No CENVAT Reversal Required on Sale of Empty Packaging Material: CESTAT Holds Rule 6 Inapplicable to Non-Manufactured Goods [Read Order]

The Ahmedabad Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) held that Rule 6(3) of the CENVAT Credit Rules applies only when both exempted and dutiable goods were manufactured whereas the used packing material such as empty drums was not a manufactured product arising from the process. Thus, no 6% CENVAT credit reversal was required on their clearance and the demand of ₹94,135 and penalty were set aside.

The Appeal was filed by the appellant which challenges the order dated 28.10.2021 passed by the Commissioner, CGST & Central Excise (Appeals), Vadodara, and upheld the Order-in-Original passed by the Adjudicating Authority.

The Appellant, Mahindra Agri Solutions Limited, during an EA-2000 audit, used packing materials (drums) without reversing CENVAT credit at 6% as required under Rule 6(3) of CCR, 2004 as amended by Notification No. 06/2015 dated 01.03.2015 for the period from April 2016 to June 2017, which amounted to Rs. 94,135/-.

The Rule 6(3) of the CENVAT Credit Rules, 2004 explained that: Obligation of a manufacturer or producer of final products and a [provider of output service

“(3) (a) A manufacturer who manufactures two classes of goods, namely :-

(i) non-exempted goods removed;

(ii) exempted goods removed; or

(b) a provider of output service who provides two classes of services, namely :-

(i) non-exempted services;

(ii) exempted services, shall follow any one of the following options applicable to him, namely :-

[(i) pay an amount equal to six per cent. of value of the exempted goods and seven per cent. of value of the exempted services subject to a maximum of the sum total of opening balance of the credit of input and input services available at the beginning of the period to which the payment relates and the credit of input and input services taken during that period; or]

(ii) pay an amount as determined under sub-rule (3A).”

A show cause notice was issued dated 15.10.2020, where the adjudicating authority through the order dated 15.07.2021 affirmed the demand of Rs. 94,135/- with interest and imposed equal penalty under Section 11AC(1)(c) of the Central Excise Act, 1944.

On appeal, the Commissioner (Appeals) upheld the demand, holding that the 2015 amendment to Rule 6 mandates 6% reversal on clearance of non-excisable goods (used packing materials) sold for consideration. The Commissioner rejected the appellant's statement on the ground that Rule 6 applies only when exempted and non-exempted goods were manufactured together, observing that the legislative intent was to levy tax at 6% on non-excisable goods. The extended period of limitation was also upheld as the matter was detected only during audit.

The Chartered Accountant appearing for the Appellant, Aatish A. Shah, stated that that both lower authorities erred in confirming the demand without properly appreciating that Rule 6 applies only when exempted goods are manufactured alongside non-exempted goods. Further, the Counsel relied on the CESTAT New Delhi decision in M/s. Sundaram Packaging India Pvt. Limited vs. CC, CGST & Central Excise, Ujjain (appeal No. E/51633/2019) on an identical issue and prayed for setting aside the impugned order.

On the other hand, Superintendent (AR) for the Respondent, P. Ganesan, reiterated the impugned order, stating that the Commissioner (Appeals) correctly decided the matter in light of Notification No. 6/2015-CE(NT) dated 01.03.2015 and no interference was warranted. The Counsel also prayed for rejection of the appeal and upholding of the Order-in-Appeal.

The Tribunal consisted of Judicial member, Dr. Ajaya Krishna Vishvesha, heard and reviewed the matter challenged by the appellant.

The Tribunal, after considering the submissions made, held that the lower authorities erred in not properly appreciating the provisions of Notification No. 6/2015-CE(NT) dated 01.03.2015. Rule 6(3) of CCR, 2004 applies only when a manufacturer produces two classes of goods - exempted and non-exempted goods. In this case, the appellant manufactured only one kind of goods (fertilizers, insecticides, fungicides), and the used drums were not manufactured by the appellant but were merely empty packaging material in which inputs were received.

The Tribunal relied on the M/s. Sundaram Packaging India Pvt. Limited vs. CC, CGST & Central Excise, Ujjain (appeal No. E/51633/2019) precedent, which held that despite the 2015 amendment including non-excisable goods within the scope of Rule 6, the rule applies only when exempted goods are manufactured alongside non-exempted goods. Since empty packaging material did not arise from any manufacturing process, it did not fall under the definition of "exempted goods" or "final products" under Rule 2(d) and (h) of CCR, 2004.

Further, the Tribunal also leaned on Cadila Healthcare Limited vs. CCE & ST, Vadodara which held that empty packaging material is not liable for excise duty or CENVAT credit reversal under Rule 6(3).

Accordingly, the Tribunal set aside the impugned order and the appeal was allowed. The Order was pronounced in the open court 18.12.2025.

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