2012 (12) TMI 347 - AT - Central Excise

Cenvat credit of excise duty paid on inputs - manufacture of sugar during crushing of sugarcane by-product/waste - bagasse emerges alleged that since the appellant have not maintained separate account and inventory of the inputs used in or in relation to manufacture of dutiable final products - sugar and molasses and exempted final product - bagasse, in accordance with the provisions of Rule 6 (3) of Cenvat Credit Rules, 2004, they would be required to pay an amount equal to 8% of the sale value of bagasse Held that - Bagasse emerges in course of crushing of the sugarcane - crushing of sugarcane is necessary to extract cane sugar juice which in turn is processed for production of sugar and molasses. Bagasse is the waste product left after the crushing of sugarcane - no need to maintained separate accounts for the inputs for production of sugar and molasses (excisable item) and bagasse - Since Bagasse emerges at sugarcane crushing stage, there is no possibility of any input-chemicals etc. having been used at that stage in favor of assessee

Issues:
1. Interpretation of Rule 6(3) of Cenvat Credit Rules, 2004 regarding maintaining separate accounts for dutiable and exempted final products.
2. Applicability of Board's Circular No. 904/24/2009-CX on the treatment of bagasse as an exempted excisable good.
3. Validity of the demand for payment based on the sale value of bagasse.
4. Consideration of Cenvat credit availed inputs in the manufacturing process.

Analysis:

Issue 1:
The appellant, a sugar manufacturer, faced a demand for payment due to not maintaining separate accounts for inputs used in the production of dutiable final products like sugar and molasses, and the exempted final product, bagasse, as required by Rule 6(3) of the Cenvat Credit Rules, 2004. The Jurisdictional Assistant Commissioner confirmed the demand, which was upheld by the Commissioner (Appeals). The appellant challenged this order, arguing that a previous Tribunal judgment favored their case. The Tribunal noted that maintaining separate accounts for such products was impractical given that bagasse emerges as a by-product of sugarcane crushing, making it impossible to segregate inputs. The amendment in the Finance Act and the Board Circular did not alter this fact. As the impugned order did not specify the common inputs used, the Tribunal found merit in the appellant's contention and set aside the order.

Issue 2:
The Department cited Board's Circular No. 904/24/2009-CX, which treated bagasse as an exempted excisable good subject to a charge of 5% of the sale value if Cenvat credit on common inputs was taken. However, the Tribunal found that the emergence of bagasse during sugarcane crushing did not involve the use of additional inputs like chemicals, making the application of the Circular irrelevant in this case.

Issue 3:
The demand for payment based on the sale value of bagasse was found to be unfounded as the Tribunal determined that maintaining separate accounts for inputs was not feasible due to the nature of bagasse production. The lack of specificity in the impugned order regarding the common inputs further weakened the basis for the demand.

Issue 4:
The consideration of Cenvat credit availed inputs in the manufacturing process was crucial in this case. The Tribunal highlighted that the production of bagasse during sugarcane crushing did not involve the use of additional inputs, making the segregation of credits for dutiable and exempted products practically impossible.

In conclusion, the Tribunal allowed the appeal and stay applications, setting aside the impugned order and emphasizing the impracticality of maintaining separate accounts for inputs in the production process involving bagasse as a by-product of sugarcane crushing.

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