Whether assessee to reverse Cenvat credit on inputs contained in waste emerged and destroyed in factory?

PJ/Case Laws/2012-13/1349

Case:-COMMISSIONER OF CENTRAL EXCISE, BANGALORE-I Versus GELTEC LTD.

Citation:-2012 (28) S.T.R. 422 (Kar.)

Brief Facts:-The assessee is engaged in the manufacture of Gelatin Capsules using Gelatin JR. B.P. (Spl for export) Gelatin Tablet grade, from which Gelatin Mass Waste is a bye-product. The assessee had destroyed Gelatin mass waste without reversing the credit availed on the input contained therein during the period August, 2001 to March 2006. The assessee during the relevant period has removed Gelatin mass waste without reversing the Cenvat credit availed on the said portion of the inputs. Therefore proceedings were initiated against the assessee for under the provisions of Rule 3 of Cenvat Credit Rules, 2004/2002 and Rule 57AB of the Central Excise Rules, 1944. The appellant contested the proceedings. The adjudicating authority did not accept the stand of the assessee and therefore it held that the assessee obtained Cenvat credit irregularly and therefore raised a demand and also directed payment of interest and penalty. Aggrieved by the same, the assessee referred an appeal to the Tribunal. The Tribunal held that the Cenvat credit shall be admissible in respect of the amount and held that the C.B.E.C. Circular dated 3-4-2000 abundantly makes it clear that the Cenvat credit shall be admissible in respect of the amount of inputs contained in any aforesaid waste, refuse of by-product and therefore they set aside the order of demand and held that there is no liability to pay excise duty on the part of the assessee. Aggrieved by the said order, the present appeal is filed by the Revenue.

Appellant Contentions:-The Revenue has preferred this appeal challenging the order passed by the Tribunal [2009 (243) E.L.T. 586 (Tri.-Bang.)] which has held that the Cenvat credit shall be admissible in respect of the amount of inputs contained in any waste, refuse or bye-product and therefore the assessee is under no obligation to reverse any Cenvat credit on inputs attributable to the waste that is generated in the factory premises during the course of its manufacture. The Revenue relied on Rule 3 of Cenvat Credit Rules, 2004 and contended that the assessee was under an obligation to reserve the Cenvat credit in respect of Gelatin waste as it falls under Rule 3(5). Reliance is placed on Rule 3(5) which reads as under:

"When inputs or capital goods on which Cenvat credit has been taken, are removed as such from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay in amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in Rule 9,"

Therefore it is clear that when inputs are removed "as such" from the factory or the premises of the factory then the Cenvat credit availed, should either be reversed or duty is paid by raising an independent invoice. It was contended that the waste itself is excisable goods and if it had been removed from the place, the place of removal is outside the factory, then the excise duty is payable.

Respondent Contentions:- Respondent submits that the material on record discloses that it was destroyed within the factory premises and it was not removed. Therefore the liability to pay excise duty on the said mass does not arise. Even if the said waste is excisable and duty is payable, that in no way enables the authorities to insist on reversal of Cenvat credit or payment of excise duty. The entire claim is on the assumption that the input which is brought into the factory is now sought to be removed in the same condition. Then only sub-rule (5) of Rule 3 applies. In the instant case, the input is not removed, 'as such' from the factory premises and therefore the said Rule has no application to the facts of this case and therefore there is no liability to pay excise duty on the said gelatin waste. Though gelatin waste is also excisable, when it is destroyed the Commissioner has the power to waive the payment of excise duty payable on such excisable item.

Reasoning of Judgment:-This appeal is admitted to consider the following substantial questions of law
·         Whether the impugned order is legally sustainable in holding that Cenvat credit availed is not required to be reversed on the inputs attributable to Gelatin Mass Waste generated during the course of manufacture of final product especially having availed remission of duty in terms of Rule 21 of the Central Excise Rules?
·         Whether the order of the Tribunal is legally sustainable in the absence of not assigning any reasons as to why the Gelatin Mass Waste cannot be considered as excisable product leviable to duty?
·         Whether the order of the CESTAT is legally sustainable in its interpretation of the provision of Section 57D of the Erstwhile Central Excise Rules and the Board Circular No.B/47/2000, dated 3-4-2000 without considering the Board Circular No. 800/33/2004-C.X., dated 1-10-2004?"

In the instant case, it is found that the input is not removed from the factory premises in the same condition in which it was bought within the factory. The input so used in the manufacturing process and in the course of manufacturing process, this gelatin waste is generated as a bye-product as in the case of finished product. Therefore, the said waste is destroyed. The said destroyed waste is not removed from the factory premises.

In that view of the matter, seen from any angle, the order passed by the Tribunal granting the benefit cannot be found fault with. Therefore, we do not see any merit in this appeal and accordingly it is dismissed and the substantial questions of law are answered in favour of the assessee and against the revenue.

Decision:-Appeal dismissed off.

Comment:-This case draws analogy that when Rule 3 (5) of the Cenvat Credit Rules, 2004, is specifically meant for reversal when inputs are removed as such then the said rule cannot be invoked for reversal of credit for inputs contained in the waste generated during the course of manufacture of final product because then it could not be said that inputs are removed “as such”.

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PJ/Case Laws/2012-13/1349

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