Bagasse is an Agricultural Waste Not a Manufactured Product: CESTAT sets aside Demand of Excise Duty [Read Order]

In a significant case, the Mumbai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that bagasse is an agricultural waste not a manufactured product and set aside the demand of Excise duty.

M/s. Vithal Corporation Ltd, the appellants are engaged in the manufacture and clearance of sugar and molasses and are paying duty on all these final products. They were availing Cenvat credit of excise duty paid on inputs and capital goods and service tax paid on input services used in the manufacture of the final product.

During the process of manufacturing sugar & molasses, by-products bagasse, etc. were generated which, as per the appellants, are nothing but waste/residue byproduct/refuse which was also being sold by the appellants.

A show cause notice dated 4.5.2011 was issued to the appellants stating that they are availing the Cenvat credit on inputs, capital goods and input services under the Cenvat Credit Rules and utilizing the same for clearing the final product but neither they are maintaining separate records of inputs and input services used for the manufacture of duty paid goods (sugar and molasses) and for exempted goods generated as required under Rule. 6(2) of Cenvat Credit Rules, 2004.

A demand was raised for an amount equal to 5% of the value of bagasse sold i.e. Rs.12,37,443/- along with interest and penalty. The Adjudicating Authority confirmed the demand along with interest and equal penalty. On an Appeal, the Commissioner (Appeals) upheld the demand but reduced the same from Rs. 12,37,443/- to 11,79,703/- under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11A(1) of Central Excise Act, 1944 along with interest and penalty on the reduced demand. 

It was contended by the appellant that the bagasse is nothing but waste which was produced during the manufacturing of sugar and no manufacturing activity has been done by the to produce bagasse therefore they are not liable to pay any duty on it.

A two-member bench comprising Mr Ajay Sharma, Member (Judicial) and Mr Anil G. Shakkarwar, (Technical) observed that Bagasse is only an agricultural waste and residue, which itself is not the result of any process. Therefore, it cannot be treated as falling within the definition of Section 2(f) of the Act and in the absence of manufacture, there cannot be any excise duty. 

Further observed that “based on the amendment to Section 2(d), the department has taken out one circular No. 904/24/2009-CX, dated 28.10.2009 in line with the amendment in Section 2(d) ibid, which was also relied upon by the authorities below in confirming the demand. But after the judgment of the Supreme Court in the matter of DSCL Sugar Ltd. (supra) another circular No. 1027/15/2016-CX, dated 25.4.2016 has been issued by the department stating that since the period covered in the decision applies to both periods i.e. before and after the insertion of explanation in section 2(d) ibid, therefore, the circular dated 28.10.2009 becomes non-est and are rescinded.” 

To Read the full text of the Order CLICK HERE

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