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TMI Blog2023 (6) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... product and consequently, the provisions of Rule 6 were not applicable to bagasse; the Apex Court further held that Rule 6 was also not applicable to Electricity generated from bagasse. Under these circumstances, the Demands made by the respondents on the petitioner in relation to the periods up to February, 2015 were dropped on the basis of the said judgment of the Apex Court in DSCL Sugar s case. By Notification bearing No.6 / 2015 CE(NT), various provisions of the said Rules were amended including Rule 6 supra w.e.f. 01.03.2015 - As can be seen from the amendment, Explanation (1) was inserted, which provided that non-excisable goods cleared for consideration shall also be considered to be exempted goods or final products/finished goods for the purpose of explanation of the said Rule 6 referred to supra. In pursuance of the same, the Central Board of Excise and Customs issued Circular No.1027/15/2016-CX dated 25.04.2016 clarifying that consequent to the amendment the aforesaid Rule 6 w.e.f. 01.03.2015, bagasse would be considered as exempted goods. As can be seen from the aforesaid Circular, the respondents have referred to the judgment of the Apex Court in DSCL Sugar s c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment to Rule 6 having not only been quashed, but the same having been rescinded by the respondents by issuance of the Circular dated 07.07.2022 and consequently, the respondents did not have jurisdiction or authority of law to issue the impugned show cause notice and Statement of Demand, which deserve to be quashed. Petition allowed. - WRIT PETITION NO. 238 OF 2018 (T-TAR) - - - Dated:- 17-3-2023 - HON'BLE MR JUSTICE S.R. KRISHNA KUMAR For the PETITIONER : (BY SRI.V.RAGHURAMAN, SENIOR ADVOCATE FOR SRI. RAGHAVENDRA C R.,ADVOCATE) For the RESPONDENTS (BY SRI.AMIT ANAND DESHPANDE, SENIOR CGSC) ORDER The petitioner is engaged in the manufacture of sugar and molasses, falling under Chapter Sub Heading No.17011190 and 17031000 of the First Schedule to the Central Excise Tariff Act, 1985 (for short the said Act of 1985 ) vide registration No.AAEFS1892AXM001. The petitioner is availing facility of Cenvat credit under the provisions of the Cenvat Credit Rules, 2004 (for short the said Rules of 2004 ) during the course of crushing sugar cane, bagasse is generated, which is used to generate electricity. 2. It is contended that bagasse is an agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eptember-2015. So also, the 2nd respondent issued the impugned Statement of Demand at Annexure-B dated 25.10.2017 calling upon the petitioner to pay Rs.1,01,70,199/- for the period from October-2015 to June-2017. The said show-cause notice and statement of demand are assailed by the petitioner, who is before this Court by way of the present petition. 5. The respondent has filed its Statement of Objections disputing and denying the various contentions and claims put forth by the petitioner and sought for dismissal of the petition. It was contended that the impugned show-cause notice and statement of demand, which were issued pursuant to the amendment to Rule 6 w.e.f. 01.03.2015 and the Circular dated 25.04.2016 are perfectly legal and proper and the same do not warrant interference by this Court in the present petition. It was also contended that the judgment of the Apex Court in DSCL Sugar s case supra, was not applicable to the facts of the present case and the said contention of the petitioner was liable to be rejected. It was therefore contended that there is no merit in the petition and that the same is liable to be dismissed. 6. The petitioner has filed its rejoinder den ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... October 2015 to June 2017 is impermissible and barred by the principles of res judicata and constructive res judicata and the present petition deserves to be allowed. 9. Per contra, learned counsel for the respondents revenue, in addition to reiterating the various contentions urged in the petition submits that there is no merit in the petition and that the same is liable to be dismissed. 10. Before adverting to the rival contentions, it is necessary to extract Rule 6 of the CENVAT Credit Rules, 2004 (prior to 2015 amendment) which read as under:- [Obligation of a manufacturer or producer of final products and a provider of [output] service]. 6. (1) The CENVAT credit shall not be allowed on such quantity of [ input used in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service used in or in relation to the manufacturer of exempted goods and their clearance upto the palace of removal or for provision of exempted services], except in the circumstances mentioned in sub-rule (2): [Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. 5. The aforesaid judgment was pronounced by this Court related to the period before 2008. In the year 2008 there was an amendment in Section 2(d) as well as in Section 2(f) of the Act which defines excisable goods and manufacture respectively. Section 2(d) with the said amendment reads as under: 2. (d) excisable goods means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt; Explanation . for the purposes of this clause, goods includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable. 6. As per the aforesaid Explanation, goods would now include any article, material or substance capable of being bought or sold for consideration and as such goods shall be deemed to be marketable. Thus, it introduces the deeming fiction by which certain kind of goods are treated as marketable and thus excisable. 