2013 (12) TMI 859 - AT - Central Excise

Cenvat Credit - emergence of non-dutiable goods - The Iron Ore Fines emerge at the stage of crushing of Iron Ore and thereafter Iron Ore fines are taken out from the raw material handling plant - Classification under sub-heading 26011120 of the Tariff or 26011110 - Held that - Neither the show cause notice nor the order passed by the original adjudicating authority mention as to which cenvat credit availed inputs and/or input services have been used upto this stage. When the show cause notice and the order-in-original do not even mention as to which common cenvat credit availed inputs/input services have been used upto the stage of crushing of Iron Ore at which stage Iron Ore Fines emerge, on this very ground itself, the demand under Rule 6(3) would be liable to be set aside. Moreover in this case, even if, there are some common inputs/input services and the assessee wants to comply with the provisions of sub-rule (2) of Rule 6 by maintaining separate account and inventory of input and input services meant for dutiable and excisable product, it is not possible as the Iron Ore Fines emerge as an unavoidable and inevitable byproduct. The provisions of Rule 6(2) read with Rule 6(3) cannot be interpreted to cast an obligation on an assessee which is impossible and thereafter penalize him for failure to discharge an impossible obligation - Decided against Revenue.

Summary

Issues:
Classification of Iron Ore Fines under Tariff, Application of Rule 6(3) of Cenvat Credit Rules, 2004, Manufacture of Iron Ore Fines, Obligation to maintain separate account and inventory for dutiable and exempted products.

Classification of Iron Ore Fines under Tariff:
The case involved the classification of Iron Ore Fines under the Tariff, with the department contending that Iron Ore Fines are fully exempt from duty. The department issued a show cause notice demanding payment of duty on Iron Ore Fines cleared without payment. The Addl. Commissioner confirmed the demand under Rule 6(3), but the Commissioner (Appeals) set it aside, stating that Iron Ore Fines do not amount to manufacture and are not excisable. The Revenue appealed this decision.

Application of Rule 6(3) of Cenvat Credit Rules, 2004:
The Departmental Representative argued that since common cenvat credit availed inputs were used for both dutiable and exempted final products, and separate accounts were not maintained, Rule 6(3) should apply. It was emphasized that Iron Ore Fines are exempted goods under Cenvat Credit Rules. The respondent contended that Iron Ore Fines are not a manufactured product and cited relevant case laws to support this argument.

Manufacture of Iron Ore Fines:
The respondent argued that Iron Ore Fines do not qualify as a manufactured product, emerging during the crushing of Iron Ore. They highlighted that the show cause notice did not specify the common inputs or input services used up to this stage, making Rule 6(3) inapplicable. The judge agreed, stating that the demand under Rule 6(3) should be set aside as the obligation to maintain separate accounts for dutiable and exempted products was impossible due to Iron Ore Fines being an unavoidable byproduct.

Obligation to maintain separate account and inventory for dutiable and exempted products:
The judge emphasized that even if there were common inputs, complying with Rule 6(2) by maintaining separate accounts was impossible due to the nature of Iron Ore Fines as a byproduct. The principle of Lex non Cogit ad impossibilia was applied, stating that an obligation that is impossible to fulfill cannot be penalized. Consequently, the impugned order was deemed unsustainable, and the Revenue's appeal was dismissed.