2019 (7) TMI 733 - AT - Central Excise

CENVAT Credit - common inputs used in the manufacture of dutiable and exempted final products - zinc scarp (exempted goods ) produced in process of manufacture of dutiable good - demand an amount equal to 6% of the value of the zinc scarp - non-maintenance of separate records - Rule 6 of CCR 2004 - period from March 2015 to June 2017 - Department has relied upon Explanation (1) introduced w.e.f. 01.03.2015 to demand the duty raised in the SCN HELD THAT - It has to be seen that though the said Explanation puts forward a deeming provision that non-excisable goods cleared by payment of consideration are also to be considered as exempted goods there is no corresponding amendment made in sub-rule (1) of Rule 6 so that the goods that emerged out of process of manufacture falling in clause (1) are also to be considered as exempted goods. As per various decisions the goods which are not consciously manufactured by the appellants and which emerged in the process of manufacture cannot be considered as goods manufactured by the appellants - Thus when the zinc scrap which is a waste arising out of process of manufacture of finished goods is not goods manufactured by the appellant the same cannot be considered as exempted goods manufactured by them. Credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether appellants have to pay 6% of the value of zinc scrap cleared by them.

Analysis:
The case involved the appellants engaged in manufacturing Galvanised Steel Tubes & Pipes and Galvanised HR Sheets, availing cenvat credit on inputs, capital goods, and input services. The issue arose when it was found that they contravened Rule 6 of Cenvat Credit Rules, 2004 by not maintaining separate accounts for the use of inputs in the manufacture of dutiable and exempted final products, specifically zinc scrap cleared by them. The show cause notice proposed a demand equal to 6% of the value of the zinc scrap, along with interest and penalties. The original authority confirmed the demand, interest, and imposed penalties, which were upheld by the Commissioner (Appeals) with a reduction in the penalty to 10%.

The appellant argued that they did not intend to manufacture zinc scrap, as it emerged as waste in the process of manufacturing finished products. They contended that the zinc scrap should not be considered exempted goods as per Rule 6 of CCR, 2004, especially since sub-rule (1) was not amended to include zinc scrap emerging from the manufacture of dutiable goods as exempted goods. The appellant relied on previous Tribunal decisions to support their argument.

On the other hand, the respondent supported the findings in the impugned order, stating that after the addition of Explanation (1) to Rule 6 (1) of CCR 2004, non-excisable goods cleared for consideration would fall under exempted products. Therefore, the zinc scrap cleared by the appellant should be considered exempted goods, and the demand, interest, and penalties imposed were justified.

The Tribunal analyzed the issue and held that goods emerging as waste in the manufacturing process, like the zinc scrap in question, cannot be considered goods consciously manufactured by the appellants. The Tribunal referred to previous decisions, including one involving Bajaj Hindusthan Sugar Ltd., to support this interpretation. The Tribunal concluded that the demand for 6% of the value of the zinc scrap could not be sustained, setting aside the impugned orders and allowing the appeal with consequential relief, if any, as per law.