2011 (3) TMI 284 - AT - Central Excise

Modvat credit - Use of common input namely sodium hydroxide used in the manufacture of dutiable as well as exempted products - Not maintained the separate inventory and the receipt - Held that Rule 57CC(1) would be applicable only if Rule 57 can be made applicable and that the provisions of Rule 57C are not applicable to the present case - Since modvat credit as taken is specifically allowed in respect of the goods used for generation of electricity or steam used in the manufacture of final product or for any other purpose of production under the provision of Rule 57B(i)(iv) Hence the order of the adjudicating authority is to be restored.

Issues Involved:
1. Non-maintenance of separate inventory for common input (sodium hydroxide) used in manufacturing dutiable and exempted products.
2. Applicability of Rule 57CC(1) and sub-rule (9) of the Central Excise Rules, 1944.
3. Entitlement to Modvat credit under Rule 57B(i).
4. Interpretation of relevant case laws including Maruti Suzuki Ltd., Gujarat Narmada Fertilizers Co. Ltd., and Grasim Industries Ltd.

Issue-wise Detailed Analysis:

1. Non-maintenance of Separate Inventory for Common Input:
The respondents were issued a show cause notice for contravening Rule 57CC of the Central Excise Rules, 1944, by not maintaining separate inventories for sodium hydroxide used in manufacturing both dutiable and exempted products. The Assistant Commissioner had confirmed the demand of Rs. 6,83,033/- along with interest and a penalty of Rs. 70,000/-. The Commissioner (Appeals) set aside this order, which led to the present appeal.

2. Applicability of Rule 57CC(1) and Sub-rule (9):
The Departmental Representative (DR) argued that the Commissioner (Appeals) erred in setting aside the adjudicating authority's order, as the respondents did not comply with Rule 57CC(1) read with sub-rule (9). The DR cited decisions from the Apex Court in Maruti Suzuki Ltd. and Gujarat Narmada Fertilizers Co. Ltd., which emphasized the necessity of following the prescribed procedure when inputs are used for both captively consumed and sold products.

3. Entitlement to Modvat Credit under Rule 57B(i):
The respondents' Advocate argued that Rule 57B(i) provided protection, allowing Modvat credit for inputs used in generating steam, even if part of the steam was sold outside the factory. This argument was supported by the Tribunal's decision in Grasim Industries Ltd., which held that inputs used for generating electricity or steam within the factory qualified for credit, regardless of whether some steam was sold externally.

4. Interpretation of Relevant Case Laws:
The Tribunal reviewed several case laws to determine the applicability of rules and the entitlement to Modvat credit:
- Maruti Suzuki Ltd. Case: The Supreme Court held that CENVAT credit is not admissible for inputs used in generating electricity sold outside the factory, as the nexus between the process and use is disconnected.
- Gujarat Narmada Fertilizers Co. Ltd. Case: It was held that CENVAT credit for duty paid on inputs used in manufacturing exempted final products is not allowable, emphasizing the mandatory nature of maintaining separate accounts under Rule 57CC.
- Grasim Industries Ltd. Case: The Tribunal had previously allowed Modvat credit for inputs used in generating steam, considering it a by-product, and not subject to Rule 57CC(1).

Conclusion:
The Tribunal concluded that the impugned order by the Commissioner (Appeals) could not be sustained, as the facts of the case did not align with the protection under Rule 57B(i) cited in the Grasim Industries Ltd. case. The law was well-settled by the decisions in Maruti Suzuki Ltd. and Gujarat Narmada Fertilizers Co. Ltd., mandating compliance with Rule 57CC(1) and sub-rule (9). Therefore, the order of the adjudicating authority was restored.

Final Judgment:
The appeal was disposed of, setting aside the Commissioner (Appeals)'s order and restoring the adjudicating authority's order. The Tribunal noted that the assessee could approach the concerned authority for any benefits under the amended provisions of law.

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