7. However, before the aforesaid fiction is to be applied, it is necessary that the process should fall within the definition of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia v. Haidergarh Chini Mills 2. SLP (C) No. 3342 of 2014:Union of India v. Akbar Pur Chini Mills 3. SLP (C) No. 3344 of 2014:Union of India v. Gularia Chini Mills 4. Civil Appeal No. 2761 of 2014:Union of India v. Manakpur Chini Mills 5. Civil Appeal No. 2762 of 2014:Union of India v. Kumbi Chini Mills 6. Civil Appeal No. 2763 of 2014:Union of India v. Manakpur Chini Mills 7. SLP (C) No. 10273 of 2014:Union of India v. Upper Ganges Sugar Ind. Ltd. 8. Civil Appeals Nos. 1231-32 of 2014. 12. CENVAT credit in respect of electricity was denied only on the premise that Bagasse attracts excise duty and consequently Rule 6 of the CENVAT Credit Rule is applicable. Since this action of the appellant is found to be erroneous, all these appeals of the Revenue also stand dismissed. 12. As can be seen from the aforesaid judgment, the Apex Court clearly held that bagasse was agricultural waste and was not a manufactured product and consequently, the provisions of Rule 6 were not applicable to bagasse; the Apex Court further held that Rule 6 was also not applicable to Electricity generated from bagasse. Under these circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nium, zinc, or other non [1] ferrous metals- Circular about their excisability withdrawn. Circular No. 1027/15/2016-CX, dated: 25.04.2016 F.No. 96/115/2015- CX.1 Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi Excisability of bagasse and similar other by products or wastes arising during the course of manufactures of an excisable product has been an issue under dispute. Following Circular/instruction hae been issued from time to time on the subject: - (a) Circular No. 904/24/2009-CX, dt: 28.10.2009(2009(243) E.L.T.(T9) ] (b) Circular No. 941/02/2011-CX, dt: 14.02.2011 [ 2011 (264) E.L.T.(T21)] (C) Instruction F.No. 17.02.2009 CX(pt), dated: 12.11.2014[ 2014 (309) E.L.T ( T16) ] 2. The issue came before the Hon ble Supreme Court in case of M/s. Union of India and Ors, vs. M/s. DSCL Sugar Ltd., [2015 TIOL-240-SC CX = 2015 (332) EL.T. 769(S.C.) dated: 15.7.2015. Hon ble Supreme Court examined the issue and reaffirmed that bagassee is not a manufactured product. The Judgment applies to both periods, before and after the insertion of explanation in Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit of input and input services in terms of Rule 6 of the said Rules of 2004; in other words, by virtue of the said Circular, the respondents sought to overcome the judgment of the Apex Court in DSCL Sugar s case supra and invoke the 2015 amendment to Rule 6 for the purpose of making the said Rule 6 applicable to bagasse. As stated supra, pursuant to the said Circular, the respondents issued show-cause notices to various persons including the petitioner demanding payment for the period subsequent to 01.03.2015. 17. The said Circular dated 25.04.2016 was challenged before the Division Bench of the Allahabad High Court in Balarampur Chini Mill s case supra, which was disposed of on 12.04.2019, by holding as under:- Heard Sri. Rahul Agarwal, learned counsel for the petitioner as well as Sri. Dipak Seth, learned counsel appearing for the respondents. 2. The petitioner has approached this Court challenging the show cause notice dated 24/03/2017 issued by The Asst. Commissioner, Central Excise and Service Divisions, Faizabad as well as circular no. 1027/15/2016-CX dated 25/04/2016 issued by the Central Board of Excise and Customs thereby seeking to reverse the CENVAT cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idue, which itself is not the result of any process. The Hon'ble Supreme Court further held that since it is not a manufacture, obviously Rule 6 of the CENVAT Rules shall have no application . 7. That the Union of India, amended the CENVAT Credit Rules, 2004 w.e.f. 01/03/2015 by inserting Explanation 1 and 2 in Rule 6(1) and by means of Explanation 1 for the purposes of Clause (d) (h) of Rule 2 by providing that exempted goods or final products shall include non-excisable goods cleared for consideration from the factory, and subsequently by means of the impugned circular dated 25/04/2016 interpreted the aforesaid amendment carried out in the CENVAT Credit Rules, 2004 and held that Bagasse is an exempted product for the purpose of reversal of CENVAT credit in terms of Explanation 1 to Rule 6, and have thereby issued the show cause notice to the petitioner which have been challenged in the instant writ petition. 8. The main thrust of the petitioner's argument is that precondition for applicability of Rule 6(1) is that there should be manufacture of exempted goods which can be clearly inferred from a bare perusal of Rule 6(1). The obligation for reversal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at circular dated 25/04/2016 issued by Central Board of Excise and Customs only states that the goods which are non-excisable goods and are cleared for consideration from the factory need to be treated like the exempted goods for the purpose of reversal of credit of input and input services, in terms of rule 6 of the CENVAT Credit Rules 2004, and lastly he submitted that it is not the intention of the respondents to treat Bagasse as a manufactured product, and this show cause notice has been issued to the petitioner on the basis of the amendments made in the rule 6 of the CENVAT Credit Rules 2004 and not on the basis of the circular dated 25/04/2016. 