2021 (11) TMI 896 - AT - Central Excise

CENVAT Credit - manufacture of exempt product namely sludge - appellants have used common inputs for manufacture of dutiable product (Gelatine) and exempted product (Sludge) - non-maintenance of separate records - Rule 6 (3) of Cenvat Credit Rules 2004 - period from 10.05.2008 to 30.09.2011 - HELD THAT - The demand has been raised on the view that the sludge removed is an exempted goods manufactured by the appellants. The appellant does not consciously manufacture any waste. During the course of manufacture the waste that arises is drained into the Effluent Treatment Plant. Thus waste removed from the Effluent Treatment Plant forms sludge and is removed on a daily basis to a dump yard from where it gets dried and is thereafter sold to fertilizer manufacturers. The appellant has to comply with the pollution control requirements and therefore maintain the Effluent Treatment Plant and remove the waste as per the effluent norms. A manufacturer would be happy when there is less waste or no waste at all since the burden of maintaining the effluent treatment plant and the transportation of the sludge etc. can be minimized. No manufacturer would consciously manufacture waste. For these reasons it cannot be said that the waste / sludge is an exempted goods manufactured by the appellant. The said issue stands considered by the Tribunal in the case of ITC LTD VERSUS COMMISSIONER OF CENTRAL EXCISE SALEM 2013 (12) TMI 928 - CESTAT CHENNAI . In fact the Commissioner (Appeals) has cited the said decision to set aside the demand prior to 10.05.2008. It has to be stated that even after 10.05.2008 though the Explanation to Section 2(d) states that any article material or substance which is capable of being bought and sold for a consideration will also fall within the definition of goods in the present case the appellants having not manufactured the waste consciously it cannot be considered as an exempted goods falling under Rule 6 (3) of CCR 2004. The demand cannot sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the appellant is liable to pay an amount equal to 10% / 5% of the value of the exempted goods 'sludge' removed by them for the period from 10.05.2008 to 30.09.2011 as required under Rule 6 (3) of CCR, 2004.

Detailed Analysis:

1. Background and Allegations:
The appellants, engaged in manufacturing Gelatine, were alleged to be manufacturing an exempted product, 'sludge', alongside dutiable goods. The department claimed the appellants used common inputs for both products without maintaining separate accounts, leading to a demand notice for payment and penalties. The original authority confirmed the demand, interest, and penalties, which the appellants challenged before the Commissioner (Appeals), resulting in a partial relief for the period prior to 10.05.2008.

2. Appellant's Argument:
The appellant argued that 'sludge' was not consciously manufactured but arose as waste during the manufacturing process of Gelatine. The waste was treated at the Effluent Treatment Plant and sold to fertilizer manufacturers after drying. The appellant emphasized the lack of intentional production of 'sludge' and the necessity to comply with pollution control norms, indicating it should not be considered an exempted product.

3. Legal Interpretation and Precedents:
The Commissioner (Appeals) upheld the demand post 10.05.2008 based on an amendment to the Central Excise Act, defining excisable goods. However, the appellant contended that since they did not consciously manufacture 'sludge', it should not be deemed exempted. Precedents from cases like ITC Ltd. and Tamil Nadu Newsprint & Papers Ltd. were cited, where similar issues were resolved in favor of the appellants, emphasizing that waste like 'sludge' should not be treated as manufactured goods.

4. Tribunal's Decision:
The Tribunal analyzed the arguments, referring to previous judgments and legal provisions. It concluded that the waste or 'sludge' arising during the manufacturing process should not be considered an exempted product under Rule 6 (3) of CCR, 2004. Citing the lack of conscious manufacturing of 'sludge' and following the precedents, the Tribunal set aside the demand, allowing the appeal and providing consequential relief.

5. Final Verdict:
On 25.11.2021, the Tribunal pronounced the judgment in favor of the appellants, setting aside the impugned order and allowing the appeal with consequential relief, if any. The decision highlighted the distinction between waste products like 'sludge' and manufactured goods, emphasizing that such waste should not be subjected to the same tax liabilities as dutiable products.