Gelatin Mass Waste Generated During Manufacturing Is A Waste Product, Demand For Reversal Of CENVAT Credit Is Unsustainable: CESTAT

The Banglore Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the product “Gelatin Mass Waste” generated during the course of the manufacture of finished goods is a waste product.

The bench of D.M. Misra (Judicial Member) and R. Bhagya Devi (Technical Member) has observed that the demand for reversal of CENVAT credit on the waste product is unsustainable in law.

The appellant/assessee is in the business of manufacturing pharmaceutical products, viz., 'soft gel capsules’ falling under Chapters 29 and 30 of the Central Excise Tariff Act, 1985. During the course of manufacture, the product, viz., “Gelatin Mass Waste,” emerges, which the appellant destroys in their own factory in compliance with the provisions of the Drugs and Cosmetics Act and Rules since it is a biohazardous product.

During the period 2004–2007, they applied for remission of duty, considering it as excisable goods under Rule 21 of the Central Excise Rules, 2002. However, they had destroyed the product inside the factory without seeking permission from the department in terms of Proviso to Rule 21.

A show-cause notice was issued with a proposal for reversal of the CENVAT credit of Rs. 45,74,204 used in the manufacture of waste products with interest and a proposal for a penalty. On adjudication, the demand was confirmed with interest and a penalty. Aggrieved by the order, the assessee filed an appeal before Commissioner (A), who in turn rejected the appeal.

The assessee contended that the department has not established that the ‘Gelatin Mass Waste’ generated during the course of manufacture is not a waste product but an excisable good. Therefore, confirming the reversal of CENVAT credit used in or in relation to the manufacture of said waste product is bad law.

The issue raised was whether the product “Gelatin Mass Waste” generated during the course of manufacturing of finished goods is a waste product and whether the CENVAT inputs that went into its generation are required to be reversed.

The tribunal held that it was destroyed within the factory premises and was not removed. Therefore, the liability to pay excise duty on the said mass does not arise. Even if the waste is excisable and duty is payable, that in no way enables the authorities to insist on the reversal of Cenvat credit or payment of excise duty.

Counsel For Appellant: D. Arvind

Counsel For Respondent: H. Jayathirtha

Case Title: M/s. Geltec Private Limited Versus The Commissioner of Central Excise

Case No.: Central Excise Appeal No. 2249 of 2010

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