Barley Husk Is Waste, Not a Manufactured Product; CESTAT Quashes CENVAT Demand

Glaxo Smithkline Consumer Healthcare Ltd Vs Commissioner of Central Excise (CESTAT Chandigarh)

The appeal challenged the Order-in-Appeal dated 22.10.2019, which had upheld the Order-in-Original dated 16.06.2019 confirming a demand under Rule 6(3) of the CENVAT Credit Rules, 2004. The appellant manufactures malt-based food products and avails CENVAT credit on inputs, input services and capital goods. During manufacture, barley husk emerges as a residue, waste or by-product and is cleared without further processing. The department alleged that barley husk was an exempted product classifiable under Tariff Heading 2302.40.00 and that the appellant had availed CENVAT credit on common inputs without maintaining separate accounts, making it liable to pay 5% or 6% of the value of barley husk under Rule 6(3), along with interest and penalty.

The appellant contended that barley husk is not a manufactured final product but an inevitable residue or by-product arising during manufacture of dutiable products and that no separate manufacturing activity is undertaken to produce it. It further submitted that the issue stood settled by the Supreme Court in Union of India vs. DSCL Sugar Ltd., which held that the deeming fiction relating to marketability applies only after manufacture is established and that Rule 6 does not apply where the product is not manufactured. The appellant also submitted that the departmental circular relied upon in the show cause notice had been withdrawn and referred to several Tribunal decisions and orders relating to its other manufacturing units.

The Revenue relied on the findings of the impugned order.

The Tribunal held that the issue was whether the demand under Rule 6(3) on the clearance value of barley husk was sustainable. It found that barley husk is not a manufactured final product but merely a residue or waste that inevitably emerges during manufacture, with no separate manufacturing activity undertaken to produce it. Referring to the Supreme Court decision in Union of India vs. DSCL Sugar Ltd. and subsequent Tribunal decisions, including Commissioner of CE & ST, Gurgaon-I vs. M/s Barmalt Malting India Private Limited, the Tribunal held that the issue was covered in favour of the appellant. Accordingly, it set aside the impugned order and allowed the appeal with consequential relief, if any, as per law.

Cases Discussed:

• Commissioner of CGST & CE, Vadodara vs. M/s Shree Khedut Sahakari Khand Udyog Mandli Limited – 2026 (6) TMI 896-CESTAT Ahmedabad
• M/s Kaushal Ferro Metals (P) Ltd. vs. Commissioner of CGST & CE, Rourkela – 2026 (3) TMI 904-CESTAT Kolkata
• M/s 3F Industries Ltd vs. Commissioner of CE & ST, Guntur – 2026 (4) TMI 1823-CESTAT Hyderabad
• Commissioner of CE & ST, Gurgaon-I vs. M/s Barmalt Malting India Private Limited – 2026 (5) TMI 974-CESTAT Chandigarh
• M/s Madhucon Sugar & Power Industries Ltd vs. Pr. Commissioner of Central Tax, Rangareddy-GST, Hyderabad – 2026 (5) TMI 638-CESTAT Hyderabad
• M/s Jindal Stainless Ltd vs. Commissioner of Central Excise, Goods & Service Tax, Rohtak – 2026 (2) TMI 231-CESTAT Chandigarh
• JSW Steels Pvt Ltd vs. Commissioner of CGST, Navi Mumbai – 2025 (6) TMI 757-CESTAT Mumbai
• M/s Bengal Energy Ltd vs. Commr of CGST & Central Excise, Haldia (Vice-Versa) – 2025 (7) TMI 1534-CESTAT Kolkata
• M/s Pepsico India Holdings Pvt Ltd and Max Builders vs. CCE & ST – 2024 (2) TMI 614-CESTAT Chandigarh
• Shri Ram Agro Chemicals Pvt Ltd, Amit Jain, Sandley Industries, Rakesh Kumar Sharma vs. Commissioner of CE & CGST, Rohtak – 2024 (10) TMI 893-CESTAT Chandigarh
• Mahesh Chemicals Allied Industries and Suresh Goyal vs. Commissioner of CE & CGST, Rohtak – 2024 (8) TMI 309-CESTAT Chandigarh
• Schneider Electric India Pvt Ltd vs. Commissioner of Service Tax, Delhi – (2023) 9 Centax 362 (Tri. Chan.)

FULL TEXT OF THE CESTAT CHANDIGARH ORDER

The present appeal is directed against the impugned Order-in-Appeal dated 22.10.2019 passed by the Commissioner (Appeals), CGST, Panchkula, whereby the learned Commissioner (Appeals) has rejected the appeal of the Appellant by upholding the Order-in-Original dated 16.06.2019.

