CESTAT Chandigarh Upholds Dropping of CENVAT Demand on Malt Manufacturing Residuals — Revenue Appeal Dismissed
Case Overview
Case: Commissioner of Central Excise and Service Tax Vs Barmalt Malting India Private Limited
Forum: CESTAT Chandigarh
Legislation Involved: CENVAT Credit Rules, 2004; Central Excise Act, 1944
The Customs, Excise and Service Tax Appellate Tribunal at Chandigarh delivered a significant ruling in a long-standing dispute concerning the applicability of Rule 6 of the CENVAT Credit Rules, 2004 to residual by-products generated during the manufacture of barley malt and malt extract. The Tribunal dismissed the Revenue's appeal, affirming the decisions of both lower authorities that had dropped a demand of Rs. 96,59,837 raised against the assessee.
Background and Material Facts
The assessee, Barmalt Malting India Private Limited, is a manufacturer engaged in producing barley malt and malt extract. In the course of its manufacturing operations, several residual and waste materials — specifically wet bhoosi, chilka, dundli, and malt sprouts — are generated as by-products. These residual materials are sold in the open market for monetary consideration.
During an audit exercise, the AG Audit wing flagged that the assessee had been clearing these waste/residual products at a nil rate of duty over the period from May 2008 to June 2015. On the basis of this observation, the Department issued multiple Show Cause Notices alleging that the assessee was obligated to either:
- Reverse proportionate CENVAT credit availed on inputs used in the manufacturing process, or
- Make payment of an equivalent amount under
Rule 6(3)of theCENVAT Credit Rules, 2004
The Department's position rested on the argument that these residual products qualified as excisable or exempted goods within the meaning of Section 2(d) of the Central Excise Act, 1944, thereby attracting the credit reversal obligations under Rule 6 of the CENVAT Credit Rules, 2004. The assessee denied the allegations in their entirety.
Procedural History
Order-in-Original (26.08.2016)
The adjudicating authority, through a consolidated Order-in-Original dated 26.08.2016, dropped the demand aggregating Rs. 96,59,837 covering the period from June 2012 to February 2015. The adjudicating authority returned the following findings:
- The waste/residual products in question were non-excisable goods.
- Prior to 01.03.2015,
Rule 6of theCENVAT Credit Rules, 2004had no application to non-excisable waste or residual products. - The said residuals were not classifiable under any entry of the Central Excise Tariff.
- Reliance was placed on the Supreme Court's ruling in Union of India Vs DSCL Sugar Ltd. [2015 (322) ELT 769 (SC)].