2021 (8) TMI 125 - AT - Central Excise

Recovery of Central Excise Duty alongwith interest and penalty - by-product, called HMDSO generated during the manufacture of final product from the raw material - Rule 4(5) of CENVAT Credit Rules - HELD THAT - It is clear that the appellant who is manufacturer of organic compound anti-biotic, precisely the inputs used by him is HMDS while processing such inputs, the appellant not only gets the final product, the anti biotic but also gets a by-product / waste called HMDSO - There is no denial to the fact that it is the by-product / waste (HMDSO) which has emerged with the final product (anti-biotic/ organic compound ) of the appellant from the inputs HMDS is sent to the job worker for the reason that this by-product has a potential of releasing the inputs i.e. HMDS by further recovery process as 75% of such HMDS is still contained in the said by-product i.e. HMDSO. Rule 4(5) of Cenvat Credit Rules is not applicable to the given facts and circumstances. Because what has been sent to the job worker is not the inputs as such, but the by-product emerging along with final product - there is no possibility of 100% reversal of HMDSO given to the job worker. This apparent admission that the job worker has returned the returnable yield of HMDS to the appellant from HMDSO received, within 180 days thereof - It remains unrebutted that what has been given to the job worker was the waste which emerged along with final product and not the inputs as such, used by the appellant for manufacturing anti-biotic as a final product. Rule 4(5)(a) of the Cenvat Credit Rules, 2002 does not cover the return of waste and scraps. The matter was remanded back to the Original Adjudicating Authority on the ground that test report based on which Commissioner (Appeals) has arrived at the conclusion regarding generation of waste was not available before the Original Adjudicating Authority - Appeal allowed by way of remand.

Summary

Issues:
1. Applicability of Rule 4(5) of CCR to the given facts and circumstances.
2. Interpretation of Rule 4(5) of CCR regarding inputs and by-products.
3. Adjudication of the appeal based on previous judgments and test reports.
4. Justification for setting aside the order and allowing the appeal.

Issue 1: Applicability of Rule 4(5) of CCR to the given facts and circumstances:
The appellant, engaged in the manufacture of organic compounds and enzymes, faced a demand for Central Excise duty due to alleged non-receipt of a certain quantity of chemicals from a job worker. The central issue was whether Rule 4(5) of CCR applied to the situation. This rule allows CENVAT credit if inputs sent for processing are not returned within 180 days. The tribunal analyzed the facts and concluded that the rule did not apply as the appellant sent a by-product, not the inputs themselves, to the job worker. The tribunal relied on precedents and held that the demand was not sustainable under Rule 4(5) due to the nature of the material sent for processing.

Issue 2: Interpretation of Rule 4(5) of CCR regarding inputs and by-products:
The tribunal clarified that Rule 4(5) of CCR pertains to inputs sent for processing before the final product is manufactured. In this case, the appellant sent a by-product, HMDSO, which contained a portion of the input material. The tribunal emphasized that the rule does not cover the return of waste or scraps, as confirmed by previous judgments. The tribunal differentiated between inputs and by-products, highlighting that the rule applies to inputs necessary for the final product's manufacture, not to by-products generated during the process.

Issue 3: Adjudication of the appeal based on previous judgments and test reports:
The tribunal reviewed previous orders and test reports to support its decision. It noted that the generation of waste at the job worker's premises was not disputed and was supported by chemical test reports. The tribunal referenced earlier cases where the return of waste or scraps was not covered under Rule 4(5) of CCR. The tribunal also highlighted procedural mistakes and lack of evidence to justify the denial of CENVAT credit. Ultimately, the tribunal found no suppression by the appellant and set aside the order based on the evidence and legal interpretations presented.

Issue 4: Justification for setting aside the order and allowing the appeal:
After a detailed analysis of the facts, legal provisions, and precedents, the tribunal set aside the order and allowed the appeal. The tribunal concluded that Rule 4(5) of CCR was not applicable to the situation where a by-product, not the inputs, was sent for processing. The tribunal emphasized the distinction between inputs and by-products, as well as the lack of evidence supporting the denial of CENVAT credit. Based on these findings, the tribunal ruled in favor of the appellant and allowed the appeal, stating that there was no suppression on the appellant's part and no grounds for imposing a penalty.

This comprehensive analysis of the judgment highlights the key legal issues, interpretations, and justifications provided by the tribunal in reaching its decision.