2013 (5) TMI 268 - AT - Central Excise

Emergence of the iron ore fines - unavoidable waste or by-product - reversal of cenvat credit - exempted goods - whether the GTA service can be said to be commonly used in the manufacture of dutiable and final product - whether the provisions of Rule 6(3)(b) of Cenvat Credit Rules, 2004 would be attracted? - Held that - Iron ore fine emerges as an inevitable waste while screening and sieving the iron ore for removal of smaller particles prior to manufacture of sponge iron. The provisions of Rule 6(2) and Rule 6(3) of Cenvat Credit Rules, 2004 are applicable when a manufacturer consciously manufactures two products an excisable and the other fully exempted product using common inputs and /or input services. In this case iron ore fine has emerged as an unavoidable and inevitable waste and compliance with the provisions of Rule 6(2) is impossible. The provisions of Rule 6(3)(b) of Cenvat Credit Rules, 2004 become applicable only if the manufacturer consciously manufactures dutiable and exempted final product using common cenvat credit availed inputs and/or input services and does not comply with the provisions sub-rule (2) of Rule 6 of Cenvat Credit Rules, 2004. It would not apply in a case like this when the exempted final product emerges as an unavoidable waste or by-product and compliance with the provisions of Rule 6(2) is impossible. In the case of Rallis India Ltd. (2008 (12) TMI 46 - HIGH COURT BOMBAY) the Hon ble Bombay High Court held that in such circumstances, the provisions of Rule 6 (2) would not be applicable. The Revenue s appeal is accordingly dismissed.

Summary

Issues:
1. Whether iron ore fines are excisable goods or exempted goods under the Cenvat Credit Rules, 2004.
2. Application of Rule 6(3)(b) of Cenvat Credit Rules, 2004 in the case of iron ore fines.
3. Invocation of the extended period for non-declaration of clearances in ER-1 returns.

Analysis:

Issue 1:
The primary issue in this case revolved around determining the classification of iron ore fines as either excisable goods or exempted goods under the Cenvat Credit Rules, 2004. The manufacturer argued that the iron ore fines were an unavoidable waste that emerged during the screening process before manufacturing sponge iron, making compliance with Rule 6(2) impossible. The Tribunal analyzed the provisions of Rule 6(2) and Rule 6(3) of the Cenvat Credit Rules, 2004, which apply when a manufacturer produces both excisable and fully exempted products using common inputs. The Tribunal held that since the iron ore fines were an unavoidable waste and compliance with Rule 6(2) was impossible, the provisions of Rule 6(3)(b) did not apply. Citing a precedent from the Bombay High Court, the Tribunal concluded that in such cases, where the exempted final product emerges as a by-product, Rule 6(2) would not be applicable. Consequently, the Tribunal dismissed the Revenue's appeal, affirming that iron ore fines were not to be classified as exempted goods under the Cenvat Credit Rules, 2004.

Issue 2:
Regarding the application of Rule 6(3)(b) of the Cenvat Credit Rules, 2004, the Revenue contended that since iron ore fines were fully exempt from duty under a specific notification, they should be considered exempted goods, thereby attracting the provisions of Rule 6(3)(b). The Revenue argued that since GTA service was used for both exempted and dutiable final products, Rule 6(3)(b) should be invoked. However, the Tribunal disagreed with this interpretation, emphasizing that the exemption status of iron ore fines was due to their nature as unavoidable waste, and not as a final product eligible for exemption. The Tribunal's analysis focused on the distinction between dutiable and exempted products, ultimately ruling against the Revenue's appeal.

Issue 3:
The final issue addressed the invocation of the extended period for non-declaration of clearances of iron ore fines in the ER-1 returns. The Revenue argued that the extended period was correctly invoked due to the non-disclosure of clearances in the returns. However, the Tribunal's decision to dismiss the Revenue's appeal on the classification of iron ore fines also resolved this issue, as the non-declaration was tied to the disputed classification itself. Consequently, the Tribunal's ruling encompassed the extended period invocation within its overall decision on the classification of iron ore fines.

In conclusion, the Tribunal's detailed analysis and interpretation of the Cenvat Credit Rules, 2004 resulted in the dismissal of the Revenue's appeal, affirming that iron ore fines were not to be considered exempted goods under the given circumstances. The decision provided clarity on the application of rules governing the classification of goods and the implications for availing credit under the Cenvat regime.