2007 (3) TMI 120 - AT - Central Excise

Cenvat/Modvat - Alleged that appellant is not maintain the separate account for inputs used in dutiable and exempted product and accordingly appellant require to pay 8% or 10% of sale value of fertilizer - Allegation were set aside after considering the fact

Issues:
Manufacture of exempted fertilizers using duty-paid inputs, treatment of by-products as final products under Cenvat Credit Rules, demand of 8% of sale value of fertilizers, payment of duty on by-products, limitation period for demanding duty, verification of duty payment, imposition of penalty.

Manufacture of exempted fertilizers using duty-paid inputs:
The appellants manufactured Sodium Tri-Poly Phosphate (STPP) and Acid Slurry using duty-paid inputs, which were further used in the manufacture of exempted fertilizers DAP and SSP. The Department contended that since Cenvatable inputs were used in the manufacture of exempted goods, the appellants should pay 8% of the sale value of the fertilizers. The appellants argued that the plants manufacturing the inputs were separate from those manufacturing the fertilizers, and they had paid 16% duty on the by-products used in the fertilizers after an Adjudication Order. They relied on previous tribunal decisions to support their claim that duty paid on intermediate inputs entitles them to exemption for the final products.

Treatment of by-products as final products under Cenvat Credit Rules:
The Adjudicating Commissioner determined that Neutral Filter Cake (NFC) and Spent Sulphuric Acid, though by-products, should be considered final products under the Cenvat Credit Rules. The Tribunal agreed with this finding, stating that if exemption is sought on these products, duty should be paid or 8% of the value should be recovered. However, the Tribunal found no justification to demand 8% of the value of the exempted fertilizers, as the appellants had already paid duty on the by-products and maintained proper records as per the Department's requests.

Demand of 8% of sale value of fertilizers:
The Department supported the demand of 8% of the sale value of the fertilizers, citing previous tribunal decisions and a Supreme Court ruling. However, the Tribunal found that the appellants had already paid duty on the relevant inputs and that demanding 8% of the sale value was unwarranted, especially considering the separate plants and the proper record-keeping by the appellants.

Payment of duty on by-products:
The appellants had paid 16% duty on the NFC and Spent Sulphuric Acid after an Adjudication Order, which the Tribunal deemed sufficient to maintain the input duty credit taken by them. The Tribunal emphasized that the duty had been paid for the normal period of demand and that demanding duty beyond the limitation period was unjustified.

Limitation period for demanding duty:
The Tribunal noted that the appellants had disclosed all relevant information to the Revenue regarding the production and use of NFC and Spent Sulphuric Acid, as evidenced by official communications and declarations. Therefore, demanding duty beyond the normal period of limitation was deemed unjustified, and the Tribunal directed the original authority to verify the duty payment for the normal period.

Verification of duty payment:
The Tribunal directed the original authority to verify whether the appellants had paid duty on NFC and Spent Sulphuric Acid for the normal period of limitation at the appropriate rate. Any shortfall identified was to be rectified by the appellants, who also agreed to pay interest on the duty amount as per the law. The appellants were granted a reasonable opportunity of hearing before a Final Order on the duty and interest amounts.

Imposition of penalty:
In light of the Tribunal's decision to allow the appeal by way of remand and the directions given regarding duty payment verification, the penalty imposed was set aside. The Tribunal concluded the judgment by pronouncing the Order in the open Court, ensuring compliance with the legal procedures and principles.

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