2. Briefly stated facts of the present case are that the Appellant M/s Glaxo Smithkline Consumer Healthcare Ltd are engaged in the manufacture of various malt-based food products classifiable under Chapter Heading 1901 of the first schedule to the Central Excise Tariff Act, 1985. The Appellant were duly availing CENVAT Credit on inputs, input services and capital goods used in or in relation to manufacture of such dutiable final products. During the manufacturing process, malted barley grains are crushed, processed with wheat flour and thereafter subjected to filtration. In course of such process, barley husk emerges as a residue/waste/by-product which is cleared without undergoing any further processing and is exempt from excise duty. Pursuant to an audit conducted by the department, a show cause notice was issued alleging that in view of the Explanation to Section 2(d) of the Central Excise Act, 1944, barley husk is classifiable under Tariff Heading 2302.40.00 of the Central Excise Tariff Act which attracts a Nil rate of duty and consequently qualifies as “exempted goods”. In the said show cause notice, the department placed reliance on the Circular No. 904/29/2009-CX dated 28.10.2009, wherein it was clarified that waste/residue/by-product such as bagasse, aluminium dross, zinc dross and similar products arising during course of manufacture, if capable of being sold for consideration, would be excisable and chargeable to duty. Further, it was alleged by the department that the Appellant had wrongly availed the CENVAT Credit on common inputs used in manufacture of both dutiable final products (malt-based food) as well as exempted by-product (barley husk) without maintaining separate accounts in terms of Rule 6 of Cenvat Credit Rules, 2004 and also not complied with the procedure prescribed thereunder, and therefore, are liable to pay an amount equivalent to 5% or 6% of the value of barley husk cleared, in terms of Rule 6(3) of the Cenvat Credit Rules, 2004, along with interest and penalty thereon. After following the due process, the Original Authority vide Order-in-Original dated 16.06.2019 confirmed the demand as proposed in the show cause notice. Aggrieved by the said Order-in-Original, the Appellant filed an appeal before the Commissioner (Appeals), who vide the impugned Order-in-Appeal, has upheld the said Order-in-Original and has rejected Appellant’s appeal. Hence, the present appeal.

3. Heard both the parties and perused the material on record.

4. The learned Counsel for the Appellant submits that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts & the law and the binding judicial precedents on the identical issue.

4.1 She further submits that the barely husk is not a manufactured final product but merely a residue/waste/by-product that inevitably emerges during course of manufacture of the dutiable malt-based food products; no separate manufacturing activity is undertaken with intention to produce barley husk. She also submits that it is a settled position of law that a waste/residue/by-product, which emerges inevitably during manufacture of a principal product and without any conscious manufacturing activity, cannot be regarded as a “manufactured product”. She also submits that the expression “manufacture” requires transformation of inputs into a distinct commercial commodity having a separate name, character and use.

4.2 She further submits that the issue involved in the present case is no longer res integra and has been settled by the Hon’ble Supreme Court in the case of Union of India vs. DSCL Sugar Ltd – 2015 (322) ELT 769 (SC) wherein the Hon’ble Supreme Court, while considering the said amendment to Section 2(d) of the Central Excise Act, categorically held that deeming fiction relating to marketability comes into operation only after it is established that the article has been “manufactured” within the meaning of Section 2(f) of the Act, and mere marketability or tariff classification does not dispense with the requirement of manufacture. She also submits that in the present case, since barley husk is neither the intended output of manufacturing process nor brought into existence through any independent manufacturing activity, deeming fiction under Explanation to Section 2(d) of the Act has no application. In this regard, she places reliance on the following case-laws:

• M/s Pepsico India Holdings Pvt Ltd and Max Builders vs. CCE & ST – 2024 (2) TMI 614-CESTAT Chandigarh
• Commissioner of CGST & CE, Vadodara vs. M/s Shree Khedut Sahakari Khand Udyog Mandli Limited – 2026 (6) TMI 896-CESTAT Ahmedabad
• M/s Kaushal Ferro Metals (P) Ltd. vs. Commissioner of CGST & CE, Rourkela – 2026 (3) TMI 904-CESTAT Kolkata
• JSW Steels Pvt Ltd vs. Commissioner of CGST, Navi Mumbai – 2025 (6) TMI 757-CESTAT Mumbai

4.3 She further submits that the department has placed reliance upon Circular No. 904/29/2009-CX dated 28.10.2009, but the said circular was withdrawn by Board vide Circular No. 1027/15/2016-CX dated 25.04.2016, therefore, no demand is sustainable on the basis of a circular which has already been withdrawn. For this submission, she relies on the following decision:

• M/s 3F Industries Ltd vs. Commissioner of CE & ST, Guntur – 2026 (4) TMI 1823-CESTAT Hyderabad

4.4 She further submits that Circular No. 1027/15/2016-CX dated 25.04.2016 was also held unsustainable in law by the Hon’ble Supreme Court in the case of Union of India & Ors. vs. M/s Indian Sucrose Limited – 2022 (7) TMI 353-Supreme Court and a fresh Circular No. 1084/05/2022-CX dated 07.07.2022 was issued in which it has been clarified that law laid down in UOI vs. DSCL Sugar Ltd (supra) is to be followed.

