2019 (2) TMI 403 - AT - Central Excise

CENVAT Credit - waste arising during the manufacture is cleared for a consideration - demand of reversal of CENVAT credit proportionate to the value of the waste BOPP film and waste paper scrap cleared - explanation (1) to Rule 6 (1) of the CENVAT Credit Rules, 2004 - Held that - This issue is no longer res integra and it has been held in the cases of Menon & Menon 2017 (12) TMI 85 - CESTAT MUMBAI and M/s Shivratna Udyog Ltd 2017 (9) TMI 985 - CESTAT MUMBAI that explanation (1) to Rule 6 of CENVAT Credit Rules, 2004 covers non-excisable goods manufactured or produced using inputs on which CENVAT credit has been availed. It does not cover waste material which arises during the process of manufacturing even if the same is cleared for some consideration. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Dispute over CENVAT credit availed on waste BOPP film and paper used for packing cigarettes.
- Interpretation of Rule 6 of the CENVAT Credit Rules, 2004 regarding reversal of credit for waste materials.
- Applicability of explanation (1) to Rule 6 in the context of non-excisable goods cleared for consideration.

Analysis:
1. The appeal involved a manufacturer of cigarettes disputing the demand for reversal of CENVAT credit on waste BOPP film and paper cleared as scrap. The department issued a show cause notice demanding the reversal, which was confirmed by the lower authorities along with interest and penalty under Rule 15 of CENVAT Credit Rules, 2004.

2. The appellant contended that Rule 6 of the CENVAT Credit Rules, 2004 restricts credit for inputs used in manufacturing exempted goods. The dispute centered around whether waste materials, like BOPP film and paper, should be treated as non-excisable goods cleared for consideration, necessitating the reversal of CENVAT credit.

3. The appellant relied on precedents like Menon & Menon and M/s Shivratna Udyog Ltd, arguing that CENVAT credit should not be denied for inputs contained in waste by-products or goods. They emphasized that the waste arose during the manufacturing process and was not the production of non-excisable goods, thus exempting them from the reversal requirement.

4. The department, supported by a CBEC Circular, contended that waste materials like BOPP film and paper should be treated as non-excisable goods cleared for consideration, aligning with the explanation (1) to Rule 6 of the CENVAT Credit Rules, 2004. They argued for the reversal of CENVAT credit based on this interpretation.

5. The Tribunal, considering the arguments, clarified that waste materials arising during manufacturing and cleared for consideration do not fall under the purview of explanation (1) to Rule 6. Relying on previous judgments, the Tribunal ruled in favor of the appellant, allowing the appeal and setting aside the demand for reversal of CENVAT credit.

6. The Tribunal's decision was based on the distinction between waste materials arising during manufacturing processes and the production of non-excisable goods cleared for consideration. The ruling aligned with the interpretation that waste materials cleared for consideration do not trigger the reversal of CENVAT credit as mandated by Rule 6 of the CENVAT Credit Rules, 2004.