2019 (5) TMI 1095 - AT - Central Excise

CENVAT Credit - common input used for dutiable and exempted goods - iron ore fines - waste product - maintenance of separate records - Rule 6 (3) of Cenvat Credit Rule 2004 - Circular dated 25.04.2016 - HELD THAT - In the present case the iron fines are bound to emerge during crushing of iron ore used for manufacturer of final product. No extra procedure is required for emergence of iron fines. Hence the fines cannot be called as manufactured product. The Hon ble Supreme Court s decision in the matter of UNION OF INDIA VERSUS DSCL SUGAR LTD. 2015 (10) TMI 566 - SUPREME COURT has clearly laid down that bagasse is agricultural waste of sugarcane and the waste and residue of agricultural products during the process of manufacture of goods cannot be said to be result of any process. There is no manufacturing process involved in Bagasse s production. Bagasse is not goods but merely a waste or by-product therefore Rule 6 of CENVAT Credit Rules 2004 is not applicable in the present case. Bagasse is bound to come into existence during the crushing of the sugarcanes and is an unavoidable agricultural waste. Credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Non-maintenance of separate accounts for exempted goods.
2. Interpretation of Rule 6 of Cenvat Credit Rules, 2004.
3. Applicability of Circular dated 25.04.2016.
4. Precedents and case laws on similar issues.

Issue 1: Non-maintenance of separate accounts for exempted goods:
The case involved the appellants, engaged in manufacturing sponge iron, availing cenvat credit but not maintaining separate accounts for exempted goods, specifically iron ore fines, as required by Rule 6 (3) of Cenvat Credit Rule, 2004. The Department alleged non-payment of duty amounting to ?4,29,153 during April 2015 to March 2016. The dispute centered around the classification of iron ore fines as exempted goods and the necessity of separate accounts for such goods.

Issue 2: Interpretation of Rule 6 of Cenvat Credit Rules, 2004:
The appellants argued that iron ore fines were waste products during the manufacturing process of sponge iron and should not be considered exempted goods under Rule 6 (2) of CCR, 2004. They relied on various case laws to support their contention. The Revenue, however, justified the order under challenge, citing the Circular dated 25.04.2016, which clarified the treatment of certain goods as exempted for credit reversal purposes.

Issue 3: Applicability of Circular dated 25.04.2016:
The Circular dated 25.04.2016 was a focal point in the dispute, as it clarified the treatment of certain goods like bagasse as exempted goods for credit reversal. The appellants argued that the Circular should not override established legal principles, including the decisions of higher courts and tribunals. They contended that the Circular was issued after the period in dispute and should not apply retroactively.

Issue 4: Precedents and case laws on similar issues:
The Tribunal analyzed various precedents and case laws, including the decision of the Hon'ble Supreme Court in the matter of DSCL Sugar Ltd., which held that waste or by-products like bagasse were not subject to Rule 6 of CENVAT Credit Rules, 2004. The Tribunal also referred to a Mumbai Tribunal decision that clarified the application of Rule 6(3) to waste or by-products, emphasizing that cenvat credit should not be denied in such cases.

In conclusion, the Tribunal set aside the order under challenge, allowing the appeal based on the interpretation of Rule 6, the applicability of the Circular, and established legal precedents regarding waste products in the manufacturing process. The judgment emphasized that iron ore fines were akin to waste or by-products and not subject to Rule 6, thereby ruling in favor of the appellants.