2019 (5) TMI 137 - AT - Central Excise

CENVAT credit - common inputs and input services used for manufacture of dutiable goods like sugar and exempted goods namely bagasse - non-maintenance of separate records - Rule 6(3) of CENVAT Credit rules, 2004 - HELD THAT - The Apex Court in the case of UNION OF INDIA VERSUS DSCL SUGAR LTD. 2015 (10) TMI 566 - SUPREME COURT has held that bagasse emerges as a residue from the manufacturing process, that Bagasse by itself is not a product which is manufactured by the assessee. Bagasse is not excisable there being no manufacturing process, Rule 6 of CENVAT Credit Rules 2004 is not applicable. Demand cannot sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellants are liable to reverse the credit on inputs and input services in respect of bagasse.

Analysis:
The case involved the appellants engaged in the manufacture of sugar and molasses, availing CENVAT credit of duty paid on inputs, capital goods, and service tax paid on input services. The issue arose when it was discovered that the appellants had cleared bagasse, attracting nil rate of duty, to their co-generation plant for consumption and for sale in the market without maintaining separate accounts for inputs used in the manufacturing process. The department demanded 5% of the value of bagasse cleared as per Rule 6(3) of CENVAT Credit rules, 2004, through a Show Cause Notice. The original authority confirmed the demand, leading to the appeal.

During the proceedings, the appellant's counsel argued that bagasse is not intentionally manufactured but emerges as waste in the manufacturing process. They contended that since bagasse is not a manufactured product, there is no obligation to reverse the credit on input services used. The counsel relied on the decision of the Apex Court in Union of India Vs. DSCL Sugar Ltd. and emphasized that bagasse is not excisable as it does not undergo a manufacturing process.

The department, represented by the ld. AR, supported the findings in the impugned order. After hearing both sides, the Tribunal referred to the decision in DSCL Sugar Ltd., where the Apex Court clarified that bagasse is a residue from the manufacturing process and not a product manufactured by the assessee. As bagasse is not excisable due to the absence of a manufacturing process, Rule 6 of CENVAT Credit Rules 2004 does not apply. Consequently, the Tribunal held that the demand to reverse the credit on inputs and input services in respect of bagasse cannot be sustained. The appeal was allowed, providing consequential relief, if any.

In conclusion, the Tribunal set aside the demand imposed on the appellants, emphasizing that bagasse, being a residue and not a manufactured product, does not fall under the purview of Rule 6 of the CENVAT Credit Rules 2004. The judgment provided clarity on the treatment of bagasse in the context of CENVAT credit, aligning with the decision of the Apex Court and granting relief to the appellants in this case.