2021 (8) TMI 77 - AT - Central Excise

Reversal of CENVAT Credit - Exempted Goods - empty packaging material of inputs received for use in the manufacture of final product - Rule 6(3) of Cenvat Credit Rules - invocation of Explanation (1) (2) of Rule 6(1) of Cenvat Credit Rules - HELD THAT - The Show Cause Notice was issued demanding the amount equal to 6% of the value of packaging material cleared by the appellant. The said packaging material is nothing but an empty packaging material in which input was received by the appellant. Therefore, it is the fact that the said packaging material is not arising out of manufacture process of any final product. On plain reading of the definition of exempted goods as well as final product, it is clear that the said goods should be arising out of the manufacturing activity even though after that the said goods may or may not be excisable goods - In the present case, the packaging material since not arising out of any manufacturing process the same will not fall either under Sub-clause (d) or sub-clause (h) of Rule 2 of Cenvat Credit Rules, 2004. As regard explanation (2), it is only for the purpose of value of the non-excisable goods to calculate the payable amount under Rule 6(3). Since the goods does not fall under the explanation (1), explanation (2) will obviously not be applicable therefore, the charges made in the Show Cause Notice are not tenable. An identical case has been considered by the Hon ble Supreme Court in the case of COMMISSIONER OF CENTRAL EXCISE VERSUS WEST COAST INDUSTRIAL GASES LTD. 2003 (4) TMI 110 - SUPREME COURT , where it was held that the empty packaging material wherein, the input was received, the removal of the same will not attract any duty. The demand under Rule 6(3) is not sustainable - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Demand under Rule 6(3) of Cenvat Credit Rules on empty packaging material received for use in manufacturing final product.

Analysis:
1. The appellant argued that the demand was raised under Rule 6(3) for the value of waste packaging material removed. The Show Cause Notice invoked Rule 6(1) explanations, but the packaging material did not arise from manufacturing any final product. Citing judgments like UNION OF INDIA v/S. DSCL SUGAR LTD, it was contended that the basis of the Show Cause Notice was flawed.

2. The revenue representative reiterated that even though the packaging material was non-excisable, the appellant was liable under Rule 6(3) of the Cenvat Credit Rules. However, the Tribunal found that the packaging material did not fall under the definitions of 'exempted goods' or 'final products' as per Rule 2, hence the charges were not tenable.

3. The Tribunal examined the explanations of Rule 6(1) and concluded that the packaging material, not arising from the manufacturing process, did not meet the criteria for demand under Rule 6(3). Referring to the WEST COAST INDUSTRIAL GASES LTD. case, it was established that empty packaging material removal did not attract duty.

4. The judgment highlighted the decision of the Hon'ble Supreme Court and the Hon'ble Allahabad High Court in similar cases, emphasizing that demands under Rule 6(1) were not sustainable when the material did not arise from the manufacturing process. The Tribunal set aside the impugned order and allowed the appeal based on the cited judgments and the specific circumstances of the case.