2015 (7) TMI 181 - HC - Central Excise

Denial of MODVAT Credit - exemption in terms of Notification No.8/96-CE dated 23.7.1996 and Notification No.4/97-CE dated 1.3.97 - Whether Tribunal order is correct in rejecting the recovery of Modvat Credit attributable to the inputs relating to final product cleared under the exempted category under Rule 57C of Central Excise Rules, 1944 - Held that - Insofar as Rule 57D is concerned, the very language of Rule 57D makes it clear that credit of duty shall not be denied or varied on the ground that part of the inputs contained in any waste, refuse or by-product arising during the manufacture of the final product, or that the inputs have become waste during the course of manufacture of the final product. It also states that it is of no consequence whether the by-product such as waste, refuse or by-product is exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty or is specified as a final product. - as the Spent Sulphuric Acid is not a final product, as has been held in the decision of the Supreme Court and assuming it is a waste, refuse or by-product, it is chargeable to nil rate of duty, Rule 57D provides for taking credit. There is yet another factor which needs to be considered is that part of the Spent Sulphuric Acid, which is a by-product in the manufacture of the final product, namely, Acid Slurry, is cleared on payment of duty and part of it is cleared at nil rate of duty under Chapter X procedure in terms of Notification No. 8/96-CE dated 23.7.1996 and Notification No.4/97-CE dated 1.3.97. Therefore, the provisions of Rule 57D get squarely attracted to the present case and the Department shall not deny the credit of specified duty whether or not such waste or refuse is exempt from whole of the duty of excise leviable thereon or chargeable to nil rate of duty. - Decision in the case of Union of India v. Hindustan Zinc Ltd. 2014 (5) TMI 253 - SUPREME COURT - Decided against Revenue.

Summary

Issues:
1. Whether the Tribunal order correctly rejected the recovery of Modvat Credit for inputs related to final products cleared under the exempted category under Rule 57C of Central Excise Rules, 1944?

Detailed Analysis:

Issue 1:
The appellant, the Revenue, challenged the Tribunal's order dismissing their appeal regarding the recovery of Modvat Credit for inputs related to the final product cleared under the exempted category under Rule 57C. The respondent, an assessee manufacturing Linear Alkyl Benzene Sulphoric Acid, availed facilities under Rule 57G, with declared inputs as Linear Alkyl Benzene and Sulphuric Acid. The Department alleged that credit on inputs, especially Sulphuric Acid used to obtain Spent Sulphuric Acid, should be reversed if the final product was cleared at a nil rate of duty. The Original Authority disallowed the credit based on this premise.

Issue 2:
The assessee appealed to the Commissioner (Appeals), arguing that Spent Sulphuric Acid was a by-product, not a final product, and was cleared partly with duty payment and partly under exemption. The Commissioner (Appeals) referred to precedents and concluded that the lower authority's argument was untenable, supporting the assessee's position.

Issue 3:
Regarding the reversal of duty credit on Sulphuric Acid contained in Spent Sulphuric Acid cleared without duty payment, the Commissioner (Appeals) relied on specific provisions under Rule 57D, emphasizing that credit cannot be denied for inputs contained in waste or by-products arising during final product manufacture, even if exempt or chargeable at a nil rate of duty. Citing relevant cases, the Commissioner (Appeals) ruled in favor of the assessee.

Issue 4:
The Tribunal, following its previous decisions, dismissed the Revenue's appeal, affirming that the assessee was eligible for input duty credit on the Sulphuric Acid used in the manufacturing process, including the production of Spent Sulphuric Acid. The Tribunal's decision was based on established principles and precedents.

Issue 5:
The Revenue challenged the Tribunal's decision in the High Court, arguing that Spent Sulphuric Acid should not qualify for duty credit as a final product. The Court analyzed relevant judgments, including a Supreme Court ruling, affirming that Sulphuric Acid was a by-product, not a final product, entitling the assessee to Modvat Credit. The Court upheld the decisions of the Commissioner (Appeals) and the Tribunal, dismissing the appeal in favor of the assessee based on legal provisions and judicial precedents.