The Ba-GAS-se issue - Curtains down?
SUGAR manufacturers seem to be a harassed lot. No, it is not the black ants that trouble the manufacturers but Rule 6 of the CCR, 2004. All over the country these manufacturers have been making a beeline to the High Courts and the CESTAT seeking sugary relief and they are getting it….but the Central Board of Excise & Customs probably seems to enjoy the sweetness in its demands!
The sweet facts - During the course of manufacture of sugar and molasses [dutiable] from sugarcane, bagasse is generated as a waste product. Bagasse is the fibrous matter that remains after sugarcane stalks are crushed to extract their juice. It is currently used as a biofuel and in the manufacture of pulp and paper products and building materials.This bagasse is classified under sub-heading 23032000 of CETA, 1985as 'Beet-Pulp', 'bagasse' and other waste of sugar manufacture' and cleared from the factory at NIL Tariff rate of duty.
The department is of the view that since the appellant is availing CENVAT credit on various inputs/services and have not maintained separate records showing the consumption and utilization of inputs/input services in the manufacture of dutiable products viz. Sugar/molasses and the Nil rate product, namely, bagasse, the appellant is liable to pay an amount equal to 5%/8% of the price of bagasse in terms of rule 6(3) of the CCR, 2004.
The Board had vide Circular dated 28.10.2009 emphasized thus -
"2. The matter has been examined. Excisability of bagasse and similar waste products arising during the course of manufacture has been under dispute for a long period of time. There are number of Tribunal's judgments that being waste, these are not excisable products. Departmental appeal in respect of excisability of bagasse in one such case i.e Balrampur Chinni Mills Ltd. is reportedly still pending in the Supreme Court. Generally, the courts have been taking a view that the waste or refuse or residue arising during the course of manufacture can-not be treated as excisable goods even if such waste fetches some price in the market. However, all these matters pertain to the period prior to 2008.
3. In the budget of 2008, the definition of "excisable goods" in clause (d) of Section 2 of the Central Excise Act, 1944 was amended by adding an explanation that for the purposes of this clause, "goods" include any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.
4. It is clarified that with this amendment in Section 2 (d), the bagasse, aluminium/zinc dross and other such products termed as waste, residue or refuse which arise during the course of manufacture and are capable of being sold for consideration would be excisable goods and chargeable to payment of excise duty.
5. Field formations are advised to take suitable action for ensuring recovery of duty from the assessees in respect of these goods for the period after the budget of 2008. It is further clarified that in case the rate of duty in respect of such products is Nil in the tariff or they are exempt from duty in terms of any exemption notification, and if Cenvat Credit has been taken on the inputs which are used for manufacture of dutiable and exempted goods, then in terms of rule 6 of Cenvat Credit Rules, 2004, the assessee is required to reverse the proportionate credit or pay 5% amount."
Incidentally, this issue was also raised by the participants in a seminar conducted by us at Visakhapatnam last year (DDT-1842 dt 24.04.2012). We brought to their notice the letter F. No. 1 dated 08/04/2010 addressed by the CBEC to the Dy. Director General, Indian Sugar Mills Association, New Delhi and where it is mentioned thus -
"2. In this regard, it is to inform that Circular No.904/24/2009 dated 28.10.2009 clarifies the legal position subsequent to the amendment of the definition of excisable goods in the budget of 2008. It is to further inform that from 1.4.2008, Rule 6 of the Cenvat Credit Rules has been amended to also provide for the reversal of proportionate credit on the inputs used in the manufacture of exempted goods.
3. It is therefore, clarified that the sugar mills have an option to reverse the proportionate credit on the inputs used in the generation of bagasse subject to following the provisions contained in the said Rule 6 and in that case it is not necessary for them to pay an amount equal to 5% on the value of bagasse."
Be that as it may, the matter was settled conclusively in favour of the manufacturer by the CESTAT in the case of Indian Potash Ltd. (2012-TIOL-1402-CESTAT-DEL). Paragraph 6 of the order dated 20/04/2012 is extracted below -
"6. We have considered the rival submissions. We find that bagasse emerges in course of crushing of the sugarcane. It may be noted that crushing of sugarcane is necessary to extract cane sugar juice, which in turn is processed for production of sugar and molasses. Bagasse is the waste product left after the crushing of sugarcane. Therefore, by no stretch of imagination it can be said that the assessee possibly could have maintained separate accounts for the inputs for production of sugar and molasses (excisable item) and bagasse. Thus, in our considered view, the amendment in Finance Act, cited by Shri Nagesh Pathak, AR and the Board Circular would not make any difference in the facts and circumstances of the case. Moreover neither the show cause notice nor the impugned order in appeal mentions as to which common Cenvat credit availed inputs have been used in manufacture of sugar and molasses (dutiable final product) and bagasse (exempted final product). Since Bagasse emerges at sugarcane crushing stage, there is no possibility of any input-chemicals etc. having been used at that stage. Accordingly, we find merit in the contention of the appellant. The impugned order is set aside. The appeal and stay applications are allowed."
A closer look at the aforesaid would reveal that the insertion of Explanation in the definition of ‘excisable goods' in section 2(d) of the CEA, 1944 by the Finance Act, 2008 was also adverted to by the Bench in the aforesaid case but nothing went in favour of the Revenue.
This assessee favourable decision was followed by the WZB of the CESTAT in the case of Shree Chh. Shahu SSK Ltd. (2012-TIOL-1760-CESTAT-MUM) and many other cases by other Benches too.
Today, we report the Allahabad High Court decision passed in a batch of Writ Petitions on the issue, quashing the Circular dated 28.10.2009.