2014 (4) TMI 577 - AT - Central Excise

Cenvat Credit - Demand of 5% of the value of the exempted goods cleared from their factory premises which are Bagasse, Press-mud and Bio-compost - Held that - there is no dispute as to the fact that appellant is manufacturing VP sugar. While manufacturing the said sugar, Bagasse which is the waste of crushed sugarcane, Press-mud and Bio-compost arises - payment of 5% of the value of Bagasse, Press-mud and Bio-compost is contested regularly. It is very clear from the process of manufacture of sugar that the appellant had availed Cenvat Credit of the inputs and input services for the manufacture of VP sugar in the sugar mills. Bagasse, Press-mud and Bio-compost arises / emerges during the manufacturing of said final products VP sugar and it cannot be said that these three items are manufactured by the appellant - Decided in favour of assessee.

Summary

Issues involved:
Manufacture of VP Sugar and its byproducts, availing Cenvat Credit, requirement of maintaining separate accounts for dutiable and exempted goods, liability to discharge 5% of value of exempted goods, applicability of CBEC circular, interpretation of Rule 6 of Cenvat Credit Rules.

Analysis:

Manufacture of VP Sugar and Byproducts:
The appellants are manufacturers of VP Sugar, which results in the production of byproducts like Bagasse, Press-mud, and Bio-compost. The lower authorities held that since the appellants did not maintain separate accounts for dutiable and exempted goods, they are liable to discharge 5% of the value of exempted goods cleared from their factory premises.

Applicability of CBEC Circular:
The lower authorities relied on CBEC circular no.904/24/2009-CX to support their decision. However, a similar circular was contested in a case before the Hon'ble High Court of Allahabad, where it was quashed. The Court held that waste products emerging during the manufacture of sugar do not constitute exempted goods, even if marketable. Since the lower authorities' findings were based on a quashed circular, the appeals are to be allowed on this ground.

Interpretation of Rule 6 of Cenvat Credit Rules:
The Hon'ble High Court of Gujarat in a separate case highlighted the importance of maintaining separate accounts for inputs used in the manufacture of dutiable and exempted goods. The judgment emphasized that availing Cenvat Credit for inputs used in the manufacture of dutiable goods should not result in double taxation for exempted products. The court held that the emergence of certain byproducts during the manufacturing process does not automatically classify them as manufactured goods. Therefore, in the present case, the appellants' use of common inputs for manufacturing VP Sugar does not make them liable to pay 5% on the value of byproducts.

Conclusion:
Based on the binding judicial pronouncements and the interpretation of Rule 6 of the Cenvat Credit Rules, the impugned orders were set aside, and the appeals were allowed. The Court emphasized the importance of maintaining separate accounts for dutiable and exempted goods to prevent unjust enrichment to the revenue authorities.