2024 (8) TMI 309 - AT - Central Excise

Excisability of residual Zinc Ash - captive consumption - appellant did not avail option under Rule 6(2) and under Rule 6(3) of the Cenvat Credit Rules, 2004 and did not maintain separate register for quantity of Zinc Ash used in the manufacture of their dutiable products and their exempted products - Supression of facts or not - extended period of limitation. Excisablity - HELD THAT - The entire proceedings in this case was initiated on the investigation conducted by the DGGI and the same was based on the judgment of Hon ble Supreme Court in the case of UNION OF INDIA VERSUS DSCL SUGAR LTD. 2015 (10) TMI 566 - SUPREME COURT and subsequent Board Circular No. 1027/15/2016-CX dated 25.04.2016, wherein it has been clarified that the products including bagasse, dross and skimming are non-excisable goods. Further, as per the explanations 1 2 inserted w.e.f. 01.03.2015, exempted goods shall include non-excisable goods cleared for consideration from the factory. As per the Circular dated 25.04.2016, it was provided that Zinc Ash and Skimming are non-excisable goods and need to be treated as exempted goods for the purpose of reversal of the credit of inputs or input services in terms of the Rule 6 of the CCR, 2004. As per the department, the appellant did not avail the option under Rule 6(2) and under Rule 6(3) and further did not maintain separate register for quantity of Zinc Ash used in the manufacture of their dutiable products and their exempted products. The department has confirmed the demand solely relied upon the judgment of Hon ble Supreme Court in the case of Union of India Vs. DSCL Sugar Ltd and subsequent Board Circular No. 1027/15/2016-CX dated 25.04.2016. It is also noted that subsequently the same issue came up before the Hon ble Supreme Court in the case of UNION OF INDIA ORS. VERSUS M/S INDIAN SUCROSE LIMITED 2022 (7) TMI 353 - SC ORDER wherein the Hon'ble Supreme Court has held that Circular dated 25.04.2016 is unsustainable in law as bagasse is non-excisable goods to which cenvat credit has no application. It is pertinent to note that subsequent to the decision of the Hon ble Supreme Court in the case of Union of India Vs. Indian Sucrose Limited the Board has issued fresh Circular No. 1084/05/2022-CX dated 07.07.2022 and has rescinded the Circular dated 25.04.2016 on the basis of which, the entire demand was created. Further, it is found that when the appellant imported the Zinc Ash, they paid CVD and SAD and once they have paid CVD, they are entitled to avail the Cenvat Credit and utilize the same for payment of duty on sale of Zinc Ash; and once CVD is charged treating Zinc Ash as manufacture, there was no illegality on the part of the appellant to pay duty on sale of Zinc Ash - the duty amounting to Rs.1,61,30,759/- paid by the appellant is sought to be appropriated under Section 11D(1A) whereas Section 11D is applicable to excisable goods which are exempt or chargeable to nil rate of duty, but in the present case, Zinc Ash as per the department is non-excisable goods; therefore, Section 11D is not applicable in this case. Extended period of limitation - Suppression of facts or not - HELD THAT - The appellant has not suppressed any information from the department. Each and every fact was recorded in books of accounts and on the basis of the same records, demand has been quantified - As the appellant has not suppressed any material fact from the department with intent to evade payment of tax and was subject to internal audit from time to time as cited above; therefore, invoking extended period of limitation is not warranted. Further, in the present case, the period involved is from March 2015 to June 2017 whereas the show cause notice was issued on 20.05.2019, which is entirely time barred. The impugned order is not sustainable in law - Appeal allowed.

Issues Involved:
1. Whether Zinc Ash is non-excisable and if its clearance for consideration makes it an exempted good requiring reversal of Cenvat credit.
2. Applicability of Rule 6 of the Cenvat Credit Rules, 2004.
3. Appropriation of duty paid on Zinc Ash under Section 11D of the Central Excise Act, 1944.
4. Invocation of extended period of limitation for demand.

Detailed Analysis:

1. Non-excisability of Zinc Ash and Reversal of Cenvat Credit:
The primary issue revolves around whether Zinc Ash is non-excisable and if its clearance for consideration makes it an exempted good under Rule 6 of the Cenvat Credit Rules, 2004. The department's stance, based on the Supreme Court judgment in Union of India Vs. DSCL Sugar Ltd and Board Circular No. 1027/15/2016-CX, was that Zinc Ash is non-excisable and should be treated as exempted goods. Consequently, the appellant was required to reverse the credit of inputs or input services used in the manufacture of Zinc Ash.

However, the appellant argued that the Supreme Court in Union of India Vs. Indian Sucrose Limited held that the Circular dated 25.04.2016 is unsustainable in law, as non-excisable goods like bagasse do not attract Cenvat credit rules. This was further supported by the rescission of the Circular through Circular No. 1084/05/2022-CX dated 07.07.2022, which clarified that non-excisable goods cleared for consideration do not necessitate the reversal of Cenvat credit.

2. Applicability of Rule 6 of the Cenvat Credit Rules, 2004:
The appellant contended that during the period in question, they consumed and sold Zinc Ash, paying excise duty on it. They argued that since they paid CVD and SAD on imported Zinc Ash, they were entitled to avail Cenvat credit and utilize it for duty payment on Zinc Ash. The department's reliance on Rule 6(3) of the Cenvat Credit Rules, 2004, was challenged on the grounds that the duty paid by the appellant was higher than the amount required to be reversed under Rule 6(3).

3. Appropriation of Duty Paid Under Section 11D:
The department sought to appropriate the duty paid by the appellant under Section 11D(1A) of the Central Excise Act, 1944. The appellant argued that Section 11D is applicable to excisable goods which are exempt or chargeable to nil rate of duty, but Zinc Ash, as per the department's own admission, is non-excisable. Therefore, Section 11D is not applicable in this case.

4. Invocation of Extended Period of Limitation:
The demand was confirmed by invoking the extended period of limitation, alleging suppression of facts by the appellant. The appellant countered that all facts were recorded in their books of accounts and were subject to internal audits. They argued that mere failure to declare does not amount to willful suppression, and there was no intent to evade duty. The Supreme Court has consistently held that for invoking the extended period, there must be a positive act of suppression with intent to evade duty.

Conclusion:
The Tribunal found that the entire proceedings were based on the now-rescinded Circular No. 1027/15/2016-CX and the judgment in Union of India Vs. DSCL Sugar Ltd. The subsequent Supreme Court judgment in Union of India Vs. Indian Sucrose Limited and Circular No. 1084/05/2022-CX clarified that non-excisable goods do not attract Cenvat credit rules. The Tribunal also noted that the appellant paid a higher amount of duty than required and that the invocation of the extended period of limitation was unwarranted.

The impugned order was set aside, and both appeals were allowed with consequential relief as per law.

(Order pronounced in the court on 30.07.2024)

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