2013 (10) TMI 798 - HC - Central Excise

CENVAT Credit manufacturing of by-products exempted from duty - reversal of cenvat credit - penalty - Held that - Credit of the duty paid on inputs used in the manufacture of dutiable goods is given under the Cenvat Credit Rules so as to prevent the cascading effect of duty - Cenvat Credit is availed in respect of duty paid on the inputs used in the manufacture of final product - At the time of clearance of the goods, the amount of credit being availed would be used for the payment of excise duty - the credit availed at the first stage would stand recovered at the time of clearance of the exportable goods - Cenvat Credit would have been availed in respect of the input Hydrochloric Acid - The entire Hydrochloric Acid having been used for the manufacture of excisable goods being Gelatin, the credit availed in respect of the inputs would be duly recovered at the time of clearance of the excisable goods being Gelatin. There is no material to suggest that the respondent manufactured any subsidiary products with an intention to market them regularly and consistently and that it was also the case of the Department that in the process of manufacturing the principal product, certain waste/by-product came into existence - the value of such waste/by-product was minuscule and that therefore also no intention can be gathered on the part of the manufacturer to manufacture and market such products as subsidiary product - the respondents have voluntarily reversed the Cenvat credit utilized for manufacturing the by-product along with interest. - no penalty - decided against the revenue.

Issues:
1. Interpretation of Cenvat Credit Rules, 2004 regarding availing of credit on inputs used for manufacturing exempted byproducts/wastes.
2. Dispute over whether byproducts/wastes were intentionally produced for commercial purposes or arose incidentally during manufacturing.
3. Applicability of previous court judgments on similar issues in determining the present case.
4. Consideration of departmental circular and reversal of Cenvat credit utilization by the respondent.
5. Evaluation of the Tribunal's decision and its alignment with statutory provisions and past judicial decisions.

Issue 1: Interpretation of Cenvat Credit Rules, 2004:
The case involved a dispute regarding availing Cenvat credit on inputs used for manufacturing exempted byproducts/wastes. The respondent contended that even if the waste was exempt from duty, they were entitled to claim Cenvat credit on the inputs used as per rule 6 of the Cenvat Credit Rules, 2004. The department issued a show cause notice demanding recovery of duty, penalty, and interest, which was confirmed by the adjudicating authority. The Tribunal, however, allowed the appeal, citing precedents from the Bombay High Court and the Gujarat High Court.

Issue 2: Production of Byproducts/Wastes for Commercial Purposes:
The department argued that the respondent intentionally produced marketable byproducts with commercial value, distinct from mere waste arising during manufacturing. They relied on a Bombay High Court decision emphasizing the intention to manufacture and sell subsidiary products. In contrast, the respondent maintained that the waste was incidental to the manufacturing process and had minimal commercial value. The respondent had voluntarily reversed the Cenvat credit utilized for manufacturing the byproduct along with interest.

Issue 3: Applicability of Previous Court Judgments:
Both parties cited previous court judgments to support their arguments. The department referenced decisions highlighting the intention to manufacture and market subsidiary products, while the respondent relied on precedents emphasizing the incidental nature of waste production during manufacturing. The High Court upheld the Tribunal's decision, considering the factual grounds and statutory provisions similar to previous cases.

Issue 4: Departmental Circular and Cenvat Credit Reversal:
The respondent's counsel highlighted a departmental circular clarifying that Cenvat credit would be admissible on inputs contained in waste or byproducts. They argued that since the department referred to the byproduct as waste in the show cause notice, it could not later claim that the product was intentionally manufactured for commercial purposes. The High Court considered these arguments in upholding the Tribunal's decision.

Issue 5: Evaluation of Tribunal's Decision and Precedents:
The High Court evaluated the Tribunal's decision in light of statutory provisions and past judicial decisions. They found no material suggesting that the respondent manufactured subsidiary products with the intention to market them regularly. Considering the voluntary reversal of Cenvat credit utilization by the respondent and the minimal value of the waste/byproduct, the High Court upheld the Tribunal's decision, leaving room for future considerations if an intention to manufacture subsidiary products is apparent.

In conclusion, the High Court disposed of the appeals and related civil applications based on the above analysis and upheld the Tribunal's decision in favor of the respondent.

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