Excisability of Bagasse - CBEC Clarifies - Beware there is Rule 6(3)
THIS is a long and complicated story. Excisability of bagasse and similar waste products arising during the course of manufacture has been under dispute for a long period of time.
In 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.
Based on this, by Circular No. dated 28.10.2009, CBEC 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.
What about the period prior to 2008. Board said, "wait for the decision in Balrampur Chinni Mills Ltd case in Supreme Court.
By Circular No. dated 14.02.2011, Board informed, "The Civil Appeal filed by the department in the case of M/s Balrampur Chinni Mills Ltd. has been dismissed by the Hon'ble Supreme Court on 21.7.2010. Accordingly the cases pending for the period prior to budgetary changes of 2008 in respect of excisability of Bagasse may be taken out from the Call Book and decided in the light of the law decided by the Apex Court.”
In Instruction F.No. (Pt.) dated 12.11.2014, Board wanted the field to follow the decision of the CESTAT Larger Bench - 2014-TIOL-1762-CESTAT-Mum-LB which held, "Aluminium dross and skimmings and similar non-ferrous metal dross and skimmings which arise as a by-product in the process of manufacture of aluminium / non-ferrous metal products are manufactured goods and hence excisable w.e.f. 10.05.2008 in view of the explanation added to Section 2(d) of the Central Excise Act, 1944."
in the case of M/s Union of India and Ors vs M/s DSCL Sugar Ltd - dated 15.07.2015, the Supreme Court examined the issue and reaffirmed that bagasse is not a manufactured product. The Judgement applies to both periods, before and after the insertion of explanation in Section 2(d) of the Central Excise Act, 1944 by the Finance Act, 2008.
In view of the Supreme Court judgement, all the above Board Circulars have become non est and the Board has fairly rescinded them now.
The Board, therefore, advises that cases kept in Call Book on the above issue may be taken out and adjudicated.
Wait, wait - it's not all good news. Board reminds that rule 6 of the CENVAT Credit Rules (CCR), 2004 was amended with effect from 01.03.2015 by inserting explanation 1 and explanation 2 in sub-rule (1) of rule 6. These explanations continue in the present rule 6 also :-
"Explanation 1. - For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shall include non-excisable goods cleared for a consideration from the factory.
Consequently, Bagasse, Dross and Skimmings of non-ferrous metals or any such byproduct or waste, which are non-excisable goods and are cleared for a consideration from the factory need to be treated like exempted goods for the purpose of reversal of credit of input and input services, in terms of rule 6 of the CENVAT Credit Rules, 2004.
So, when you clear Bagasse or such waste, you are caught in the web of Rule 6.
It would have been easier to pay duty on bagasse than to comply with Rule 6.
CBEC Circular No.1027/15/2016-CX, Dated : April 25, 2016., Dated: April 25, 2016