2013 (3) TMI 187 - AT - Central Excise

Non maintenance of separate account and inventory of the Cenvated inputs used for manufacture of dutiable final product and exempted final product - as per the department clearances of sludge (exempted final product) by assessee would be liable to pay an amount equal to 10% of its sale value as per Rule 6(3) of CCR 2004 - Held that - As decided in Rallis India Ltd. v. Union of India (2008 (12) TMI 46 - HIGH COURT BOMBAY) the payment of an amount equal to 10% of the sale value cannot be insisted in terms of Rule 57CC of the erstwhile Central Excise Rules, 1944 when in course of manufacture of a particular dutiable final product, an exempted final product also emerged as an inevitable and unavoidable by-product. The present Rules 6(2) and 6(3) of the Central Excise Rules, 2004 are in pari materia with the provisions of Rule 57CC of erstwhile Central Excise Rules and, therefore, the ratio of Rallis India Ltd. case (supra) would be applicable to the facts of this case also. Moreover, prima facie view that in a case like this where the waste sludge has emerged as an inevitable and unavoidable waste, and it is impossible to maintain separate account and inventory of the inputs used in the manufacture of finished products and inputs used in the manufacture of exempted product - (waste), the provisions of Rules 6(2) and 6(3) cannot be invoked as lex non cogit and impossibilio is a well settled legal principle which is applicable in taxation matters also. Therefore of the view that the appellant have a prima facie case in their favour and the requirement of pre-deposit would cause undue hardship, the pre-deposit of the amount demanded under Rule 6(3), interest on it and penalty is waived for hearing of the appeal and recovery thereof is stayed till the disposal of the appeal.

Summary

Issues:
- Whether waste sludge emerging during the manufacture of paper and paper board is an excisable item.
- Whether the appellant is liable to pay an amount under Rule 6(3) of Cenvat Credit Rules for clearances of the waste sludge.
- Whether the appellant should maintain separate accounts for inputs used in the manufacture of exempted and dutiable final products.
- Whether the appellant has a strong prima facie case to waive the pre-deposit amount demanded under Rule 6(3), interest, and penalty.

Analysis:
1. The issue in this case revolves around the classification of waste sludge emerging during the manufacturing process. The department considered the waste sludge as an excisable item under sub-heading 382490 of the Central Excise Act, which is an exempted product. A show cause notice was issued to the appellant for demand of an amount along with interest and penalty under Rule 6(3) of Cenvat Credit Rules, 2004.

2. The appellant argued that the waste sludge is not an excisable product and that it is an inevitable waste during the manufacturing process. They cited a judgment by the Hon'ble Bombay High Court to support their case, stating that the amount demanded cannot be insisted upon when an exempted final product emerges as a by-product. The appellant requested a waiver of the pre-deposit amount for the appeal.

3. The department contended that the waste sludge falls within the definition of 'goods' and is considered an exempted excisable good. They referred to a circular and a judgment of the Hon'ble Allahabad High Court to support their argument that the waste sludge is exempted from duty.

4. The Tribunal analyzed the submissions from both sides and referred to the judgment of the Hon'ble Bombay High Court in a similar case. The Tribunal found that the waste sludge, being an inevitable and unavoidable waste, cannot be subject to the provisions of Rule 6(2) and 6(3) of the Cenvat Credit Rules. The Tribunal held that the appellant has a strong prima facie case, and the requirement of pre-deposit would cause undue hardship. Therefore, the pre-deposit amount demanded under Rule 6(3), interest, and penalty were waived, and the recovery was stayed until the disposal of the appeal. The stay application was allowed, and the appeal was listed for further proceedings.