2020 (2) TMI 1197 - AT - Central Excise

CENVAT Credit - common input services for taxable as well as exempt goods - pressmud (a waste) - whether after the amendment to Rule 6(1) of Cenvat Credit Rules, 2004 vide notification dated 1.3.2015, pressmud (a waste) generated during the manufacturing of sugar, falls within the ambit of Rule 6 ibid and any amount is recoverable from the Appellant on clearing the said pressmud for consideration as the Appellant is not maintaining separate accounts? HELD THAT - Hon ble Supreme Court in the matter of UOI vs. D.S.C.L. Sugar Ltd. 2015 (10) TMI 566 - SUPREME COURT has laid down that that pressmud is agricultural waste of sugarcane and the waste and residue of agricultural product, during the process of manufacture of goods cannot be said to be result of any process. There is no manufacturing process involved in pressmud s production. Bagasse, pressmud and composed fertilizer is not goods but merely a waste or byproduct therefore Rule 6 of the Cenvat Rules shall have no application in the present case and they are bound to come into existence during the crushing of the sugarcane and are an unavoidable agricultural waste. The amendment dated 1.3.2015 in Rule 6 CCR has wrongly been relied upon by the authorities below in coming to the conclusion that the assessee is liable to reverse the Cenvat Credit availed by them. As per Rule 6(1) ibid read with Explanation-1, non-excisable goods which are manufactured by the manufacturer in his factory will get covered under Rule 6(1) and those goods which were not manufactured, like pressmud in these appeals, will not be covered under Rule 6 despite being non-excisable goods because pressmud is not being manufactured in the factory but it emerged as agricultural waste or residue. It is seen that Rule 6(1) was amended in order to include the inputs used in relation to the manufacture of exempted goods. As such it can be seen that the same relates to the manufacture and it can safely be concluded that there has to be a manufacturing activity for invoking the aforesaid Rule. The Hon ble Supreme Court in the matter of D.S.C.L. Sugar Ltd. has laid down that bagasse being an agricultural waste or residue, there could be no manufacturing activity. If that is so and if pressmud is also not manufactured, the same cannot be held to be excisable, in which case the amendment which has been relied upon by the authorities below as well as by the Revenue, would not apply. In all the decisions of the Tribunal which were cited by the learned counsel, a consistent view has been taken that bagasse/pressmud which emerges as a waste/by-product, falls outside the scope of Rule 6 ibid. Even after amendment to Rule 6 ibid, pressmud which emerges as a waste/ by-product, falls outside the scope of the said Rule - Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Interpretation of Rule 6(1) of Cenvat Credit Rules, 2004 post-amendment regarding the treatment of pressmud as a waste generated during sugar manufacturing and its impact on Cenvat Credit availed by the appellant.

Detailed Analysis:

Issue 1: Interpretation of Rule 6(1) of Cenvat Credit Rules, 2004 post-amendment
The main issue in this case pertains to whether pressmud, a waste byproduct generated during the manufacturing of sugar, falls under Rule 6 of the Cenvat Credit Rules, 2004 after the amendment made on 1.3.2015. The appellant, engaged in sugar production, availed Cenvat Credit on common inputs used for both duty paid and exempted goods, including pressmud. The Revenue argued that pressmud, though exempt from duty, is capable of being sold and should be treated as excisable goods. The Adjudicating Authority confirmed a demand against the appellant for not maintaining separate accounts or paying an amount equal to 6% of the value of exempted goods, pressmud. The Commissioner, in the impugned order, directed the calculation of demand as per Rule 6(3A) of CCR, 2004.

Issue 2: Applicability of Rule 6 to pressmud as a waste byproduct
The Tribunal, while considering the appellant's case in light of previous decisions, emphasized that pressmud, bagasse, and composed fertilizer are agricultural waste or byproducts and not goods subject to excise duty. Referring to the Supreme Court's ruling in UOI vs. D.S.C.L. Sugar Ltd., it was established that pressmud is agricultural waste of sugarcane and does not involve a manufacturing process. The Tribunal clarified that Rule 6(1) applies to non-excisable goods manufactured in a factory, which excludes products like pressmud that emerge as unavoidable agricultural waste during sugarcane processing. The amendment to Rule 6(1) was intended for inputs related to manufacturing exempted goods, requiring a manufacturing activity for its application. The Tribunal consistently held that bagasse and pressmud, as waste or byproducts, do not fall under Rule 6.

Conclusion:
After thorough analysis, the Tribunal concluded that even post-amendment to Rule 6, pressmud, being a waste byproduct, does not fall within the scope of the rule. Relying on established legal principles and precedents, the Tribunal allowed the appeal filed by the appellant, providing consequential relief. The judgment clarifies the non-applicability of Rule 6 to waste products like pressmud, ensuring the appellant's entitlement to Cenvat Credit.