The Chennai bench of the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) ruled that the waste product such as bagasse is not an excisable goods.
The appellant M/s.Ponni Sugars Erode Ltd was a manufacturer of Sugar, during the course of which they have admittedly used inputs like Phosphoric Acid, Sulphur, Caustic Soda Flakes, Magnafloc etc., and they were also availing Cenvat credit on all such inputs and also on input services like Goods Transport Agency services, Repairs and maintenance services, Security services, Courier services, etc. That apart, it appeared to the revenue that the appellant had made investment in shares and securities from which they would get dividends, such investment would only be an activity outside the definition of service, since it is a transaction in money.
This caused the revenue to assume that the appellant had not maintained separate records for the receipt, storage/inventory and disposal of input/input services for the manufacture of dutiable, final products, namely Sugar, Molasses and Bagasse & Press mud. Since, Bagasse and other wastes emerging during the course of manufacture of Sugar, were either exempted or attracted ‘nil’ rate of duty.
It was further the case of the revenue that bio compost is manufactured by treating Press mud with some chemicals and hence, both Bagasse and Press mud were marketable, as being covered under the definition of excisable goods under section 2(d) of the Excise Act, 1944. Revenue therefore assumed that the appellant had contravened the provisions of Rule (6) of CENVAT credit rules as they had not maintained separate accounts for receipt, consumption and inventory.
The first appellate authority in its order, has considered the Supreme Court decision, wherein it has been held that the Bagasse is an emergence of resultant waste and residue of agricultural produce being itself, not a result of any process, is not excisable and hence, provisions of Rule (6) ibid was not applicable.
Interpreting Explanation 1 to Rule 6 has provided that “consequently, Bagasse, dross and skimmings of non-ferrous metal or any such by-product of waste, which are non-excisable goods and are cleared for consideration from the factory need to be treated like exempted goods for purpose of reversal of credit of input and input services, in terms of Rule 6 of the Cenvat Credit Rules, 2004.
The bench noted that, since it was contended by the Advocate for the appellant that the same is covered by the decision of Supreme Court in the case of DSCL Sugar Limited wherein it has been held that waste product such as Bagasse is not an excisable goods.
The two member bench of the tribunal comprising M. Ajith Kumar (Technical member) and P. Dinesh (Judicial member) observed that the waste product was not a manufactured product to be considered as a final product for the purpose of Cenvat Credit Rules. Consequently, no credit is required to be reversed. Rule (6) of Cenvat Credit Rules as it stood then, could be invoked only in case of products which were excisable in nature, which are manufactured and not waste products that emerge on account of the process of manufacture of a different product. Accordingly, the ground raised by the appellant was allowed.
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