2007 (7) TMI 71 - AT - Central Excise

Demand - Question arises whether excisable by-product liable to be treated as a final product for the purposes of Rule 57CC of CER 1944- Matter referred to Larger bench to decide afresh

Summary

Issues Involved:
1. Applicability of Rule 57CC and Rule 57D to by-products.
2. Definition and treatment of by-products versus final products.
3. Maintenance of separate accounts for inputs used in dutiable and exempted products.
4. Legal precedents and binding authority of larger bench decisions.

Issue-wise Detailed Analysis:

1. Applicability of Rule 57CC and Rule 57D to by-products:
The primary issue was whether Rule 57CC, which mandates payment of 8% of the sale price for exempted goods if separate accounts are not maintained, applies to by-products like H2SO4. The respondents argued that H2SO4 was a by-product and not a final product, thus Rule 57D, which allows MODVAT credit on inputs contained in by-products, should apply. The appellate authority accepted this argument, holding that Rule 57CC was not applicable, while Rule 57D was. The Revenue contended that once a by-product is sold, it becomes a final product for the purposes of Rule 57CC.

2. Definition and Treatment of By-products versus Final Products:
The Tribunal had to determine whether H2SO4, emerging as a by-product in the manufacture of copper anodes, should be considered a final product. The Revenue argued that H2SO4, being notified as a final product under Rule 57A, should be treated as a final product for Rule 57CC purposes. They cited several precedents, including the Tribunal's larger Bench decision in Rallis India Ltd., which held that excisable by-products should be treated as final products for Rule 57CC.

3. Maintenance of Separate Accounts for Inputs:
The respondents did not maintain separate accounts for inputs used in dutiable and exempted products, as required under Rule 57CC(9). The Revenue argued that since copper concentrate was a common input for both copper anodes (dutiable) and H2SO4 (exempted), the respondents should pay 8% of the sale price of H2SO4 under Rule 57CC(1). The Tribunal had to consider whether the failure to maintain separate accounts justified the demand.

4. Legal Precedents and Binding Authority of Larger Bench Decisions:
The Tribunal examined whether the decision in Rallis India Ltd. was a binding precedent. The respondents argued that the Rallis India decision was per incuriam and should not be followed. They cited other cases, including Shakumbari Sugar & Allied Industries Ltd., where the Supreme Court held that by-products like bagasse were not final products, and thus Rule 57CC did not apply. The Tribunal noted the conflict in decisions and decided to refer the matter to a larger Bench to resolve the issues.

Conclusion:
The Tribunal concluded that there was a conflict in the interpretation of Rule 57CC and Rule 57D concerning by-products and final products. The matter was referred to a larger Bench to consider whether the decision in Rallis India Ltd. should be followed as a binding precedent and whether Rule 57CC applies to manufacturers of excisable final products and by-products using common inputs. The operative part of the order was pronounced in open court on 13-7-2007.