Whether credit reversal of inputs required if exempted waste emerges in the course of manufacture of dutiable goods?

PJ/Case Laws/2012-13/1429

Case:- STAR PAPER MILLS LTD. V/S COMMISSIONER OF C.EX. & S.T., MEERUT

Citation:- 2013 (287) E.L.T. 217 (Tri.-Del.)

Brief Facts: -The appellant manufacture paper and paper board for which they use a number of inputs in respect of which Cenvat credit has been taken. In course of manufacture of paper and paper board, waste sludge emerges which was being sold by the appellant. The department was of the view that waste sludge is an excisable item covered under sub-heading 382490 of the Central Excise Act and is an exempted product and since the appellant have not maintained separate account and inventory of the Cenvated inputs used for manufacture of dutiable final product and exempted final product, in respect of clearances of sludge (exempted final product), they would be liable to pay an amount equal to 10% of its sale value in accordance with the provisions of Rule 6(3) of Cenvat Credit Rules, 2004. It is on this basis that a show cause notice dated 22-10-2009 was issued to the appellant for demand of an amount of Rs. 3,61,239/- along with interest and also imposition of penalty on them under Rule 15 of the Cenvat Credit Rules. The show cause notice was adjudicated by the Assistant Commissioner by which the amount demanded was confirmed along with interest and penalty of equal amount was imposed. On appeal to Commissioner (Appeals), the Assistant Commissioner’s order was upheld except for setting aside of penalty. Against the order of the Commissioner (Appeals), this appeal along with stay application has been filed.

Appellant’s Contention: - The appellant submits that the sludge emerging as waste in course of manufacture of paper and paper board is not an excisable product, and though the department holds that the same is exempted goods classifiable under 382490 of the Central Excise Tariff, no justification for the same has been provided. Further the sludge emerges as an inevitable waste and it is not even possible to maintain separate account and inventory. Hon’ble Bombay High Court in the case of Rallis India Ltd. v. Union of India reported in 2009 (233) E.L.T. 301 (Bom.) has held that in such a situation the amount equal to 8% of the sale value cannot be demanded under Rule 57CC of the Central Excise Tariff, and that the present Rules 6(2) and 6(3) of Cenvat Credit Rules, 2004, are in pari materia with the Rule 57CC of the erstwhile Central Excise Rules, 2004 and, therefore, the ratio of Hon’ble Bombay High Court judgment in the case of Rallis India Ltd. v. Union of India (supra) would be squarely applicable to the facts of this case. He, therefore, pleaded that they have a strong prima facie case and, hence, the requirement of pre-deposit of amount demanded under Rule 6(3), interest thereon and penalty may be waived for hearing of the appeal and recovery thereof may be stayed, till the disposal of the appeal.

Respondent’s Contention: - The learned Jt. CDR for the revenue contended that Section 2(d) has been amended w.e.f. 10-5-2008 by introducing an explanation that the goods include any article, material or substance which is capable of being sold for some consideration and such goods shall be deemed to be marketable. It is pleaded that in view of the aforesaid amendment, the sludge cleared by them on payment of duty squarely falls within the definition of ‘goods’ which being covered by sub-heading 3824.90 and being fully exempt from duty, an exempted excisable goods. In support of their contention they referred the Circular No. 904, dated 28-10-2008 issued by the department and also relied upon the judgment of Hon’ble Allahabad High Court in the case of Hindalco Industries Ltd. v. Union of India - 2009 (243) E.L.T. 481 (All.). Therefore, they pleaded that this is not a case for waiver.

Reasoning of Judgment: - The Hon’ble Tribunal held that the Hon’ble Bombay High Court in the case of Rallis India Ltd. v. Union of India (supra), where an identical issue was involved, has held that the payment of an amount equal to 10% of the sale value cannot be insisted in terms of Rule 57CC of the erstwhile Central Excise Rules, 1944 when in course of manufacture of a particular dutiable final product, an exempted final product also emerged as an inevitable and unavoidable by-product. The present Rules 6(2) and 6(3) of the Central Excise Rules, 2004 are in pari materia with the provisions of Rule 57CC of erstwhile Central Excise Rules and, therefore, they are of prima facie view that ratio of Hon’ble Bombay High Court’s judgment in the case of Rallis India Ltd. v. Union of India (supra) would be applicable to the facts of this case also. Moreover, they are also prima facie view that in a case like this where the waste sludge has emerged as an inevitable and unavoidable waste, and it is impossible to maintain separate account and inventory of the inputs used in the manufacture of finished products and inputs used in the manufacture of exempted product - (waste), the provisions of Rules 6(2) and 6(3) cannot be invoked as lex non cogit and impossibilio is a well settled legal principle which is applicable in taxation matters also. Therefore in their view the appellant have a prima facie case in his favour and the requirement of pre-deposit would cause undue hardship. Therefore, the pre-deposit of the amount demanded under Rule 6(3), interest on it and penalty is waived for hearing of the appeal and recovery thereof is stayed till the disposal of the appeal. Thus, the stay application is allowed and the appeal listed in due course.

Decision: - The stay application was allowed.

Comment:-The substance of this case is that the provisions of Rule 6(3) are not invokable for reversing credit of inputs taken when waste that is exempted, emerges as a by-product during the course of manufacture of dutiable final product.

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PJ/Case Laws/2012-13/1429

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