12. The issues arise for consideration of this Court are: i. Whether the writ petition challenging the show cause notice dated 24/03/2017 is maintainable in exercise of the power under Article 226 of the Constitution of India; ii. Whether the Circular No. 1027/15/2016-CX dated 25/04/2016 issued by The Central Board of Excise and Customs, New Delhi treating Bagasse to be an exempted good for the purpose of reversal of credit of input and input services in terms of Rule 6 of the CENVAT Credit Rules, 2004 is in consonan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of India v. Guwahati Carbon Ltd. (supra) has held that the assessee has a remedy in the form of a right to appeal under the statute, that remedy must be exhausted first, and the High Court ought not to have interfered under Article 226 of the Constitution of India. In the Case of the Rahat Industries (supra), the Division Bench of this Court relegated the petitioner to the competent authority and directed the petitioner to submit reply to the show cause notice, and refused to interfere in the matter and exercise of writ jurisdiction under Article 226 of the Constitution of India. This case is also distinguishable as the petitioner could not indicate any reason for not approaching the competent authority, rather than approaching the High Court in the writ jurisdiction. 16. That on the other hand the Supreme Court in the case of Dhampur Sugar Mills Ltd. v. State of U.P., (2007) 8 SCC 338 the Court has considered a similar controversy and has held as under: 16. As to alternative remedy available to the writ petitioner, a finding has been recorded by the High Court in favour of the writ petitioner and the same has not been challenged by the State before us. Even oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asse would not be treated to be an exempted good for the purpose of reversal of credit of input in terms of Rule 6 of the CENVAT Credit Rules 2004 and still the condition of manufacture of the exempted good would be required. 19. Rule 6 of the CENVAT Credit Rules 2004, as it existed prior to 28.02.2015, is as follows: RULE 6. [Obligation of a manufacturer or producer of final products and a [provider of output service].- (1) The CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for exempted services, except in the circumstances mentioned in sub-clause (2) (2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services, and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, thyen, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and invertory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate accounts shall be liable to pay an amount of 5% of the value of the manufactured goods. 24. The Hon'ble Supreme Court in the case of Union of India v. DSCL Sugar Ltd. (supra), held that Bagasse is not a manufactured product but an agricultural waste and residue, which itself is not the result of any process. It is relevant to point out that in the said judgement the Hon'ble Court also considered the amendment in Section 2(d) wherein in the definition of excisable goods were duly amended to include any article or material substance capable of being bought or sold for consideration and as such could/shall be deemed to be marketable, and therefore the fiction was introduced wherein certain kinds of goods were treated to be marketable and thus excisable. 25. Considering the aforesaid amendment H on'ble Supreme Court in Union of India v. DSCL Sugar Ltd. (supra) held: However, before the aforesaid fiction is to be applied, it is necessary that the process should fall within the definition of manufacture as contained in section 2(f) of the Act. 26. The Hon'ble Supreme Court also considered the definition of manufacture as provided i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gricultural waste and residue and is not in effect a product. This aspect and character of Bagasse remains unaltered by insertion of Explanation 1. 32. 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. 33. 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 25.04.2016 issued by the Central Board of Excise and Customs thereby seeking to reverse the CENVAT credit relating to Bagasse treating Bagasse as an non excisable good for the purposes of reversal of credit of input and input services, in terms of Rule 6 of the CENVAT Credit Rules, 2004. 2. At the very outset learned counsel for the petitioner states that this very circular was challenged in the Allahabad High Court and by the judgment and order dated 12.04.2019 passed in CWP (M/B) No. 9854 of 2017, titled as Balrampur Chini Mills Ltd. v. Union of India, 2019 SCC OnLine All 4846 set aside this circular and this judgment has been permitted to become final. 3. Mr. Sunish Bindlish, Sr. Standing Counsel has very fairly accepted this factual assertion but states that as regards the argument about the judgment having been allowed to become final he is not in a position to corroborate this fact. 4. Be that as it may. In this view of the matter and in view of the categoric statement made by the learned counsel for the petitioner, we allow this writ petition in the same terms as the above judgment with liberty to the Revenue to file an application for review in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 015 by inserting Explanation 1 and 2 in sub rule (1) of rule 6, which provides that exempted goods or final product shall include non- excisable goods cleared for consideration from the factory. 3. Accordingly, Circular No. 1027/15/2016-CX dated: 25.04.2016 was issued highlighting that Bagasse, Dross and skimming of non- ferrous metals or any such by product or waste, which are non excisable goods and are cleared for a consideration from the factory need to be treated like exempted goods for the purpose of reversal of credit of input and input services, in terms of rule 6 of the CENVAT Credit Rules, 2004. This circular was issued in the background of judgment of the Hon ble Supreme Court in the case of Union of India vs. M/s. DSCL Sugar Ltd., [ 2015(322) E.L.T, 769 (S.C.)] holding that Bagasse is only an agricultural waste and residue and it is not a result of any process which can be termed as manufacture . Similar conclusion was also drawn by the Hon ble High Court of Bombay in the case of M/s. Hindalco Industries Ltd., vs. Union of India [ 2015 (3115) E.L.T, 10 (Bom.] in relation to dross and skimming of aluminum, zinc, or other non- ferrous metals. 4. The is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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