Whether Rule 6(3) applicable for bagasse generated during the manufacture of sugar?

PJ/CASE LAW/2015-16/2888

Case:- SHARAD SSK LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, KOLHAPUR

Citation:- 2015 (321) E.L.T. 468 (Tri. - Mumbai)

Brief facts:- The appellants filed these applications for waiver of pre-deposit of duty, interest and penalty. The applicants are engaged in the activity of manufacture of sugar and molasses. The waste obtained during the manufacture of sugar are referred as bagasse, press mud and bio-compost. The Revenue is of the view that the applicants availed credit in respect of common inputs and input service in the manufacture of final product cleared on payment of duty and in respect of the goods which are cleared without payment of duty and are not maintaining separate account therefore, the applicants are liable to pay appropriate duty as provided in the Cenvat Credit Rules, 2004, on the price of bagasse, press mud and bio-compost the demands are confirmed.

Appellant’s contention:-The applicants submitted that bagasse, press mud and bio-compost cannot be treated as manufactured goods and the issue is settled by the decision of the Hon’ble High Court of Allahabad in the case of Balrampur Chini Mills Ltd.v. Union of Indiaand Others in Writ Petition No. 11791 (M/B) of 2010 order dated 18-5-2012 [2014 (300)E.L.T.372 (All.)], the Hon’ble High Court after relying the decision of the Hon’ble Supreme Court in the case of CCEVs. Shakumbhari Sugar & Allied Industries Ltd. -2005 (189) E.L.T. A62 (S.C.) held that the bagasse is nothing but a waste obtained during manufacture of sugar and cannot be regarded as a final product exempt from duty. The applicant also relied upon the decision in the case of Indian Potash Ltd.v. C.C.E., Allahabad -ATT-2012-172-CESTAT = 2012 (281)E.L.T.622 (T)whereby the demand in respect of Bagasse which was confirmed on the same ground was set aside.
In respect of press mud, the contention of the applicant is that the Tribunal in the case of Amaravathi Co-Operative Sugar Mills Ltd.v. CCE, Coimbatore2012-TIOL-937-CESTAT-MAD = 2013 (291)E.L.T.126 (T) after taking into consideration the arguments of the Revenue, held that the press mud and sludge is a waste and also non-excisable and the demands which were confirmed on the same ground set aside.
In respect of bio-compost the applicants relied upon the decision of' the Tribunal in the case of Manakpur Chini Millsv. CCE in E.304/11 & E/2912/1 vide final order dated 7-6-2012 [2012 (284)E.L.T.638 (T)] set aside the demand which was confirmed on the same ground.

Respondent’s contention:- The contention of the Revenue is that in the Central Excise Tariff Act. bagasse is specifically mentioned and attracting nil rate of duty and press mud is also excisable goods and also manufactured products and the same are classifiable under Chapter-heading No. 2303 20 00 of the Tariff. The Revenue also relied upon the decision in the case of Commissioner of Income Taxv. N.C. Budharaja & Co. - AIR 1993 S.C. 2529 to submit that the word produce or manufacture has to be understood in the normal connotation the sense in which it is understood in commercial world. It is equally well to keep in mind the context since a word takes its colour from the context. The word articles are preceded by words it has begun or begins to manufacture or produce. It also takes in the by-product which emerges in the course of manufacture of goods. The contention of the Revenue is that as bagasse and press mud is produced during the manufacture of sugar and molasses and therefore, it cannot be said that the same are not excisable goods. As the goods are produced during the manufacture of sugar and molasses and nil rate of duty are applicable and the demands are rightly made.

