2012 (7) TMI 474 - AT - Central Excise

Cenvat credit Rule 6 - Maintenance of separate accounts - manufacturers of sugar and molasses - two waste products are generated pressmud and waste water which for complying with the environmental regulations, are mixed together and converted into bio-compost which is sold by them alleged that since bio-compost is an excisable product under Chapter 31 of the Central Excise Tariff with nil rate of duty, same would be an exempted goods as defined in Cenvat Credit Rules, 2004 - no separate account and inventory have been maintained - appellant required to pay an amount equal to 5% of the sale value of bio-compost Held that - Show cause notices issued in these cases are defective inasmuch as neither of the show cause notices indicates as to which are the input and input services used which have resulted in the generation of press-mud which was converted into bio-compost - orders are set aside and the appeals are allowed

Summary

Issues:
Interpretation of Cenvat Credit Rules, 2004 regarding the treatment of bio-compost as an exempted final product and the applicability of Rule 6(3) for payment of 5% of the sale value.

Analysis:

The case involved a dispute regarding the treatment of bio-compost as an exempted final product under the Cenvat Credit Rules, 2004, and the application of Rule 6(3) for payment of 5% of the sale value due to the use of common inputs for both exempted and dutiable final products. The appellant, a manufacturer of sugar and molasses, generated waste products pressmud and waste water during the manufacturing process, which were converted into bio-compost for sale. The department contended that since bio-compost fell under Chapter 31 of the Central Excise Tariff with nil rate of duty, it should be treated as an exempted product under the Cenvat Credit Rules. Consequently, a demand was raised against the appellant for payment of 5% of the sale value of bio-compost for the period in question.

During the proceedings, the appellant argued that press-mud was an unavoidable waste product that was converted into bio-compost and cleared by them. They emphasized that the show cause notices did not specify the common inputs used in the manufacture of bio-compost and other dutiable products, thus challenging the applicability of Rule 6(3). The appellant relied on precedents, including a judgment by the Hon'ble Bombay High Court, to support their position that the impugned orders were incorrect.

On the other hand, the Departmental Representative reiterated that bio-compost was an excisable item with nil duty, making it an exempted final product under the Cenvat Credit Rules. They argued that since separate inventory was not maintained for common inputs used in both exempted and dutiable products, Rule 6(3) applied, warranting the recovery of 5% of the sale value for bio-compost clearance. The Department contended that the demand under Rule 6(3) was correctly upheld and defended the impugned orders.

After considering the submissions and reviewing the record, the Tribunal referred to a judgment by the Hon'ble Bombay High Court regarding a similar issue. The Tribunal found that the show cause notices in the present case were defective as they did not specify the inputs leading to the generation of press-mud converted into bio-compost. Citing the precedent, the Tribunal concluded that the impugned orders were unsustainable. Consequently, the Tribunal set aside the impugned orders and allowed the appeals in favor of the appellant.