2019 (2) TMI 566 - AT - Central Excise

CENVAT Credit - removal of inputs as such - shale stone - Revenue was of the view that the shale stone which are not actually used by the appellant, are required to be considered as clearance of the inputs and are required to reverse Cenvat credit - Rule 3(5) of Cenvat Credit Rules - Held that - Admittedly, Rule 3(5) of Cenvat Credit Rules requires reversal of credit when inputs in respect of which Cenvat credit has been taken, are removed as such from the factory. Admittedly, the Cenvat credit was availed on the coal and the coal was never removed from the factory. In such a scenario, the provisions of Rule 3(5) would not get attracted. Otherwise, also when the coal is issued for washing and screening and further preparation, it can be safely concluded that the inputs stand issued for utilisation in the manufacture of the final product. After the issuance of the inputs, if waste is generated during further processes, no reversal is required to be done in terms of Rule 3(5). The shale stones have emerged during the course of manufacture of the appellant s final product which stands initiated with the issuance of the coal. The issue also stands decided by the Tribunal in the case of Indo Rama Synthetics (I) Ltd. Vs. CCE, Nagpur 2016 (4) TMI 624 - CESTAT MUMBAI , wherein it was held that removal of the sludge settled at bottom of the tank during storage of oil cannot be held to be removal of the inputs as such so as to attract the provisions of Rule 3 of Cenvat Credit Rules, which require reversal only in case of removal of inputs as such . Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellant is required to reverse Cenvat credit for shale stones sold as waste products?
2. Applicability of Rule 3(5) of Cenvat Credit Rules regarding clearance of inputs "as such."
3. Interpretation of legal provisions in the context of waste products generated during manufacturing processes.

Analysis:
1. The case involved a dispute regarding the reversal of Cenvat credit for shale stones sold as waste products by the appellant. The Revenue contended that since the shale stones emerged during the processing of coal, for which the appellant availed Cenvat credit, the credit needed to be reversed. The appellant argued that the shale stones emerged from coal procured before duty imposition, and Rule 3(5) of Cenvat Credit Rules did not apply as the coal was not removed from the factory.

2. The Tribunal analyzed Rule 3(5) of Cenvat Credit Rules, which mandates credit reversal when inputs are removed "as such" from the factory. It was established that the appellant availed Cenvat credit on coal but did not remove it from the factory. The Tribunal concluded that the provisions of Rule 3(5) did not apply in this scenario. The legal interpretation was supported by a circular clarifying the treatment of process waste, emphasizing that waste generated during manufacturing processes does not necessitate credit reversal.

3. The Tribunal referred to a previous case where it was held that the removal of waste products, like the sludge settled during oil storage, did not constitute the removal of inputs "as such" under Rule 3 of Cenvat Credit Rules. Drawing parallels, the Tribunal determined that the shale stones generated during the manufacturing process of the final product did not require credit reversal. Citing the circular and legal precedent, the Tribunal set aside the impugned orders, allowing the appeal with consequential relief to the appellant.

In conclusion, the judgment clarified the application of Rule 3(5) of Cenvat Credit Rules in cases involving waste products generated during manufacturing processes. It emphasized that credit reversal is not mandated for waste materials emerging during manufacturing, provided the inputs were not removed "as such" from the factory. The decision was based on legal interpretations, circular guidance, and precedent, ensuring a fair resolution in favor of the appellant.