CBIC Revokes Circular Relating To Excisability Of Waste Arising During The Process Of Manufacture

Rule 6 of the CENVAT Credit Rules, 2004 was amended with effect from March 01, 2015 by inserting Explanation 1 and 2 in sub-rule (1) of rule 6. It provides that exempted goods or final products shall include non-excisable goods cleared for consideration from the factory.

A Circular No. 1027/15/2016-CX dated April 25, 2016 was issued. The circular stated that bagasse, dross, and skimmings of non-ferrous metals or any by-product or waste, which are non-excisable goods and cleared for 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.

The circular was issued in the background of judgement of the Supreme Court in the case of Union of India Vs. M/s. DSCL Sugar Ltd [2015 (322) E.L.T. 769 (S.C.)]. It was held that Bagasse is only an agricultural waste and residue and it is not a result of any process which can be termed as 'manufacture'.

A similar conclusion was also drawn by the High Court of Bombay in the case of M/s Hindalco Industries Ltd. Vs. Union of India (2015 (315) E.L.T.10 (Bom.)] in relation to dross and skimming of aluminium, zinc, or other non-ferrous metals.

The issue again came before the Supreme Court in the case of Union of India Vs. M/s. Indian Sucrose Limited [SLP (C) No. 1700/2021]. The Supreme Court referred to its observations in the Union of India vs. M/s. DSCL Sugar Ltd & Ors. and held that bagasse is non-excisable to which the CENVAT Credit Rules have no application, and held that the Circular dated April 25, 2016 is unsustainable in law.

"In light of the above judgement, Circular No. 1027/15/2016-CX dated April 25, 2016 has become non-est and is hereby rescinded. Cases kept in the call book on the above issue, if any, may be taken out and adjudicated in light of the law decided by the Apex Court," the circular read.

Circular No. 1084/05/2022-CX

Dated July 07, 2022

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