2016 (12) TMI 987 - AT - Central Excise

Cenvat Credit - emergence of ore fines and coal fine during manufacturing - reversal of credit - Rule 6(3)(b) /6(3)(i) of Cenvat Credit Rules, 2004 - Held that - The facts of this case are that the appellant, who are engaged in the manufacture of sponge iron during the process generate iron ore fines and coal fines. These are emerging when iron ore lumps of different sizes are subjected to crushing and thereafter screening in raw material plant - During the course of hearing, attention was drawn to the case of M/s G.R. Sponge and Power Ltd. 2016 (11) TMI 51 - CESTAT NEW DELHI where it was held that subject goods, ore fines and coal fines are by products emerging during the process of manufacturing the final product and do not pass the test of duty leviability, then the question of applying the provisions of Rule 6 of CCR does not arise - appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
1. Applicability of Rule 6(3)(b) /6(3)(i) of Cenvat Credit Rules, 2004 to the case.
2. Treatment of iron ore fines and coal fines as 'exempted goods'.
3. Requirement of maintaining separate accounts for common input services.
4. Interpretation of whether iron ore fines and coal fines are exempted goods.
5. Comparison with a previous Tribunal's decision in a similar case.

Analysis:
1. The main issue in this case revolves around the applicability of Rule 6(3)(b) /6(3)(i) of Cenvat Credit Rules, 2004. The rule mandates that if exempted goods are cleared without maintaining separate accounts for inputs and input services, a payment equal to 10% of the value of such exempted goods must be made. The appellant, engaged in manufacturing sponge iron, generated iron ore fines and coal fines during the production process. The Tribunal analyzed the facts and concluded that the provisions of Rule 6 were not applicable in this scenario.

2. The Revenue contended that iron ore fines and coal fines should be treated as 'exempted goods', leading to a demand for recovery of 10% of the value of the cleared goods. However, the Tribunal noted that these fines were by-products of the manufacturing process and did not meet the criteria for being classified as exempted goods subject to duty liability. This distinction was crucial in determining the tax treatment of the fines.

3. Another aspect of the case involved the requirement to maintain separate accounts for common input services. The department argued that since common services were used for both dutiable sponge iron and the alleged exempted goods, a payment obligation arose under Rule 6(3A)(b) of the Cenvat Credit Rules, 2004. However, the Tribunal found that in the absence of clear segregation of accounts, the application of this rule was not justified in the given circumstances.

4. The interpretation of whether iron ore fines and coal fines qualified as exempted goods was pivotal. The Tribunal examined the nature of these fines, their origin as by-products of the manufacturing process, and their usability in further production. By establishing that these fines did not meet the duty leviability criteria, the Tribunal rejected the classification of these fines as exempted goods, thereby impacting the tax liability of the appellant.

5. A significant reference point in the judgment was a previous decision by the Tribunal in a similar case involving M/s G.R. Sponge and Power Ltd. The Tribunal's ruling in that case, which emphasized the non-dutiable nature of ore fines and coal fines as manufacturing by-products, influenced the decision in the present appeal. By aligning with the precedent and considering the factual similarities, the Tribunal set aside the lower authority's order and granted relief to the appellant based on established case law principles.