2010 (5) TMI 354 - AT - Central Excise

Cenvat credit lubricant oil after being used over a period of lime is drained out - same was sold as waste oil without payment of duty - Departments contention that the waste oil can still be used as lubricant - waste oil drained from an industrial system after original lubricating preparations have outlived their utility, is not a product coming into existence as a result of manufacturing activity and hence would not be liable to Central Excise Duty Held that - duty demand on waste oil is neither sustain able on the ground mentioned in the SCNs nor under Rule 3(4) of the Cenvat Credit Rules, 2002.

Summary

Issues:
1. Applicability of Rule 3(4) of Cenvat Credit Rules, 2002 on clearance of waste oil and sludge.
2. Liability to pay Central Excise Duty on waste oil and sludge.
3. Interpretation of whether waste oil is considered cenvated inputs.

Analysis:
1. The case involved the Appellants manufacturing Cotton Yarn and Blended Yarn, availing Cenvat credit of duty paid on input/capital goods. The dispute arose regarding the clearance of waste oil and sludge without payment of duty, leading to show cause notices for recovery of duty. The Department contended that waste oil and sludge should have been cleared on payment of Central Excise Duty under sub-heading 2710.90. The Dy. Commissioner's order confirmed the duty demand on waste oil but dropped the demand on sludge based on a circular. The Commissioner (Appeals) upheld the order, leading to the present appeal.

2. The Appellant argued that waste oil clearance does not attract Rule 3(4) of Cenvat Credit Rules, 2002, citing precedents where waste oil was not considered liable for Central Excise Duty. On the other hand, the Respondent defended the duty demand, stating that waste oil was drained lubricant oil, constituting removal of cenvated inputs. The Tribunal analyzed the provisions and precedents to determine the applicability of Rule 3(4) to the case.

3. The Tribunal observed that waste oil resulted from drained lubricant oil, which was not usable as lubricant anymore. As waste oil was not the same as lubricating oil, it did not constitute removal of cenvated inputs as such. Precedents were cited where waste oil drained from machinery after outliving its utility was not considered a manufactured product liable for duty. The adjudicating authority's extension of Rule 3(4) beyond the show cause notices was deemed impermissible. Consequently, the duty demand on waste oil was held unsustainable under both the SCNs and Rule 3(4) of Cenvat Credit Rules, 2002.

4. The Tribunal concluded that no duty was chargeable on the removal of waste oil, setting aside the impugned order and allowing the appeal in favor of the Appellant. The judgment was pronounced on 14-5-2010 by the Appellate Tribunal CESTAT, New Delhi, under the presidency of Justice R.M.S. Khandeparkar and the membership of Shri Rakesh Kumar. The representation included Shri Z.U. Alvi, Advocate, for the Appellant, and Shri Sunil Kumar, DR, for the Respondent.