2014 (10) TMI 335 - AT - Central Excise

Cenvat Credit - emergence of waste - Exemption under Notification No. 77/86-C.E., dated 14-2-1986 - Held that - Sludge emerging from effluent treatment plant in the nature of waste cannot be considered a manufactured product in view of various decisions of the Hon ble Apex Court in the similar matters. Further there cannot be a demand to reverse any Cenvat credit for the reason that a part of the input is covered in the waste that arises. Following decision of ITC LTD Versus COMMISSIONER OF CENTRAL EXCISE, SALEM 2013 (12) TMI 928 - CESTAT CHENNAI - Decided in favour of assessee.

Summary

Issues:
1. Whether the Cenvat credit taken for inputs used in the manufacturing process should be reversed due to the sale of sludge, which is an exempted product.
2. Whether sludge can be considered excisable goods and if the value of sludge cleared should be used to reverse Cenvat credit.

Analysis:
1. The appellant, a paperboard manufacturer, faced a demand for reversing Cenvat credit due to the sale of sludge emerging from the Effluent Treatment Plant (ETP), which is exempted under Notification No. 77/86-C.E. The Revenue argued that since sludge is exempted, the Cenvat credit should be reversed based on Rule 6 of Cenvat Credit Rules. The Tribunal noted that this issue had been previously decided and considered arguments from both sides.

2. The appellant's counsel contended that sludge, being a waste product, should not be considered excisable goods solely based on marketability. Citing precedents, it was argued that waste products sold and bought do not automatically become excisable. Additionally, there is no specific entry in the Central Excise Tariff to charge duty on sludge. The counsel also argued against the demand to reverse Cenvat credit based on the presence of inputs in waste, referencing relevant circulars and tribunal decisions.

3. The Revenue representative highlighted the amendment to Section 2(d) and argued that since sludge is bought and sold, it falls under excisable goods as per the Central Excise Tariff. The representative asserted that the exemption of sludge from duty indicates its inclusion in the Tariff, justifying the reversal of Cenvat credit proportional to the value of cleared sludge.

4. After considering the submissions, the Tribunal found merit in the appellant's arguments. It held that sludge, as waste from the effluent treatment plant, cannot be deemed a manufactured product based on Supreme Court decisions. The Tribunal also rejected the demand to reverse Cenvat credit due to the presence of inputs in waste. Referring to a previous order in the appellant's favor, the Tribunal allowed the appeal, setting aside the lower authorities' orders and disposing of the stay application.