2011 (10) TMI 254 - AT - Central Excise

Common Input - Appellants manufacturing the refined oil and hydrogenised vanaspati - By products soap stock arises - CENVAT claimed on Caustic Soda Phosphoric Acid Hydrogen - Soap Stock was further processed to make Acid oil and cleared under Notification No.115/75 at NIL rate - AO demanded reversal of credit 8% of the price of the exempted goods - Held - In view of Priyanka Refineries Ltd (2009 - TMI - 76088 - CESTAT BANGALORE) it was held that the acid oil manufactured out of such waste would definitely be not covered by the provisions of Rule 6(2). Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the appellant-assessee is required to reverse 8% of the price of the exempted goods (acid oil) cleared without payment of duty.
2. Whether the extended period for limitation of the demand of duty is applicable.

Issue-Wise Detailed Analysis:

1. Reversal of 8% of the Price of Exempted Goods:
The core issue revolves around whether the appellant-assessee must reverse 8% of the price of acid oil, which is cleared without payment of duty by availing the benefit of Notification No.115/1975-CE. The relevant facts are that during the refining process of oil and manufacturing of hydrogenised vanaspati, free fatty acids (soap stock) are generated. This soap stock is further used to manufacture acid oil, which is exempt from duty. The Revenue argued that common inputs (Caustic Soda, Phosphoric Acid, Hydrogen gas) are used for both dutiable and exempted goods, thus necessitating the reversal of credit as per Rule 6(2) of CENVAT Credit Rules.

The appellant contended that the inputs were used in the refining process and not directly in the manufacture of acid oil. They argued that soap stock is a by-product, not a final product, and thus, the reversal of 8% does not apply. They cited the High Court of Mumbai's decision in Rallis India Ltd Vs UoI, which held that waste arising during the manufacture of a dutiable final product does not necessitate reversal of credit.

The Tribunal found that soap stock, arising inevitably during the manufacture of refined oil and hydrogenised vanaspati, is considered waste, not a final product. The Tribunal referenced the case of Shree Siddhi Vinayaka Agro Extractions (P) Ltd., where soap stock was held as waste. Thus, the acid oil manufactured from such waste is not subject to the provisions of Rule 6(2) for reversing 8% of its value. The Tribunal concluded that the impugned order holding against the appellant on merit should be set aside.

2. Extended Period for Limitation of the Demand of Duty:
The Revenue was aggrieved by the dropping of the demand for the extended period of limitation. The appellant argued that they did not use common inputs for the manufacture of acid oil and maintained proper records as required. The Tribunal, having decided the primary issue in favor of the assessee on merits, found that the question of the extended period of limitation did not survive.

Conclusion:
The Tribunal allowed the appeals filed by the assessee and rejected the appeals filed by the Revenue. The impugned order holding against the appellant on merit was set aside, and the issue of the extended period of limitation was rendered moot as the primary issue was decided in favor of the assessee.