2023 (5) TMI 517 - AT - Central Excise

CENVAT Credit - manufacture of dutiable and exempted goods as required under Rule 6(2) ibid (exempted product i.e. bagasse, generated during the manufacturing of sugar/molasses) - non-maintenance of separate records - amendment of Section 2(d) of Central Excise Act, 1944 w.e.f. 10.5.2008 - period in issue is from 1.3.2010 to 30.9.2010 - HELD THAT - It is nowhere disputed by the department that bagasse were not emerged as a waste/residue of sugarcane. In the light of the facts involved herein, we are of the considered view that the issue involved in the instant Appeal is not more res integra in view of the law laid down by the Hon ble Supreme Court in the matter of UNION OF INDIA VERSUS DSCL SUGAR LTD. 2015 (10) TMI 566 - SUPREME COURT in which the Hon ble Supreme Court has considered both the periods i.e. the periods before and after the insertion of explanation in Section 2(d) ibid, which has been heavily relied upon by the authorities below in fastening the duty liability on the appellant herein. The Hon ble Supreme Court has held that bagasse being an agricultural waste or residue, there could be no manufacturing activity. On the basis of the amendment to Section 2(d), the department has taken out one circular No. 904/24/2009-CX, dated 28.10.2009 in line with the amendment in Section 2(d) ibid, which was also relied upon by the authorities below in confirming the demand. But after the judgment of the Hon ble Supreme Court in the matter of DSCL Sugar Ltd. another circular No. 1027/15/2016-CX, dated 25.4.2016 has been issued by the department stating that since the period covered in the aforesaid decision of the Hon ble Supreme Court applies to both period i.e. before and after the insertion of explanation in section 2(d) ibid therefore the circular dated 28.10.2009 becomes non est and are rescinded. Since the law laid down by the Hon ble Supreme Court constitutes declaration of the law within the meaning of Article 141 of the Constitution of India which would be binding on all Court and Tribunals, therefore following the aforesaid decision of the Hon ble Supreme Court, the issue involved herein decided in favour of the Appellant - Appeal allowed.

Summary

Issues involved:
The appeal challenges an order reducing a demand under Rule 14 of Cenvat Credit Rules, 2004 r/w. Section 11A(1) of Central Excise Act, 1944 related to the liability to pay 5% of the sale value of an exempted product, bagasse, generated during the manufacturing of sugar/molasses due to failure to maintain separate accounts.

Issue 1: Liability to pay under Rule 6(3) of Cenvat Credit Rules, 2004
The issue is whether the appellant is liable to pay an amount equal to 5% of the sale value of exempted product, bagasse, due to failure to maintain separate accounts for dutiable and exempted goods as required under Rule 6(2) of the Cenvat Credit Rules, 2004.

Details of the Judgment:
The appellant, engaged in manufacture and clearance of sugar and molasses, availed Cenvat credit but did not maintain separate records for exempted goods like bagasse. A demand was raised for 5% of the value of bagasse sold, which was reduced on appeal. The appellant argued that bagasse is waste, not subject to duty, while the Revenue contended that it qualifies as excisable goods. The Tribunal referred to a Supreme Court decision which held that bagasse, being agricultural waste, does not involve manufacturing activity and thus is not excisable.

Key Points from the Supreme Court Decision:
The Supreme Court clarified that bagasse is classified under the Central Excise Tariff Act, attracting nil duty. It highlighted the amendment in Section 2(d) which deems certain goods as marketable and excisable. However, for this provision to apply, the process must fall within the definition of "manufacture." As bagasse is agricultural waste without a manufacturing process, it does not attract excise duty. The Court emphasized that the absence of manufacture means Rule 6 of the Cenvat Rules, 2004 does not apply.

Impact of the Supreme Court Decision:
Following the Supreme Court ruling, a circular rescinding a previous circular was issued by the department. The Tribunal, bound by the Supreme Court's decision as a declaration of law under Article 141 of the Constitution, decided in favor of the appellant. The appeal was allowed, providing consequential relief as per law.

Conclusion:
The judgment clarifies that bagasse, being agricultural waste, does not involve manufacturing activity and thus is not subject to excise duty. The appellant's appeal was allowed based on the Supreme Court's ruling, setting a precedent for similar cases in the future.