4.5 She also submits that the issue regarding applicability of Rule 6 of the Cenvat Credit Rules to waste/residuals/by-products is also no longer res integra as the Hon’ble Supreme Court in the case of UOI vs. DSCL Sugar Ltd (supra) has also categorically held that Rule 6 of Cenvat Credit Rules has no application where the product in question is not manufactured and consequently, is not exigible to excise duty. In this regard, she refers to the following decisions:

• Commissioner of CE & ST, Gurgaon-I vs. M/s Barmalt Malting India Private Limited – 2026 (5) TMI 974-CESTAT Chandigarh
• Shri Ram Agro Chemicals Pvt Ltd, Amit Jain, Sandley Industries, Rakesh Kumar Sharma vs. Commissioner of CE & CGST, Rohtak -2024 (10) TMI 893-CESTAT Chandigarh
• Mahesh Chemicals Allied Industries and Suresh Goyal vs. Commissioner of CE & CGST, Rohtak – 2024 (8) TMI 309-CESTAT Chandigarh
• M/s Bengal Energy Ltd vs. Commr of CGST & Central Excise, Haldia (Vice-Versa) – 2025 (7) TMI 1534-CESTAT Kolkata
• M/s Madhucon Sugar & Power Industries Ltd vs. Pr. Commissioner of Central Tax, Rangareddy-GST, Hyderabad – 2026 (5) TMI 638-CESTAT Hyderabad

4.6 She also submits that the issue has also been settled by the Departmental Authorities in favour of the Appellant in respect of their other manufacturing units, namely Nabha unit, Rajahmundry unit and Sonepat unit and the department has not challenged the said orders, which have attained finality.

4.7 She also questions the invocation of extended period of limitation as the issue involved in the present case relates to interpretation of law and there is no suppression or intent to evade payment of tax and hence, extended period of limitation is not invokable. For this, she places reliance on the following decisions:

• M/s Jindal Stainless Ltd vs. Commissioner of Central Excise, Goods & Service Tax, Rohtak – 2026 (2) TMI 231-CESTAT Chandigarh
• Schneider Electric India Pvt Ltd vs. Commissioner of Service Tax, Delhi – (2023) 9 Centax 362 (Tri. Chan.)

5. On the other hand, the learned Authorized Representative for the Respondent-Revenue reiterates the findings of the impugned order.

6. After considering the submissions made by both the parties and perusal of the material on record as well as the decisions relied upon by the learned Counsel for the Appellant, we find that the issue involved in the present case is whether the demand of amount equal to 5% or 6% of clearing value of barley husk in terms of Rule 6(3) of the Cenvat Credit Rules, 2004 is sustainable in law or not?

7. Further, we find that barley husk is not a manufactured final product but merely a residue/waste that inevitably emerges during the course of manufacture of the dutiable malt-based food products and no separate manufacturing activity is undertaken with intent to produce barley husk. We note that this issue is no more res integra and has been settled by the Hon’ble Supreme Court in the case of UOI vs. DSCL Sugar Ltd (supra) and the subsequently, various benches of the Tribunal have followed the ratio of the said judgment of Hon’ble Supreme Court in the cases as cited above.

8. We may refer to the decision of the Chandigarh Bench in the case of Commissioner of CE & ST, Gurgaon-I vs. M/s Barmalt Malting India Private Limited (supra), wherein the identical issue was involved and the Tribunal, after following the decision of Hon’ble Supreme Court in UOI vs. DSCL Sugar Ltd, has held as under:

“6. After considering the submissions made by both the parties and perusal of the material on record, we find that the issue involved in the present case is whether the impugned products namely wet bhoosi, chilka, dundli, malt sprouts etc are liable to excise duty or not? Further, we find that this issue is no longer res integra and stands settled by the Hon’ble Supreme Court in the case of Union of India Vs DSCL Sugar Ltd (supra) which has been followed by both the lower authorities by setting aside the demand. Further, this issue is also covered by the Hon’ble High Court of Punjab and Haryana in the respondent’s own case as cited above. Therefore, by following the ratios of the said decisions, we do not find any infirmity in the impugned order and the same is upheld by dismissing the appeal of the Department.”

9. Since the issue involved in the present case is squarely covered in favour of the Appellant by above cited decisions, therefore, by following the same, we are of the considered opinion that the impugned order is not sustainable in law and therefore, we set aside the same and allow the appeal of the Appellant with consequential relief, if any, as per law.

(Operative part of the order pronounced in the open court)