2012 (6) TMI 51 - AT - Central Excise

Cenvat credit by-product input used for manufacture of dutiable and exempted final product assessee was paying 10% of the value of the exempted final product at the time of clearance from the factory Held that - when the by-product, residual and waste & scrap is arising in the course of manufacture of main product, regularly and continuously and the same being sold in the open market, the intention of the manufacturer to manufacture and sell not only the main product but also the subsidiary product, cannot be considered as erroneous. It is his submission that the process of manufacture of by-product which arises is a continuous one and is continuously sold in the market. It is his submission that the provisions of Rule 11(3) of CENVAT Credit Rules, 2004 is not at all applicable as the appellants have followed the provisions of Rule 6(3) of CENVAT Credit Rules, 2004. It is his submission that the provisions of Rule 11(3) of CENVAT Credit Rules, 2004 will be applicable to a case where the manufacturer is manufacturing a final product , which is exempted from payment of duty. It is his submission that the appellant being a manufacturer of more than one final product and discharging duty liability on other final products and only one final product being exempted, Rule 11(3) cannot be made applicable. provisions of Rule 6(2) and Rule 6(3) read together will cover the case of the assessee inasmuch as the appellant has claimed that they have reversed an amount as indicated in the provisions of Rule 6(3) of CENVAT Credit Rules, 2004. in the case of Bharat Petroleum Corpn. Ltd. (1992 (2) TMI 250 (SC)) would cover the issue in favour of the assessee. order is set aside and the appeal is allowed

Issues Involved:
1. Classification and exemption status of Menthol Crystals (BP/USP Grade).
2. Applicability of Rule 6 and Rule 11 of the CENVAT Credit Rules, 2004.
3. Requirement for reversal of CENVAT Credit lying in balance as on 31.3.08.
4. Whether Peppermint Oil, Menthone, and Terpenes are by-products or independent final products.

Issue-wise Detailed Analysis:

1. Classification and Exemption Status of Menthol Crystals (BP/USP Grade):
The appellants manufacture Menthol Crystals (BP/USP Grade), Menthol Powder, and Peppermint Oil, among others. The Menthol Crystals (BP/USP Grade) were classified under Chapter Heading 3303.9021 and were fully exempted from Central Excise duty by Notification No. 04/2008-CE, dated 1.3.08. The appellants were availing CENVAT Credit on inputs like De-Mentholised Oil and Menthol Flakes.

2. Applicability of Rule 6 and Rule 11 of the CENVAT Credit Rules, 2004:
The core issue was whether the appellant needed to reverse the CENVAT Credit lying in balance as on 31.3.08 due to the exemption of Menthol Crystals. The appellant argued that they were following Rule 6(3) of CENVAT Credit Rules, 2004, by paying 10% of the value of the exempted product at the time of clearance. The adjudicating authority, however, concluded that the raw materials were used exclusively for the manufacture of exempted Menthol Crystals, thus necessitating the reversal of CENVAT Credit under Rule 11(3).

3. Requirement for Reversal of CENVAT Credit Lying in Balance as on 31.3.08:
The Tribunal analyzed whether the appellant was required to reverse the CENVAT Credit lying in balance as on 31.3.08. It was undisputed that up to 31.3.08, all products were liable to duty, making the CENVAT Credit taken on inputs correct. The Tribunal noted that the manufacturing process resulted in two intermediate products: centrifuged crystals used to make Menthol Crystals and uncrystallised solution used to produce other dutiable products like Peppermint Oil, Menthone, and Terpenes.

4. Whether Peppermint Oil, Menthone, and Terpenes are By-products or Independent Final Products:
The Tribunal examined the manufacturing process and concluded that the inputs were used for manufacturing both exempted and dutiable products. The adjudicating authority's view that Menthol Crystals were the main product and others were unintended by-products was deemed incorrect. The Tribunal held that Rule 6(2) and Rule 6(3) applied, allowing the appellant to reverse an amount as per Rule 6(3) instead of reversing the entire CENVAT Credit.

Conclusion:
The Tribunal found that the adjudicating authority's order was incorrect and unsustainable. The provisions of Rule 6(2) and Rule 6(3) of the CENVAT Credit Rules, 2004, covered the appellant's case, as they had reversed an amount equivalent to 8%-10% of the value of the exempted goods. The Tribunal also referenced the Supreme Court judgment in Bharat Petroleum Corpn. Ltd., supporting the appellant's position. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief to the appellant.

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