rejected the appeal, citing the judgment of the Hon'ble High Court of Mumbai in a similar case involving Mother Liquor. The Commissioner distinguished the case as the "Tobacco refuse" was considered a final product, unlike the by-product in the Mumbai High Court case. However, the Appellate Tribunal disagreed, stating that the Revenue treated the "Tobacco refuse" as a by-product in the show cause notice. The Tribunal emphasized that the character of the "Tobacco refuse" as a by-product did not change despite being a specified item exempted from duty.

The Tribunal held that the "Tobacco refuse" was indeed a by-product, applying the ratio of law declared by the Mumbai High Court to the case. Consequently, the impugned order was set aside, and all appeals were allowed with relief for the appellant. The judgment clarified the classification of the "Tobacco refuse" as a by-product and its implications under Rule 6 of the Cenvat Credit Rules, 2004, in the context of duty exemption notifications and previous legal precedents.

This detailed analysis highlights the key legal arguments, interpretations of relevant laws and notifications, and the application of precedent in resolving the issues raised in the appeals before the Appellate Tribunal CESTAT, Ahmedabad.