2019 (6) TMI 1614 - AT - Central Excise

CENVAT Credit - total price of coal tar and coal gas, which comes into existence during the manufacture of coke at the time of their clearance from Tata Steel s steel plant at Jamshedpur, in terms of Rule 6(3)(b) of the Cenvat Credit Rules - period from June 2003 to August, 2007 - HELD THAT - The issue involved in the instant case stands settled by the Hon ble Supreme Court s decision in UNION OF INDIA OTHERS VERSUS M/S. HINDUSTAN ZINC LTD. 2014 (5) TMI 253 - SUPREME COURT . Therein the Supreme Court decided a batch of appeals preferred by the Union of India on the issue. One of the decisions which was affirmed by the Supreme Court in this case was the decision of the Bombay High Court in RALLIS INDIA LTD. VERSUS UNION OF INDIA 2008 (12) TMI 46 - HIGH COURT BOMBAY , which had reversed the decision of the Larger Bench of the Tribunal in RALLIES INDIA LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, SALEM 2006 (12) TMI 162 - CESTAT, MUMBAI , which was relied in issuing the show cause notice. Thus, it is an undisputed fact that the entire quantity of coal is completely utilized for production of coke and no part thereof forms a part of the coal gas or coal tar, which inevitably comes into existence as a technological necessity. Here also the appellant cannot use lesser quantity of coal only to produce coke and not produce coal gas or coal tar. Hence, it has to be concluded that the appellant has consumed the entire quantity of coal in the production of coke. Further, merely because coal tar is recovered by a recovery process in the coke plant, from the mixtures of the several by products which arise in the course of production of coke from coal, as and by way of technological necessity, the same cannot and does not become a final product. The provisions of Rule 6(3)(b) of the Cenvat Credit Rules are inapplicable to the instant case and, consequently, the appellant is not required to make payment of any amount contrary to what has been held in the impugned order - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether Tata Steel Ltd. was required to pay an amount equal to 8% or 10% of the total price of coal tar and coal gas under Rule 6(3)(b) of the Cenvat Credit Rules during the period from June 2003 to August 2007.

Issue-wise Detailed Analysis:

1. Payment Requirement under Rule 6(3)(b) of the Cenvat Credit Rules:
The core issue in the appeal was whether Tata Steel Ltd. was obligated to pay 8% or 10% of the total price of coal tar and coal gas, which are byproducts arising during the manufacture of coke, under Rule 6(3)(b) of the Cenvat Credit Rules. The appellant argued that both coal tar and coal gas are byproducts and not final products, a fact acknowledged in the show cause notice and supported by technical literature. The appellant cited various authoritative sources, including Kirk-Othmer’s Encyclopedia, The Columbia Encyclopedia, and Wikipedia, to substantiate that coal tar and coal gas are byproducts of coke production.

2. Revenue’s Argument:
The Revenue contended that coal gas and coal tar are excisable goods classifiable under Chapter 27 of the Central Excise Tariff, cleared at NIL rate of duty, and that Tata Steel availed cenvat credit on common inputs without maintaining separate accounts or paying the required amounts under Rule 6(3)(b). The Revenue relied on the Larger Bench decision in Rallies India Ltd. and argued that coal gas and coal tar should be treated as final products, not byproducts, necessitating compliance with Rule 6(3)(b).

3. Appellant’s Reliance on Judicial Precedents:
The appellant referenced the Supreme Court decision in Union of India vs. Hindustan Zinc Limited, which held that byproducts arising as technological necessities in the manufacturing process are not final products. The appellant also cited subsequent decisions following this precedent, reinforcing that byproducts should not be treated as final products under Rule 6(3)(b).

4. Tribunal’s Analysis and Conclusion:
The Tribunal examined the submissions and found that the issue was settled by the Supreme Court in Hindustan Zinc Limited, which clarified that byproducts arising out of technological necessity in the manufacturing process do not attract the provisions of Rule 6(3)(b). The Tribunal noted that coal is entirely utilized in producing coke, and coal tar and coal gas arise as technological necessities, not as final products. Therefore, the provisions of Rule 6(3)(b) were deemed inapplicable to the appellant’s case.

5. Final Judgment:
The Tribunal concluded that the impugned order demanding payment under Rule 6(3)(b) and imposing penalties could not be sustained. The appeal filed by the appellant was allowed, and the impugned order was set aside, providing consequential relief to the appellant.

Conclusion:
The Tribunal, applying the Supreme Court’s decision in Hindustan Zinc Limited, held that coal tar and coal gas are byproducts, not final products, and thus, Tata Steel Ltd. was not required to pay amounts under Rule 6(3)(b) of the Cenvat Credit Rules. The appeal was allowed, and the impugned order was set aside.