2018 (8) TMI 160 - AT - Central Excise

Reversal of CENVAT Credit - emergence of Bio-manure arising as a by product - common inputs and input services - Rule 6(3)(1) of Cenvat Credit Rules, 2004 - Held that - The Hon ble Supreme Court in the case of Union of India vs. D.S.C.L Sugar Ltd. 2015 (10) TMI 566 - SUPREME COURT has held that bagasse being an agricultural waste or residue, there could be no manufacturing activity - Similarly bio manure is nothing but a byproduct which necessarily arises during the course of manufacture of the goods and it cannot be said that the same was a manufactured product. If the same was not manufactured, the same cannot be held to be excisable, in which case the amendment carried out would not apply. Revenue has itself treated the bio manure as a byproduct which arises during the course of manufacture of sugar and molasses. If that be so the provisions of Rule 6(3) would not apply. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Applicability of Rule 6(3)(1) of Cenvat Credit Rules, 2004 on the appellant for bio-manure sold.
2. Interpretation of Rule 6(1) of Cenvat Credit Rules, 2004 regarding exempted goods.
3. Manufacturing activity requirement for invoking Rule 6(3).
4. Existence of common inputs in the manufacture of bio-manure.
5. Treatment of bio-manure as a byproduct.

Analysis:

Issue 1: Applicability of Rule 6(3)(1) of Cenvat Credit Rules, 2004
The appellant, engaged in sugar and molasses manufacturing, faced a demand due to selling bio-manure at nil duty rate. The Revenue claimed 6% payment under Rule 6(3)(1) for availing Cenvat credit. Lower Authorities upheld the demand, citing Rule 6(1) amendment and imposed penalties, leading to the present appeal.

Issue 2: Interpretation of Rule 6(1) of Cenvat Credit Rules, 2004
The amended Rule 6(1) included non-excisable goods like bio-manure as exempted goods for credit reversal purposes. The Commissioner's observation post-amendment highlighted the change in defining exempted goods, necessitating reversal for nil-rated goods cleared for consideration, aligning with Circular No.1027/15/2016-CX.

Issue 3: Manufacturing activity requirement for invoking Rule 6(3)
The judgment referred to the precedent where the Supreme Court ruled that agricultural waste like bagasse doesn't involve manufacturing. Similarly, bio-manure, a byproduct in manufacturing sugar, doesn't constitute a manufactured product. Without manufacturing, the excisability claim and amendment applicability under Rule 6(1) are questioned.

Issue 4: Existence of common inputs in the manufacture of bio-manure
The appellant clarified no inputs were used before bagasse and spent waste emerged, further utilized for rectified spirit production. This absence of common inputs in bio-manure manufacture challenges the Revenue's claim under Rule 6(3)(1).

Issue 5: Treatment of bio-manure as a byproduct
The Revenue's acknowledgment of bio-manure as a byproduct arising during sugar and molasses manufacturing aligns with the Bombay High Court's decision in Rallies India vs. Commissioner of Central Excise. The ruling emphasizes that if bio-manure is a byproduct, Rule 6(3) provisions don't apply, leading to the appellant's demand dismissal.

In conclusion, the judgment favored the appellant, setting aside the demand as bio-manure was considered a byproduct, not subject to Rule 6(3) requirements. The detailed analysis highlighted the legal interpretations and precedents crucial in determining the applicability of Cenvat credit rules in the context of bio-manure production and sale.