Bagasse Is An Agricultural Waste: CESTAT Quashes Excise Duty

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), while quashing the excise duty, held that bagasse, being an agricultural waste or residue, could not be manufactured.

The bench of Ajay Sharma (Judicial Member) and Anil G. Shakkarwar (Technical Member) has observed that bagasse is only agricultural waste and residue, which itself is not the result of any process. Therefore, it cannot be treated as falling within the definition of Section 2(f) of the Central Excise Act, 1944, and in the absence of manufacture, there cannot be any excise duty.

The assessee/appellant is in the business of manufacturing and clearing sugar and molasses and is paying duty on all the final products. They were availing of the Cenvat credit for excise duty paid on inputs and capital goods and also for service tax paid on input services used in the manufacture of the final product. During the process of manufacturing sugar and molasses, by-products such as bagasse, etc. were generated, which, as per the appellants, are nothing but waste or residue byproducts or refuse that were also being sold by the appellants.

A show cause notice was issued to the appellants stating that they were availing of the Cenvat credit on inputs, capital goods, and input services under the Cenvat Credit Rules and utilizing it for clearing the final product. However, it was alleged that the assessee did not maintain separate records of inputs and input services used for the manufacture of duty-paid goods (sugar and molasses) and for exempted goods generated, i.e., bagasse, as required under rule 6(2). The assessee was paying an amount of 5% of the value of exempted goods (bagasse) sold during the period 1.3.2010 to 30.9.2010, and a demand was raised for an amount equal to 5% of the value of bagasse sold, along with interest and penalty.

The assessee contended that the bagasse is nothing but waste that was produced during the manufacturing of sugar, and no manufacturing activity has been done by them for the production of bagasse, so they are not liable to pay any duty on it.

The department contended that by amending Section 2(d), an explanation was inserted in the said section with effect from 2008, and a deeming provision was created. Therefore, once it is established that an article, substance, or material is capable of being bought and sold, it becomes "goods," and once any such ‘goods’ find the entry in the First Schedule and the Second Schedule of the Central Excise Tariff Act, 1985, they become ‘excisable goods’.

The tribunal noted that, on the basis of the amendment to Section 2(d), the department has taken out one circular No. 904/24/2009-CX, dated October 28, 2009, in line with the amendment in Section 2(d), which was also relied upon by the authorities below in confirming the demand. After the judgment of the Supreme Court in the matter of DSCL Sugar Ltd., another circular No. 1027/15/2016-CX, dated April 25, 2016, has been issued by the department, stating that since the period covered in the decision of the Supreme Court applies to both periods, i.e., before and after the insertion of explanation in Section 2(d) ibid., the circular dated October 28, 2009, becomes non est and is rescinded.

Case Title: M/s. Vithal Corporation Ltd. Versus Commissioner of Customs Excise & Service Tax

Case No.: Excise Appeal No. 1925 of 2012

Date: 11-05-2023

Counsel For Appellant: Manasi Patil and Viraj

Counsel For Respondent: P. K. Acharya

Click Here To Read The Order