Whether Press Mud and Sludge arising during the course of manufacture of sugar and Molasses considered as excisable goods or not ?

PJ/Case Laws/2012-13/1163

CASE: M/s THE AMARAVATHI CO-OPERATIVE SUGAR MILLS LTD Vs CCE, COIMBATORE

CITATION: 2012-TIOL-937-CESTAT-MAD
ISSUE:- Whether Press Mud and Sludge arising during the course of manufacture of sugar and Molasses considered as excisable goods or not ?
BRIEF FACTS: The brief facts of the case as recorded in the impugned Order-in-Appeal are that the appellants are manufacturers of sugar, molasses, rectified spirit and carbon-dioxide. In the process of manufacture, press mud and sludge are produced which have been sold by the appellants for some value. The case of the Department is that since common inputs have been used leading to production of the aforementioned dutiable goods as also press mud and sludge on which no duty is payable, the appellants should pay 10% or 5% as applicable during the relevant period from April 2008 to September 2010 in terms of CENVAT Credit Rule 6(3) (i).

APPELLANT’S CONTENTION: The appellants states that 10% / 5% is payable only on the finished products manufactured by the appellants and not on by-products and waste like press mud and sludge. He cited the following decisions in support of his argument:-

(i) Rallies India Ltd. Vs. Union of India - 2009 (233) ELT 301 (Bom.) = (2009-TIOL- 16-HC-MUM-CX)
(ii) Sterling Biotech Ltd. Vs. CCE, Salem - (2010- T10L-103-CESTAT-MAD)
(iii) Vishal Pipes Vs. CCE, Noida - 2010 (255) ELT 532 = (2010-TIOL-1847-CESTAT-DEL)
RESPONDENT’S CONTENTION: The respondent supports the impugned order. He also refers to the amendment made to the Central Excise Act on 10.5.2008 adding an Explanation to the definition of excisable goods under Section 2(d). According to him, press mud and sludge which have been sold had to be treated as excisable goods. His second argument is that unless duty is paid on by-products and waste, 10% / 5% as applicable is required to be paid by the appellants in terms of CENVAT Credit Rule 6(3) (i). He also relies on the decision of the Allahabad High Court in the case of Hindalco Industries Ltd. Vs. Union of India - 2009 (243) ELT 481 (All.) = (2009-TIOL-786-HC-ALL-CX)
REASONING OF JUDGEMENT: The goods namely, press mud and sludge are classifiable respectively under Central Excise Tariff Heading 23032000 and 23033000. The Explanation to Section 2(d) is a deeming clause which renders any goods which are capable of being bought and sold for a consideration to be marketable. The cited decision of the Allahabad High Court in the case of Hindalco Industries (supra) is also to this effect. This deeming fiction became necessary to be created in the light of various judgments that merely because some goods are sold they cannot be held to be marketable and consequently they cannot be considered to be excisable as ‘excisability implied manufacture and marketability'. However, the main definition of 'excisable goods' under Section 2(d) is as under:-
"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".
The definition itself implies that goods must be specified in the First Schedule or Second Schedule of the CETA, 1985, and the same should be subjected to a duty of excise. In the instant case, no doubt, the impugned items namely press mud and sludge are specified in the First Schedule to the CETA against Heading Nos. 23032000 and 23033000 in general terms but they are not subject to a duty of excise, as under the rate column the duty of excise is indicated as nil. Therefore, an important ingredient in the definition that the goods must be subject to a duty of excise is not satisfied in the present case. Hence, till such time, no duty is specified in the First Schedule of the CETA, press mud and sludge cannot be considered to be excisable goods.
The CENVAT Credit Rule 6(1) states that CENVAT credit shall not be allowed on such quantity of input used for manufacture of exempted goods. The expression 'exempted goods' has been defined for the purpose of CENVAT Credit Rules in Rule 2(d) to mean excisable goods which are exempt from the whole of duty of excise leviable thereon and includes goods which are chargeable to nil rate of duty. As per this definition, the impugned goods namely press mud and sludge would be covered under the definition "exempted goods", though the same cannot be treated as 'excisable goods" for the reasons stated in paragraph 5 above. The question raised in this case is whether in terms of Rule 6(3)(i), an amount equal to 10% / 5% would be payable on such goods. While considering this question. It is taken note of the fact that these goods are definitely in the nature of by-product and waste. In the cited decision in Rallies India (supra), the Bombay High Court, reversing the earlier decision of the Larger Bench of the Tribunal, has held that when common inputs are used in manufacture of dutiable and exempted products, the liability to pay the amount of 8% as it was applicable at the relevant time would arise only for final products and not for waste. This decision of the Bombay High Court has been applied by this Bench in the case of M/ s. Sterling Biotech (supra). In the case of Vishal Pipes (supra), the Division Bench of the Tribunal has also referred to the Board's Circular No. 345/61-97-CX dated 23.10.1997 to the effect that there should be no denial of credit even if a part of an input is contained in scrap, waste, residue etc. notwithstanding the fact that the erstwhile Rule 57D was no longer in force.
Further, paragraph 3.7 in Chapter 5 of the CBEC's Central Excise Manuel (sic) referred to by the learned SDR states that CENVAT credit is also admissible in respect of amounts of inputs contained in any of the waste, residue or by-product. It further states that the basic idea is that CENVAT credit is admissible so long as the inputs are used in or in relation to the manufacture of final products.
DECISION:Appeal is allowed.

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PJ/Case Laws/2012-13/1163

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