2015 (11) TMI 1247 - AT - Central Excise

Denial of benefit of captive consumption Notification No.67/95-CE dt. 16-3-1995 - denial of exemption only on the ground that Sulphuric Acid (H2SO4) is a final product cleared at Nil rate and held that since oxygen is captively used in the manufacture of Copper Anode (dutiable) and Sulphuric Acid (exempted) they are not eligible for Notfn 67/95 - Held that - Sulphuric acid is cleared as by-product as explained in the preceding paragraphs and the final product is only copper anode and not sulphuric acid. The waste gas which emerges out out of process of purification of copper concentrate in Sulphur Dioxide which is further converted into Sulphur Trioxide which is absorbed in Sulphuric Acid to form Oleum. This Oleum is dissolved in water to get purest form of Sulphuric Acid. It is pertinent to state that under the Environment (Protection) Rules, 1986 vide sub-rule (2) of Schedule I and as per Sl.No.21 of the Schedule I of the Environment Rules, it is mandatory for the appellant to prevent emission of oxides of sulphur in Smelter and Convertor of copper and it stipulates that waste gases are to be utilized in the manufacture of Sulphuric Acid so as to prevent emission of Sulphur Dioxide. - as per Notfn 67/95, both input oxygen and the final products are rightly covered in the Table of the Notification. Proviso (vi) of the notification stipulates that this notification is applicable provided appellant complied with Rule (6) of CCR 2001. The only condition is that Sub-Rule (2) of Rule 6 of CCR is required to be complied with. In the present case, as per sub-rule (2), appellant manufactured oxygen used in the manufacture of excisable product and they had no obligation to maintain separate accounts for oxygen used in the manufacture of Sulphuric Acid. It is established that appellant did not use oxygen produced in the manufacture of Sulphuric Acid. Accordingly, conditions of Notfn 67/95 are complied. Following the Apex Court decision in the case of UOI Vs Hindustan Zinc Ltd. (2005 (2) TMI 119 - SUPREME COURT OF INDIA), we hold that appellants are eligible for benefit of Notfn 67/95 and the duty demand on the quantity of oxygen so used in the manufacture of sulphuric acid, is liable to be set aside. - Decided in favour of assessee.

Issues Involved:
1. Excisability and marketability of oxygen gas captively consumed.
2. Applicability of Exemption Notification No. 67/95-CE for oxygen gas used in the manufacture of exempted goods.
3. Compliance with Rule 6 of the CENVAT Credit Rules, 2001 and 2002.
4. Classification of Sulphuric Acid as a by-product or final product.
5. Eligibility for Modvat/Cenvat credit.

Issue-wise Detailed Analysis:

1. Excisability and Marketability of Oxygen Gas Captively Consumed:
The appellants manufactured oxygen gas in their plant and used it captively in the production of copper anode. The adjudicating authority confirmed the demand for excise duty on the oxygen consumed captively, asserting its marketability. The appellants argued that the oxygen produced was not marketed and was used solely for the purification of copper concentrate. They contended that further purification and infrastructure would be necessary to make the oxygen marketable, which they did not possess.

2. Applicability of Exemption Notification No. 67/95-CE:
The appellants claimed exemption under Notification No. 67/95-CE for the oxygen gas used in the manufacture of copper anode, a dutiable final product. They argued that the oxygen was not used in the manufacture of sulphuric acid, an exempted product, and hence, they were eligible for the exemption. The adjudicating authority denied the exemption, stating that sulphuric acid, cleared at a nil rate, was a final product, and since oxygen was used in its manufacture, the exemption was not applicable.

3. Compliance with Rule 6 of the CENVAT Credit Rules, 2001 and 2002:
The appellants contended that they complied with Rule 6 of the CENVAT Credit Rules, which required maintaining separate accounts for inputs used in the manufacture of dutiable and exempted goods. They argued that oxygen was used only in the manufacture of copper anode and not in the production of sulphuric acid. The adjudicating authority, however, held that since sulphuric acid was an exempted final product, the appellants did not comply with the rule.

4. Classification of Sulphuric Acid as a By-Product or Final Product:
The appellants referred to the Supreme Court's decision in the case of UOI Vs Hindustan Zinc Ltd., which held that sulphuric acid, emerging as a technological necessity, was a by-product and not a final product. They argued that sulphuric acid produced during the purification of copper concentrate was a by-product and not a final product, thus making them eligible for the exemption under Notification No. 67/95-CE.

5. Eligibility for Modvat/Cenvat Credit:
The appellants claimed Modvat/Cenvat credit for the inputs used in the manufacture of final products, arguing that the oxygen used in the production of copper anode was eligible for credit. The adjudicating authority, however, demanded duty on the oxygen used in the manufacture of sulphuric acid, asserting that it was an exempted final product.

Judgment Analysis:
The Tribunal carefully considered the submissions and the manufacturing process. It found that oxygen was an essential input for the production of copper anode and was not used in the manufacture of sulphuric acid. The Tribunal held that the oxygen produced in the appellants' plant was used exclusively for the purification of copper concentrate and not in the production of sulphuric acid. Therefore, the appellants were eligible for the exemption under Notification No. 67/95-CE.

The Tribunal also referred to the Supreme Court's decision in UOI Vs Hindustan Zinc Ltd., which supported the appellants' claim that sulphuric acid was a by-product. The Tribunal concluded that the appellants complied with Rule 6 of the CENVAT Credit Rules and were eligible for Modvat/Cenvat credit. Consequently, the duty demand and penalty imposed by the adjudicating authority were set aside, and the appeal was allowed.

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