2011 (4) TMI 212 - HC - Service Tax

Reversal of cenvat credit - waste, refuse or bye-product - Rule 3 of Cenvat Credit Rules, 2004/2002 and Rule 57AB of the Central Excise Rules, 1944 - Remission of duty in terms of rule 21 of the Central Excise Rules - it is clear that when inputs are removed as such from the factory or the premises of the factory then the Cenvat credit availed, should either be reversed or duty is paid by raising an independent invoice - Even if the said waste is excisable and duty is payable, that in no way enables the authorities to insist on reversal of Cenvat Credit or payment of excise duty - Though gelatin waste is also excisable, when it is destroyed the Commissioner has the power to waive the payment of excise duty payable on such excisable item - Decided in favour of the assessee

Summary

Issues:
Admissibility of Cenvat credit on waste products, obligation to reverse Cenvat credit, interpretation of Cenvat Credit Rules, 2004, and Central Excise Rules, 1944.

Analysis:
The High Court judgment pertains to an appeal filed by the revenue challenging the Tribunal's order regarding the admissibility of Cenvat credit on waste products generated during the manufacturing process. The assessee, engaged in manufacturing Gelatin Capsules, had destroyed Gelatin mass waste without reversing the Cenvat credit availed on the inputs contained in the waste. The revenue contended that the Cenvat credit should have been reversed as per Rule 3(5) of the Cenvat Credit Rules, 2004. However, the Tribunal held that Cenvat credit is admissible on inputs contained in waste products, citing a CBEC Circular supporting this interpretation.

The substantial questions of law considered in the appeal included the requirement to reverse Cenvat credit on waste products, the classification of Gelatin Mass Waste as an excisable product, and the interpretation of relevant provisions and circulars. The revenue argued that as per Rule 3(5), Cenvat credit should be reversed when inputs are removed from the factory premises. However, the Court noted that the waste products were destroyed within the factory premises and not removed, thus no excise duty liability arose. The Court emphasized that the waste being excisable does not automatically mandate reversal of Cenvat credit or payment of excise duty, especially when the waste is destroyed on-site.

Ultimately, the Court upheld the Tribunal's decision, ruling in favor of the assessee and dismissing the revenue's appeal. The judgment highlighted that Rule 3(5) regarding the reversal of Cenvat credit applies only when inputs are removed "as such" from the factory premises, which was not the case with the waste products in question. The Court emphasized that the authorities cannot insist on reversing Cenvat credit or paying excise duty when waste products are destroyed on-site, even if they are classified as excisable goods. The judgment provided a detailed analysis of the legal provisions, circulars, and factual circumstances to support its decision in favor of the assessee.