2015 (11) TMI 454 - AT - Central Excise

Reversal of CENVAT Credit - Department initiated proceedings for recovery of the amount equal to 5% of the value of slag removed from factory in terms of Rule 6(3)(i) of the Cenvat Credit Rules, 2004 - Held that - Appellant had set-up its factory with the intention to manufacture iron and steel products and slag generates involuntarily during such process. Since, the appellant never intended to manufacture the by-product namely slag and the same emerges as an unavoidable and inevitable waste, emergence of such waste product cannot be termed as final product for the appellant, in order to fall within the ambit of Rule 6 of the Cenvat Credit Rules. - provisions of Rule 6(3)(i) of the Cenvat Credit Rules, 2004 would not be applicable in the facts of this case for payment of amount equal to 5% for value of the waste product i.e. slag removed from the factory. Therefore, I set aside the impugned order - Decided in favour of assessee.

Summary

Issues Involved:
- Disallowance of cenvat credit and imposition of penalty on the appellant for removal of slag from the factory.

Analysis:
1. Issue of Cenvat Credit Disallowance:
The appellant, engaged in manufacturing iron and steel products, availed cenvat credit for duties paid on inputs, capital goods, and input services. The Central Excise Department demanded 5% of the value of slag removed from the factory under Rule 6(3)(i) of the Cenvat Credit Rules, 2004. The Commissioner (Appeals) upheld this demand, considering slag as marketable excisable goods. However, the appellant argued that slag, being waste with no utility in their factory, should not be considered a final product subject to Rule 6. The appellant cited legal precedents, including a judgment from the Bombay High Court and a decision by the Tribunal, to support their stance.

2. Interpretation of Cenvat Credit Rules:
Rule 6 of the Cenvat Credit Rules, 2004 stipulates conditions for availing credit on inputs used for manufacturing dutiable final products. The rule requires maintaining separate accounts for inputs used in dutiable and exempted final products. If separate accounts are not maintained, Rule 6(3)(i) mandates payment of 5% of the value of exempted goods. The Tribunal analyzed the rule's applicability to the appellant's case, emphasizing that the rule pertains to final products and not waste products like slag, which emerge involuntarily during the manufacturing process.

3. Legal Precedents and Tribunal Decisions:
The Tribunal referred to the judgment by the Bombay High Court, which held that waste products arising during manufacturing are not exempted final products subject to credit reversal. Additionally, a Tribunal decision clarified that Rule 6 applies to final products and not waste or scrap generated during manufacturing, even if a market exists for such by-products. These legal precedents supported the Tribunal's interpretation that Rule 6 does not extend to waste products like slag.

4. Conclusion and Tribunal Decision:
After considering arguments from both sides and analyzing the legal framework, the Tribunal concluded that Rule 6(3)(i) of the Cenvat Credit Rules, 2004 did not apply to the appellant's case regarding the removal of slag from the factory. The Tribunal set aside the impugned order disallowing cenvat credit and penalty, ruling in favor of the appellant. The judgment was pronounced on 14.9.2015 by Member S. K. Mohanty of the Appellate Tribunal CESTAT New Delhi.