2013 (7) TMI 636 - AT - Central Excise

Reversal of Cenvat Credit on production of non-excisable goods namely Sludge - sludge is a residue constituting of suspended articles and was refuse Held that - It is quite natural that there may be deposit of the sludge when the oil is stored which is beyond control of the assessee. Such a natural phenomena cannot be ignored and respondent cannot be called upon to suffer the reversal of Cenvat credit on the quantum of the input i.e. furnace oil equivalent to sludge on the ground that the same was not used in manufacture Appeal rejected Decided in favor of Assessee.

Summary

Issues:
1. Reversibility of Cenvat credit in respect of sludge deposited during storage of furnace oil.
2. Interpretation of whether sludge cleared is dutiable and constitutes an input for Cenvat credit reversal.

Issue 1: Reversibility of Cenvat credit
The Revenue contended that the sludge deposited during the storage of furnace oil should result in the reversal of Cenvat credit proportionate to the sludge cleared. The Revenue sought to reverse the credit on the raw material not used in manufacturing. The Commissioner (Appeals) supported the respondent's position, emphasizing that sludge is a residue and refuse, not constituting a dutiable input cleared for manufacturing purposes.

Issue 2: Interpretation of dutiability of sludge
The Tribunal deliberated on the nature of sludge as a by-product during the storage of oil. The Tribunal acknowledged that sludge deposition is a natural occurrence beyond the control of the assessee. The Tribunal highlighted that the furnace oil, from which the sludge originated, was eventually consumed in the manufacturing process without dispute. Referring to a Board Circular, the Tribunal established that sludge was not excisable during the relevant period, thus negating the need for Cenvat credit reversal on the furnace oil equivalent to the sludge amount.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming that the respondent should not bear the burden of reversing Cenvat credit on the furnace oil equivalent to the sludge, as the sludge was not utilized as a dutiable input in manufacturing due to its non-excisable nature. The judgment underscored the natural occurrence of sludge deposition during oil storage and the subsequent consumption of furnace oil in the manufacturing process, ultimately supporting the respondent's position and upholding the Commissioner (Appeals)' decision.

This detailed analysis highlights the Tribunal's thorough consideration of the issues surrounding Cenvat credit reversibility and the dutiability of sludge, culminating in a well-reasoned judgment in favor of the respondent.