2020 (2) TMI 1014 - AT - Central Excise

CENVAT Credit - common input services used for providing taxable as well as non-taxable outputs - leftover of packing material - exempt goods or not - Rule 6 (3)(1) of CCR 2004 - whether the leftover of the packing material which was used by the Appellant to pack the Tires and Tubes manufactured by them is such exempted/non-excisable goods due to which Rule 6 CCR, 2004 is applicable? HELD THAT - Apparently and admittedly, the goods as have been objected by the department are not the manufactured goods. These are merely the inputs that too in the form of the material used by the Appellant to pack their final product. This particular observation is sufficient to hold that the impugned goods i.e. plastic scrap, used empty jumbo bags, sweeping garbage, MS Iron, empty drums, MS scrap, etc. do not fall in the category of goods manufactured by the Appellant. Irrespective the leftover of the packing material is being cleared by the Appellant against the consideration, these goods is not at all sufficient to hold the same to be called as the manufactured good of the Appellant. In the case of UNION OF INDIA VERSUS DSCL SUGAR LTD. 2015 (10) TMI 566 - SUPREME COURT Hon'ble Apex Court while explaining the meaning of manufacture as contained in Section 2F of the Central Excise Act, 1944 has held that any waste emerging compulsorily during the procedure of manufacture cannot be called as the manufactured products. As such the Rule 6, CCR is not applicable - In view of the prior Circular of the department bearing No. 721/37/2003-CX dated 06.06.2003, it can be opined that explanation I to Rule 6 CCR, 2004 has been added to circumvent the outcome of the decision of Hon'ble Apex Court in UNION OF INDIA VERSUS DSCL SUGAR LTD. 2015 (10) TMI 566 - SUPREME COURT . Accordingly, the confirmation of demand of ₹ 5,72,598/- on the left over/scrap of the input used by the Appellant, since Rule 6 is not applicable, the demand is not sustainable - demand set aside. Demand of ₹ 3722/- with respect to common input services used for taxable as well as non-taxable services - HELD THAT - Since there is no denial for the Services as that of advertising services, legal services, director's fee, business auxiliary, etc. to be the common input services used by the Appellant in or in relation to the manufacture of their final product. There are no infirmity when the adjudicating authority below has confirmed the demand under Rule 6 CCR, 2004 to that extent the order under challenge is liable to be upheld - Demand upheld. Appeal allowed in part.

Summary

Issues:
1. Applicability of Rule 6 of CENVAT Credit Rules, 2004 to leftover packing material used by the appellant.
2. Interpretation of Rule 6 in relation to the goods cleared by the appellant.
3. Admissibility of CENVAT Credit on inputs used for manufacturing exempted goods.
4. Clarity on whether leftover packing material constitutes manufactured goods.
5. Impact of Explanation 1 to Rule 6 CCR, 2004 on the case.
6. Assessment of demand for recovery of excise duty and interest.

Issue 1: The judgment addresses the applicability of Rule 6 of CENVAT Credit Rules, 2004 to the leftover packing material used by the appellant. The Tribunal examines whether the leftover material constitutes exempted/non-excisable goods, thereby triggering the application of Rule 6. The Tribunal emphasizes that the leftover packing material, such as plastic scrap and empty drums, does not qualify as manufactured goods, as clarified in previous decisions and the interpretation of Rule 6.

Issue 2: The judgment interprets Rule 6 in the context of the goods cleared by the appellant. It highlights the importance of the term "manufacture" for the rule's applicability, emphasizing that Rule 6 applies only when the appellant is manufacturing both exempted and excisable goods using common inputs. The Tribunal concludes that the leftover packing material used by the appellant does not fall under the category of manufactured goods, thereby rendering Rule 6 inapplicable.

Issue 3: The judgment delves into the admissibility of CENVAT Credit on inputs used for manufacturing exempted goods. It clarifies that the leftover packing material, being merely used for packing the final products, does not constitute manufactured goods. Therefore, the demand for recovery of excise duty and interest on the leftover material is deemed unsustainable under Rule 6.

Issue 4: The judgment provides clarity on whether the leftover packing material qualifies as manufactured goods. It references previous decisions and rulings to establish that the leftover material, such as plastic scrap and empty drums, used by the appellant for packing final products does not meet the criteria of manufactured goods, thus not falling under the purview of Rule 6.

Issue 5: The judgment analyzes the impact of Explanation 1 to Rule 6 CCR, 2004 on the case. It interprets the explanation to include non-excisable goods within the definition of exempted goods but emphasizes that non-manufactured goods are not deemed exempted goods. The Tribunal holds that the leftover packing material, being non-manufactured goods, does not qualify as exempted goods, thereby rendering Rule 6 inapplicable.

Issue 6: The judgment assesses the demand for recovery of excise duty and interest in light of the above analysis. It sets aside the demand of recovery of &8377; 5,72,598 on the leftover packing material, stating that Rule 6 is not applicable in this case. However, it upholds the demand of &8377; 3722 with respect to common input services used by the appellant, resulting in the partial allowance of the appeal.