No reversal of CENVAT credit as Bagasse is non manufactured final product: CESTAT quashes Demand for CENVAT credit [Read Order]

The Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal(CESTAT) quashed the demand for Cenvat credit as reversal of CENVAT credit was not allowable since the Bagasse is non-manufactured final product.

 M/s. Ponni Sugars (Erode) Limited, the appellant is engaged in the manufacture of ‘sugar’ and ‘molasses’ and is availing CENVAT Credit on inputs and input services. It was noticed by the Department that the appellant had contravened the provisions of Rule 6 of the CENVAT Credit Rules, 2004 since they did not maintain separate accounts for the common input services used in the manufacture of both dutiable and exempted products. The appellants were clearing the bagasse and pressmud (exempted products), which emerged during the manufacture of the final product viz., sugar.

The Department was of the view that for the period from 01.10.2014 to 31.07.2015, the appellant has to pay an amount of 6% of the value of exempted products (bagasse / pressmud) because of Rule 6(3)(i) of the CENVAT Credit Rules, as amended.

Show Cause Notice was issued to the appellant proposing to demand 6% of the value of exempted products along with interest and for imposing penalties. After due process of law, the original authority vide order impugned herein confirmed the demand, interest and imposed penalties.

Shri M.N. Bharathi, Counsel, appeared and argued for the appellant. It was submitted by him that for the period before 01.03.2015, the issue stands covered by the decision of the Apex Court in the case of Union of India v. DSCL Sugar Ltd. wherein it was held that bagasse / pressmud cannot be considered as exempted goods as these are not manufactured by an assessee.

Later an amendment was introduced in the CENVAT Credit Rules, 2004 with effect from 01.03.2015 by way of an Explanation, whereby it was provided that when non-excisable goods are cleared for a consideration, they have to be treated as exempted goods manufactured by an assessee and therefore, the CENVAT Credit has to be reversed in case common inputs/input services are used. The Authorized Representative Shri Harendra Singh Pal appeared and argued for the Department.

The issue involved in the present appeal is whether the appellant is liable to pay an amount equivalent to 6% of the value of the bagasse / pressmud cleared by them.

A two-member bench of Mrs Sulekha Beevi C S, Member (Judicial) and Mr Vasa Seshagiri Rao, Member (Technical) in light of the decision in the case of Khedut Sahakari Khand Udyog Mandli Ltd. v. Commissioner of Central Excise and Service Tax, set aside the demand and the impugned order.

To Read the full text of the Order CLICK HERE

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