2017 (4) TMI 272 - AT - Central Excise

CENVAT credit - Rule 6(3) of CCR - demand on the ground that the appellant did not pay the amount of 5% on clearance of Char/Dolachar from the factory - During the course of manufacture of Sponge iron, Char/Dolachar emerges as by-product/waste which are removed from the factory without discharging any Central Excise duty liability - Held that - The embargo created in Rule 6 has the application, only when the manufacturer manufactures both dutiable as well as exempted final product. Char/Dolachar involuntarily generated during the course of manufacture of sponge iron, cannot be considered as exempted goods as defined in Rule 2(d) of the CCR, 2004 inasmuch as the said goods are neither exempted by issuance of any notification by the Central Government nor attract nil rate of duty in the Tariff Act. Since, Char/Dolachar are seized to be exempted goods, the stipulation contained in Rule 6 shall have no application for payment of amount on clearance of said goods from the factory - demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Interpretation of Rule 6 of the Cenvat Credit Rules, 2004 regarding payment of 5% on clearance of by-product/waste.
2. Classification of Char/Dolachar as exempted goods under Rule 2(d) of the Cenvat Credit Rules, 2004.

Analysis:
1. The case involved a dispute regarding the payment of 5% on the clearance of Char/Dolachar, a by-product/waste emerging during the manufacture of Sponge Iron. The Central Excise Department demanded this payment based on Rule 6(3) of the Cenvat Credit Rules, 2004. The appellant, however, argued that Char/Dolachar did not fall under the definition of exempted goods as per Rule 2(d) of the Cenvat Credit Rules, 2004, hence the rule requiring the payment would not apply.

2. The Tribunal analyzed the definition of exempted goods under Rule 2(d) and concluded that Char/Dolachar, being a by-product of the manufacturing process and not falling under any specific exemption notification or nil rate of duty, could not be classified as exempted goods. As a result, the stipulation in Rule 6 regarding payment did not apply to the clearance of Char/Dolachar from the factory. The Tribunal held that the demand made by the authorities was unsustainable, setting aside the impugned order and allowing the appeal in favor of the appellant.

This judgment clarifies the application of Rule 6 of the Cenvat Credit Rules, 2004 in cases where by-products/wastes are generated during manufacturing processes. It emphasizes the importance of correctly classifying goods under the relevant rules to determine the applicability of payment obligations.