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2019 (5) TMI 972 - HC - Central ExciseReversal of CENVAT Credit - Bagasse (non-excisable goods) - reversal of credit of input and input services - Rule 6 of the CENVAT Credit Rules, 2004 - amendment in CENVAT Credit Rules dated 01/03/2015 - Circular No.1027/15/2016-CX dated 25/04/2016 - HELD THAT - Circular dated 25/04/2016 treats Bagasse as an exempted good for the purpose of reversal of credit of input in terms of rule 6 of the CENVAT Credit Rules 2004. The competent authority deciding the claim of the petitioner consequent to the Show Cause Notice, would be bound by the departmental Circular dated 25/04/2016 and he would not have the liberty of disagreeing with the circular issued by Central Board of Excise and Customs. In this view of the matter it would not be efficacious to relegate the petitioner before the competent authority and, there is no hesitation in holding that the writ petition in the present facts and circumstances of the case would be maintainable. Bagasse not to be a manufactured product, and therefore Rule 6 of the CENVAT Credit Rules, 2004 shall have no application, Section 6 (1) has been amended by inserting the 2 Explanations, which the respondent contends is sufficient to include Bagasse within the fold of Section 6, and further to justify the stand for a reversal of CENVAT Credit Rules, 2004 - A perusal of the Explanation 1 to Rule 6 would indicate that it provides that the exempted good and final product as defined in Clause (d) (h) of Rule 2 shall include non-excisable goods cleared for a consideration from the factory. In absence of Bagasse being a manufactured final product, the obligation of a reversal of CENVAT period under Rule 6 (1) of the CENVAT Credit Rules, 2004 is not attracted. It has also been noticed that Bagasse has always been an exempted goods under Rule 2 (d) of the CENVAT Credit Rules, 2004. It has been mentioned in Central Excise tariff heading 2303 20 000 and was subjected to NIL rate of duty. It therefore, fell within the definition of exempted goods as defined under Rule 2 (d) and is not a non-excisable good, as mentioned in the impugned Circular - That the Circular dated 25/04/2016 interpreting Explanation 1 to Rule 6 has provided that consequently, Bagasse , dross and skimmings of nonferrous metal or any such byproduct of waste, which are non-excisable goods and are cleared for consideration from the factory need to be treated like exempted goods for purpose of reversal of credit of input and input services, in terms of rule 6 of the CENVAT Credit Rules, 2004. The circular therefore treating Bagasse to be a non-excisable good, is clearly erroneous, and for this reason also the Circular dated 25/04/2016 is liable to be quashed with regard to Bagasse. In absence of Bagasse being a manufactured final product, the obligation of reversal of CENVAT Credit under Rule (1) of the CENVAT Credit Rules, 2004 is not attracted - The Circular No.1027/15/2016-CX, dated 25/04/2016, contained in Annexure - 1 to the writ petition to the extent that it includes Bagasse under the purview of the reversal of credit of input services in terms of Rule 6 of the CENVAT Credit Rules, 2004. Petition allowed - decided in favor of petitioner.
Issues Involved:
1. Maintainability of the writ petition challenging the show cause notice. 2. Legitimacy of Circular No. 1027/15/2016-CX dated 25/04/2016 treating Bagasse as an exempted good for the purpose of reversal of credit of input and input services under Rule 6 of the CENVAT Credit Rules, 2004. Issue-wise Detailed Analysis: 1. Maintainability of the writ petition challenging the show cause notice: The respondent argued that the petitioner should respond to the show cause notice dated 24/03/2017 before approaching the High Court. They cited several judgments, including *Union of India vs Guwahati Carbon Ltd* and *Rahat Industries vs Commissioner of Central Excise*, which emphasized exhausting alternative remedies before invoking writ jurisdiction under Article 226 of the Constitution of India. However, the petitioner contended that the show cause notice was a mere formality, as the respondents were bound by the Circular dated 25/04/2016. The petitioner argued that relegating them to the competent authority would be futile since the authority was bound by the departmental circular and could not deviate from it. The court agreed with the petitioner, referencing *Dhampur Sugar Mills Ltd. v. State of U.P.*, where the Supreme Court held that in cases where a policy decision has already been taken, the remedy of appeal is not an equally efficacious alternative. The court concluded that the writ petition was maintainable as it would be an "empty formality" to refer the petitioner back to the competent authority. 2. Legitimacy of Circular No. 1027/15/2016-CX dated 25/04/2016: The petitioner challenged the circular on the grounds that Bagasse is not a manufactured product but an agricultural waste and residue, as established by the Supreme Court in *Union of India vs M/s DSCL Sugar Ltd*. The petitioner argued that despite the amendment to Rule 6 of the CENVAT Credit Rules on 01/03/2015, Bagasse could not be considered a manufactured good, and thus, Rule 6 should not apply. The court examined Rule 6 and its amendments, noting that the rule applies to the manufacture of dutiable and exempted goods. Since Bagasse is not a manufactured product but a byproduct of sugar production, it does not fall within the scope of Rule 6. The court reiterated that the Supreme Court's ruling in *DSCL Sugar Ltd* still holds, stating that Bagasse is not a manufactured product and therefore, Rule 6 does not apply. The court found the circular dated 25/04/2016 to be erroneous in treating Bagasse as a non-excisable good for the purpose of reversal of credit. The circular's interpretation was inconsistent with the nature of Bagasse as an agricultural waste and residue, and thus, it could not be considered a manufactured product. Conclusion: The court quashed the Circular No. 1027/15/2016-CX dated 25/04/2016 to the extent that it included Bagasse under the purview of reversal of credit of input services under Rule 6 of the CENVAT Credit Rules, 2004. The show cause notice dated 24/03/2017 was also quashed. The writ petition was allowed, and no order as to costs was made.
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