2013 (8) TMI 66 - HC - Central Excise

CENVAT credit in case the final product is exempted from payment of duty - Appellant, is engaged in manufacture of goods including intravenous fluids (IV Fluids) falling under the Chapter 30 of the Central Excise Tariff Act, 1985. During the course of manufacture (iv fluids) by form fill and seal technology plastic scrap is generated as waste. The appellant availed exemption on clearance of waste and scrap under notification no.89/95-CE dated 18th of May, 1995 Held that - CENVAT credit can be utilized for payment of duty on waste and scrap for the simple reason that waste and scrap are final products within the definition under Rule 57 AA (c) - Appellant was entitled for CENVAT Credit under Rule 57AA of the Central Excise Rules on proportionate plastic granules which generated the scrap in the manufacturing process of intravenous fluids (IV Fluids) Appeal allowed Decided in favor of Assessee.

Issues Involved:

1. Entitlement to Cenvat Credit under Rule 57AA of the Central Excise Rules.
2. Applicability of the exemption notification to waste and scrap generated during the manufacturing process.
3. Interpretation of relevant statutory provisions and circulars by the Central Board of Excise & Customs.

Detailed Analysis:

1. Entitlement to Cenvat Credit under Rule 57AA of the Central Excise Rules:

The primary issue revolves around whether the appellant is entitled to Cenvat Credit on plastic granules used in the manufacturing process, which generates waste and scrap. The appellant argued that waste and scrap are final products and thus dutiable, entitling them to Cenvat Credit. The Tribunal's majority view held that Cenvat Credit is not available if the final product is exempt from duty. However, the appellant contended that since the waste and scrap are dutiable at 16% under Entry No.39.15, they should be entitled to Cenvat Credit on the proportionate inputs. The court agreed with the appellant, noting that waste and scrap are indeed final products and excisable items, making the appellant eligible for Cenvat Credit under Rule 57AA.

2. Applicability of the exemption notification to waste and scrap generated during the manufacturing process:

The appellant availed exemption on clearance of waste and scrap under notification no.89/95-CE dated 18th May 1995, which the department disputed, arguing that the exemption does not apply to units manufacturing both exempted and dutiable goods. The Tribunal initially had a split decision, with the judicial member favoring the appellant's claim and the technical member opposing it. The Vice President aligned with the technical member, denying the Cenvat Credit. However, the court found that the waste and scrap are not "exempted goods" as they are chargeable to duty, thus supporting the appellant's claim for Cenvat Credit.

3. Interpretation of relevant statutory provisions and circulars by the Central Board of Excise & Customs:

The court examined Rule 57AA and Rule 57AB of the Central Excise Rules, which define "final products" and outline the conditions for claiming Cenvat Credit. The court also considered a circular issued by the Central Board of Excise & Customs on 29th August 2000, which clarified that Cenvat Credit can be utilized for payment of duty on waste and scrap, as they are considered final products under Rule 57AA(c). This circular supported the appellant's position, and the court emphasized the principle of "Contemporanea Expositio," which gives weight to the interpretation of statutory provisions by contemporary authorities. The court concluded that the appellant is entitled to claim Cenvat Credit on the proportionate inputs used in the manufacturing process that generates waste and scrap.

Conclusion:

The court held that the appellant is entitled to Cenvat Credit under Rule 57AA of the Central Excise Rules on the proportionate plastic granules used in the manufacturing process of intravenous fluids, which generate waste and scrap. The appeals were allowed, and the impugned orders denying Cenvat Credit were set aside.

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