By TIOL News Service

MUMBAI, APR 21, 2015: THE appellant M/s Cadbury India Ltd. used cocoa beans as inputs in the manufacture of Chocolate. The process required first to crush cocoa beans and while crushing cocoa beans, shell got separated and then cocoa butter and powder is obtained. The appellants sell these ‘cocoa-shells' in open market at Nil rate of duty by availing benefit of exemption Notification No. 15/2005-CE dated 02.05.2005.

The appellant imported the cocoa beans and took credit of @4% of Additional Customs Duty.

Since, the appellants had not maintained separate accounts of inputs for exempted as well as dutiable goods as required under Rule 6(2) of the CCR, 2004 a SCN was issued for the recovery of amount equal to 10% of the value of the exempted goods i.e. shells.

Resultantly, a demand of Rs.4,32,217/- was confirmed along with equivalent penalty and interest.

As the lower appellate authority upheld the demand, the appellant is before the CESTAT.

The appellant submitted that emergence of cocoa shells is unavoidable and unintentional and the same is to be considered as a by-product or waste. And in case of by-product or waste, the payment of 10% as provided in Rule 6(2) of the CCR, 2004 is not applicable in view of the decisions in Rallis India - 2009-TIOL-16-HC-MUM-CX, Jai Steels (India) - 2010-TIOL-957-CESTAT-DEL.

The AR reiterated the stand taken by the lower authorities.

The Bench inter alia observed -

"5. …From the facts of the case, it is undisputed that cocoa shells arise during the manufacturing process of cocoa butter and cocoa powder. The appellant is not manufacturing cocoa shells it is arisen unavoidably during the process of manufacturing cocoa butter and cocoa powder. Therefore the cocoa shells is nothing but by-product or waste. This shows that Rule 6(2) of CENVAT Credit Rule and payment of 10% provided therein is not applicable. This issue is squarely covered by the Hon'ble Supreme Court judgement in the case of Rallis India (supra) and also Hindustan Zinc Ltd. - 2014-TIOL-55-SC-CX. In both judgments the Hon'ble Supreme Court has taken consistent view that if product is emerging unavoidably during the course of final product, the same shall be considered as by-product only and therefore payment of amount as provided under Rule 57CC of erstwhile Central Excise Act, 1944 and Rule 6 of CENVAT Credit Rules, 2004 is not applicable. In view of the above settled position, I am of the considered view that in the present case also the lower authority has wrongly confirmed the demand of 10% in terms of rule 6(2) of the CENVAT Credit Rules, 2004…."

The order of Commissioner(A) was set aside and the appeal was allowed.

In passing :  Also see 2013-TIOL-71-CESTAT-MUM .

(See 2015-TIOL-714-CESTAT-MUM)