2022 (8) TMI 7 - AT - Central Excise

CENVAT Credit - manufacture of dutiable and exempted goods (Bagasse and Bio Compost) by using common inputs - period May 2011 to September 2015 - applicability of Rule 6(1) of the Cenvat Credit Rules, 2002 - HELD THAT - Reliance placed in the case of UNION OF INDIA VERSUS DSCL SUGAR LTD. 2015 (10) TMI 566 - SUPREME COURT where it was held that In the present case it could not be pointed out as to whether any process in respect of Bagasse has been specified either in the Section or in the Chapter notice. In the absence thereof this deeming provision cannot be attracted. Otherwise, it is not in dispute that Bagasse is only an agricultural waste and residue, which itself is not the result of any process. Therefore, it cannot be treated as falling within the definition of Section 2(f) of the Act and the absence of manufacture, there cannot be any excise duty. In respect of observations made on the basis of CBEC Circular dated 25.04.2015 (referred in Order of Ld.Commissioner(Appeals), the Hon ble Allahabad High Court in the case of M/S BALRAMPUR CHINI MILLS LTD. THROUGH ITS GENERAL MANAGER VERSUS UNION OF INDIA, MINISTRY OF FINANCE DEPARTMENT OF REVENUE 2019 (5) TMI 972 - ALLAHABAD HIGH COURT has held that That the Circular dated 25-4-2016 interpreting Explanation 1 to Rule 6 has provided that consequently, Bagasse, dross and skimmings of non-ferrous metal or any such by-product of waste, which are non-excisable goods and are cleared for consideration from the factory need to be treated like exempted goods for purpose of reversal of credit of input and input services, in terms of Rule 6 of the Cenvat Credit Rules, 2004. The circular therefore treating Bagasse to be a non-excisable goods, is clearly erroneous, and for this reason also the Circular dated 25-4-2016 is liable to be quashed with regard to Bagasse. The issue is squarely covered in the favour of the Appellant by the referred decisions - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Interpretation of Rule 6 of Cenvat Credit Rules, 2004 regarding the allowance of CENVAT credit.
2. Application of Rule 6 to the manufacturing of exempted goods like Bagasse and Bio Compost.
3. Impact of the insertion of explanations in Rule 6 through Notification no.: 06/2015-C.E. (N.T.) dated 01.03.2015.
4. Consideration of judicial precedents and circulars in determining the liability for payment under Rule 6.

Analysis:

1. The appeal involved a dispute regarding the interpretation of Rule 6 of the Cenvat Credit Rules, 2004, which imposes obligations on manufacturers of dutiable and exempted goods. The Ld. Commissioner(Appeals) set aside the original authority's decision to drop the duty demand based on a CESTAT order and a Supreme Court case.

2. The Appellants, in this case, were manufacturing sugar and faced allegations of not maintaining separate accounts for dutiable and exempted goods like Bagasse and Bio Compost. The authorities required them to pay an amount equivalent to a percentage of the consideration received against these exempted goods under Rule 6(3)(2) of the Cenvat Credit Rules.

3. The insertion of explanations in Rule 6 through Notification no.: 06/2015-C.E. (N.T.) dated 01.03.2015 was crucial. The order highlighted that the explanations clarified existing provisions rather than introducing new ones. The intention was to include non-excisable goods within the definition of "exempted goods" under Rule 6, affecting the liability of manufacturers.

4. Judicial precedents and circulars played a significant role in the decision. The order referenced the case law of UOI Vs. DSCL Sugar Ltd. and the Hon'ble Supreme Court's observations on the application of Rule 6 to Bagasse. Additionally, the order considered the impact of a CBEC Circular and the dismissal of an SLP by the Supreme Court on the same issue, providing clarity on the liability under Rule 6.

In conclusion, the judgment analyzed the application of Rule 6 of the Cenvat Credit Rules, 2004 to the manufacturing of exempted goods, the implications of the amendments through Notification no.: 06/2015-C.E. (N.T.) dated 01.03.2015, and the significance of judicial precedents and circulars in determining the liability for payment under Rule 6.