Applicability of Rule 6(3)(b) on brown sugar arising during the manufacture of sugar.

PJ/Case Law/2014-15/2346

Case:- KUMBHI KASARI SSK LTD. Vs COMMISSIONER OF CENTRAL EXCISE, PUNE-II

Citation:- 2014 (299) E.L.T. 74 (Tri. - Mumbai)

Brief facts:- Facts of the case were that the appellants were engaged in the manufacture of sugar and availing Cenvat Credit on inputs. During the manufacture of sugar, a residue of manufactured product known as “Brown Sugar” remains. This residue sugar is brown in colour and sucrose content was less than normal/standard sugar. Most of the sugar manufacturing unit reprocess it and converts into standard sugar and clear such sugar on payment of duty. However, sometime, Brown Sugar was also sold which may be used for reprocessing and converting into normal sugar or for selling as brown sugar and used for normal consumption.
Brown sugar was being cleared from the factory at NIL rate of duty under Chapter Heading 23.01 which covers “Residues and waste from the food industries, including bagasse, other waste of sugar manufacture and oil cakes.” Appellant availed Cenvat credit on various inputs but did not maintain separate accounts of inputs used in the manufacture of exempted “Brown Sugar” as required Rule 6(2) of Cenvat Credit Rules, 2001. (Keeping in view the manufacturing process, it may not be possible also to maintain separate account). Department therefore demanded an amount of Rs. 93,484/- as 8% of sale price of brown sugar under Rule 6(3)(b) of Cenvat Credit Rules, 2001. Against the said demand appellants are before Tribunal.

Appellant’s contentions:- Ld. Advocate’s main argument was that Brown Sugar was a waste product and was not manufactured goods and hence non-excisable and therefore was beyond the scope of Rule 6(2) of Cenvat Credit Rules and hence 8% of sale price was not required to be paid. Ld. Advocate also quoted number of Case Laws from Tribunal to Supreme Court where baggase and press mud had been held to be a waste and hence non-manufactured and non-excisable product. Ld. Advocate argued that Brown Sugar was also classifiable under 23.01 which covers Baggase.

Respondent’s contentions:- Ld. D.R. on the other hand argued that Brown Sugar was a manufactured product unlike baggase which was agriculture waste.

Reasoning of judgment:- The Tribunal noted that Brown Sugar was not an agriculture waste (like Baggase and press mud) or a waste of an input after its use like HCL but a residue of manufactured product viz sugar not meeting the specification of standard sugar and was brown in colour. This was reprocessed and converted into normal sugar. Now-a-days Brown Sugar was marketed and also used for human consumption even though it was not as sweet as normal sugar. Under the circumstances it could not be considered as waste or unmanufactured product, it was residue of manufactured product and could be reprocessed to manufactured product viz. sugar 8% amount was correctly demanded under Rule 6(3)(b) of Cenvat Credit Rule, 2001.
The Tribunal had gone through various case laws cited by the appellants. Most of these case laws were in respect of Baggage and press mud, which were waste of agriculture inputs. In case of Rallis India Ltd. reported in 2009 (233)E.L.T.301 (Bom.)and Sterling Gelatin reported in 2011 (270)E.L.T.200 (Guj.),issue was relating to HCL. HCL was one of the inputs used in the manufacturing process. Waste of mother Liquor contained HCL and department demanded 8% on waste mother liquor. Facts in the present case were very different. Sugar was their final manufactured product. Brown Sugar was a residue and also sugar but not meeting the specifications of standard white sugar and required reprocessing to convert into standard sugar. There was no dispute that inputs had been used in the manufacture of such sugar. They were therefore of the view that Brown Sugar was a residue of a manufactured product and could not be considered as waste like Baggasse or Mother Liquor. Classification of the product would not alter the position about the applicability of Rule 6(3)(b) of Cenvat Credit Rules, 2001.
In view of the above findings, the appeal filed by the appellant was dismissed.

Decision:- Appeal was dismissed.

Comment:- The analogy drawn from the case is that residue of a manufactured product which is of sub-standard quality can’t be considered as waste like Baggasse or Mother Liquor and so is governed by the provisions of Rule 6(3)(b) of the Cenvat Credit Rules, 2004. The brown sugar that arises during the course of manufacture of sugar can be reprocessed to manufactured product and so is liable to be charged @ 8% of sale price under Rule 6(3)(b) of Cenvat Credit Rules, 2004. Merely because the classification of the product brown sugar is same as that of bagasse under 23.01 would not alter the position about the applicability of Rule 6(3)(b) of Cenvat Credit Rules, 2004.

Prepared by: Ranu Dhoot

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PJ/Case Law/2014-15/2346

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