Issue:-Whether credit admissible on inputs contained in waste arising out of the manufacture of final product?

PJ/Case Law/2013-14/2110

Case:- MARARJEE BREMBANA LTD Vs COMMISSIONER OF CENTRAL EXCISE, NAGPUR

Citation:- 2014-TIOL-404-CESTAT-MUM

Brief facts:-The brief facts of the case were that the appellants were manufacturers of the fabrics. During the manufacture of cotton fabric, cotton waste arises which was sold by the appellant duty free waste as cotton waste was duty free. Revenue was of the view that the waste of cotton arising out of the manufacture of cotton fabric was not entitled for credit availed by the appellant. Therefore, a show-cause notice was issued to the appellant for reversal of the CENVAT credit of Rs.19,97,337/- availed by them on the cotton involved in cotton waste arising during the course of manufacture of cotton fabric during the period December 2002 to February 2004. The matter was adjudicated by the adjudicating authority. The adjudicating authority relied on the decision of Gobal Textiles P. Ltd. 2005 (180) ELT 46 (T) = (2005-TIOL-02-CESTAT-MAD)and dropped the demand against the appellant holding that as cotton waste was not final product, therefore duty was not payable. Against the said order, revenue filed an appeal before the Commissioner (Appeals) who set aside the adjudicating authority's order holding that the provisions of Rule 57D of Central Excise Rules, 1944 were not in existence. Therefore, the appellant were required to reverse the disputed amount of credit. Against the said order, the appellant were in appeal before the Tribunal.

Appellant’s contentions:-Shri S. S. Gupta, CA, ld. consultant for the appellant submitted that the CBEC circular No. B-4/7/2000 TRU dated 3.4.2000 had clarified that the appellant were entitled for availing the CENVAT credit on cotton involved in the cotton waste which arises during the manufacture of cotton fabrics as the cotton waste was a refuse/by product. He further relied on the decision of Gobal Textiles P. Ltd(supra) and submitted that as cotton waste was not the final product and it was a by-product arising during the manufacture of cotton fabric, therefore no reversal was required. Therefore, he prayed that the impugned order be set aside and the appeal be allowed with consequential relief, if any.

Respondent’s contentions:-On the other hand, ld. AR reiterated the finding of the impugned order holding that the provisions of Rule 57D of Central Excise Rules, 1944 were not in existence. Therefore, the appellant were required to reverse the disputed amount of credit. Thus, prayed that the appeal be dismissed.

Reasoning of judgment:-Considered the submission made by both sides. After examining the Board circular no. B- 4/7/2000 TRU dated 3.4.2000, para 5 of the circular were reproduced hereunder:

5. Some doubts had been raised whether CENVAT credit would be admissible on the part of the input that was contained in any waste, refuse or bye product, in this context it was clarified that CENVAT credit shall be admissible in respect of the amount of inputs contained in any of the aforesaid waste, refuse or bye product. Similarly, CENVAT should not be denied if the inputs were used in any intermediate of the final product even if such intermediate was exempt from payment of duty. The basic idea was that CENVAT credit was admissible so long as the inputs were used in or in relation to the manufacture of final products, and whether directly or indirectly.”

As per the above para it was clarified that appellants were entitled to avail CENVAT credit on cotton which was being used for manufacturing of cotton fabrics but during the course of manufacture of cotton fabrics, cotton waste was arising which was a by product. Therefore, they were entitled to avail CENVAT credit on cotton involved in cotton waste and same view had been take by Tribunal in Gobal Textiles P. Ltd.

In view of the above findings, the impugned order was set aside and appeal was allowed with consequential relief, if any.

Decision:- Appeal allowed.

Comment:- The analogy drawn from the case is that as per Board circular no. B- 4/7/2000 TRU dated 3.4.2000, the assessee was entitled to claim CENVAT credit on the part of the input that was contained in any waste, refuse or bye product. Accordingly, the demand of credit availed on the inputs contained in waste was set aside.

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PJ/Case Law/2013-14/2110

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