‘Bagasse’ Not a Manufactured Product: CESTAT Sets Aside Demand Under Rule 6 of CCR [Read Order]

The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) ruled that ‘Bagasse’ is not a manufactured product and set aside the demand under Rule 6 of the CENVAT Credit Rules ( CCR ), 2004.

Sakthi Sugars Ltd..appellant-assessee, manufactured sugar and molasses, generating bagasse as a by-product. The bagasse was used in a co-generation plant for electricity, which was consumed in the sugar plant and supplied to the Tamil Nadu Electricity Board (TNEB). Some of the bagasse was also sold.

The assessee availed Cenvat credit on inputs and input services used for sugar and molasses. The department treated bagasse as exempted goods under Rule 2(d) of the CCR since it had a nil duty rate. As separate accounts were not maintained for dutiable and exempted goods as required under Rule 6(2) of CCR, and the required amounts under Rule 6(3)(i) / 6(3)(ii) were not paid, the department alleged a violation of Rule 6.

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Show Cause Notices ( SCN ) were issued between December 2011 and February 2013, seeking to recover Cenvat credit along with interest and proposing penalties. The Adjudicating Authority (AA) confirmed the demands and imposed equal penalties.

The assessee appealed before the tribunal.
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The two member bench comprising Ajayan T.V(Judicial Member) and Vasa Seshagiri Rao(Technical Member) reviewed submissions from both parties and the evidence on record.The issue was whether the assessee had to pay 5% or 6% on Bagasse clearances under Rule 6(3) of the CENVAT Credit Rules, 2004. The assessee, engaged in sugar and molasses manufacturing, used Bagasse—a by-product—for electricity generation and also supplied it to the TNEB and other customers.

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The Department issued show cause notices for November 2010 to November 2012, alleging non-compliance with Rule 6 due to the absence of separate records. The assessee argued that Bagasse was only waste, not a final product, citing past rulings in its favor.

The tribunal referred to similar cases, including Ponni Sugars (Erode) Limited, where the Chennai Bench set aside similar demands. It also noted that the Allahabad High Court in Balrampur Chini Mills Ltd. ruled that Bagasse was not a manufactured product and, therefore, Rule 6 did not apply. Following these precedents, the CESTAT held that the demands were unsustainable and set them aside.

In short,the appeal was allowed.

To Read the full text of the Order CLICK HERE

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