Reasoning of judgment:-They find that the demand is confirmed by invoking the provisions of Rule 6 of Cenvat Credit Rules, 2004 which provides that in case of manufactured products, both dutiable as well as exempted goods by availing credits in respect of common inputs, the manufacturer has to maintain separate account for the manufacture of exempted goods. In case, the manufacturer is not maintaining separate accounts, the manufacturer is liable to pay 5%-10% of the price of the exempted goods. The case of the Revenue is that bagasse and press mud are excisable goods, and the manufacturer of sugar and molasses are not maintaining separate records hence, as per the provisions of Rule 6 of the Cenvat Credit Rules, 2004, the manufacturer has to pay 5%-10% of the price of the exempted goods i.e. bagasse and press mud.
Regarding demanding duty by invoking the provisions of Rule 6 in respect of bagasse, they find that the issue is now settled by the decision of Hon’ble High Court in the case of Balrampur Chini Mills Ltd. (supra). The Hon’ble High Court after taking into consideration the decision of the Supreme Court in the case of CCEv. Shakumbhari Sugar & Allied Industries Ltd. (supra) held that bagasse generated from the crushing of the sugarcane which is neither manufactured goods nor manufactured final product, but it is a residue/waste and the demand by invoking the provisions of Rule 6 is not sustainable. Further, they find that the Tribunal in the case of Indian Potash Ltd. (supra) after taking into consideration the decision of the Hon’ble Supreme Court in the case of Shakumbhari Sugar & Allied Industries Ltd., also taken the same view and held as under :-
“6. We have considered the rival submissions. We find that bagasse emerges in course of crushing of sugarcane. It may be noted that crushing of sugarcane is necessary to extract cane sugar juice which in turn is processed for production of sugar and molasses. Bagasse is the waste product left after the crushing of sugarcane. Therefore, by no stretch of imagination it can be said that the assessee possibly could have maintained separate account for the inputs for production of sugar and molasses (excisable item) and bagasse. Thus, in our considered view, the amendment in Finance Act, cited by Shri Nagesh Pathak, AR and the Board Circular would not make any difference in the facts and, circumstances of the case. Moreover, neither the show cause notice nor the impugned Order-in-Appeal mentions as to which common Cenvat credit availed inputs have been used in manufacture of sugar and molasses (dutiable final products) and bagasse (exempted final product). Since Bagasse emerges at sugarcane crushing stage, there is no possibility of any input-chemicals etc. having been used at that stage. Accordingly, we find merit in the contention of the appellant. The impugned order if set aside. The appeal and stay applications are allowed.”
In respect of press mud, they find that now the issue is settled by the decision of the Tribunal in the case of Amaravathi Co-Operative Sugar Mills Ltd. (supra) relied upon by the applicant where the Tribunal after taking into consideration the decision of Rallies India Ltd.v. Union of India 2009 (233)E.L.T.301 (Bom.)and other decisions held that the demand of 5%/10% on press mud, which are in the nature waste, is not sustainable and held as under :-.
“5. I have considered arguments from both sides, the case records as well as the cite case laws. The impugned goods namely, press mud and sludge are classifiable respectively under CET Heading 2303 20 00 and 2303 30 00. Regarding such classification there is no dispute raised by either side. However, against the entries in both these Headings, the duty amounts specified is nil. 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 Hon’ble 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 Central Excise Tariff Act, 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 Central Excise Tariff Act, 1985 against Heading No. 2303 20 00 and 2303 30 00 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 Central Excise Tariff Act, 1985, press mud and sludge cannot be considered to be excisable goods.
6. 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, I take 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 Hon’ble 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 Hon’ble 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.
7. Further, paragraph 3.7 in Chapter 5 of the C.B.E. & C.’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.
8. Considering the precedent decisions cited above, Board’s Manual provisions as well as Board’s circular cited above, I am of the view that the demand of 10%/5% on press mud and sludge, which are in the nature of by-product and waste and also non-excisable cannot be sustained.
9. Consequently, the impugned order is set aside and the three appeals are allowed.”
They find that the Hon’ble Supreme Court decision in the case of Commissioner of Income Taxv. N.C. Budharaja & Co. is not applicable in the facts of present case as the Hon’ble Supreme Court was interpreting the provisions of Income Tax which are not parallel to the provisions of Central Excise Act and Rules.
In respect of Bio-compost the Tribunal in the case of Manakpur Chini Mills (supra) held that demand of duty in respect of Bio-Compost cleared by sugar manufacturer is not available.
They find no reason to take contrary view as the issues involved in these appeals are already decided by the above mentioned decisions. Hence the impugned orders are set aside after waiving the pre-deposit of dues and the appeals are allowed.

Decision:- Appeals allowed.

Comment:- The analogy of the case is that Bagasse press mud and bio-compost are arising during manufacture of sugar are in the nature of by-product and waste and are not excisable goods. Moreover, since there are already various decisions rendered by the High Court that the provisions of Rule 6 (3) are not applicable for Bagasse, press mud and bio-compost, the present appeal was allowed.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2888

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