Cenvat Credit available to Non-Excisable Goods cleared for Consideration: CESTAT [Read Order]

The Mumbai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the cenvat credit is available to non- excisable goods cleared for consideration.

In the instant case, the Appellant is engaged in manufacture of Sugar & Molasses and they are availing facility of CENVAT credit under CENVAT Credit Rules, 2004, for input and capital goods credit as well as input service credit. During the course of manufacture of dutiable Sugar & Molasses, “Bagasse” emerges as a waste/by-product, which was being cleared by the Appellant at ‘Nil’ rate of duty.

Following the amendment made in Rule 6 of CENVAT Credit Rules, 2004 w.e.f. 01.03.2015, the department held that the Appellant is availing CENVAT credit on “Bagasse” and during the period from September, 2014 to June, 2015 they have neither maintained separate CENVAT credit account for the dutiable product and exempted product as required under Rule 6(2) of the CENVAT Credit Rules, 2004, nor followed the procedural under Rule 6(3A) of the CENVAT Credit Rules, 2004. Accordingly, interest and penalty was levied on the appellants.

Before the Tribunal, the appellants contended that “Bagasse” is nothing but waste of the finished goods i.e. Sugar and Molasses and therefore no amount is required to be paid to the department.

After perusing the explanation to Rule 6, the Tribunal observed that non-excisable goods cleared for consideration, would fall within the scope of the said Rule.

The Tribunal further accepted the contention of the appellants that reversal of CENVAT credit under Rule 6 of CENVAT Credit Rules, 2004 is not required in respect of waste or by-product or refuse generated during the process of manufacturing.

“The Hon’ble Supreme Court’s decision in the matter of DSCL Sugar Ltd. (supra) has clearly laid down that bagasse is agricultural waste of sugarcane and the waste and residue of agricultural products, during the process of manufacture of goods cannot be said to be result of any process. There is no manufacturing process involved in Bagasse’s production. “Bagasse” is not ‘goods’ but merely a waste or by-product, therefore Rule 6 of CENVAT Credit Rules, 2004 is not applicable in the present case. “Bagasse” is bound to come into existence during the crushing of the sugarcanes and is an unavoidable agricultural waste. For two reasons the Board’s Circular dated 25.04.2016 has no application on the facts of the instant case, firstly no Circular can override the Rules as well as the law laid down by the Hon’ble Supreme Court and the orders of this Tribunal, and secondly the said Circular was issued on 25.04.2016 i.e. on a later date, whereas the period in dispute is March, 2015 to June, 2015,” the Tribunal said.