2016 (11) TMI 924 - AT - Central Excise

CENVAT credit - iron ore - treatment of Iron Ore Fines for cenvat credit purpose, in dispute - Held that - Admittedly, Iron Ore Lumps are put through a process of crushing to obtain the desired size and consistency. Iron Ore Fines of smaller size and of different consistency emerge which cannot be put into the intended use by the respondent. The point for decision is that whether the Iron Ore Fines, which are not used by the respondent in further manufacture and cleared, will attract the provisions of Rule 3 (5) of Cenvat Credit Rules, 2004. Admittedly, the Iron Ore procured on payment of duty cannot be used as such. The same are put through a process of crushing to obtain a required level of Iron Ore Concentrate. The respondent did obtain such concentrate and use the same for further manufacture. Such being the case, incidental emergence of Iron Ore Fines, which cannot be put into the same use by the appellant, and accordingly cleared by them, for a consideration, will not attract the provisions of the said Rules. The inputs are put to use as intended by them. The emerging fines, which is nothing but a incidental product, cannot be equated to the inputs (Iron Ore) as such - appeal rejected - decided against appellant.

Summary

Issues:
1. Treatment of Iron Ore Fines for cenvat credit purpose.
2. Whether Iron Ore Fines emerging from the crushing process should be treated as clearance of inputs requiring reversal of credit.
3. Interpretation of Rule 3(5) of Cenvat Credit Rules, 2004 regarding the clearance of Iron Ore Fines.
4. Applicability of excise duty liability on exported Iron Ore Fines.

Analysis:
The case involved a dispute regarding the treatment of Iron Ore Fines for cenvat credit purpose. The respondents, engaged in manufacturing steel products, availed cenvat credit on duty paid for Iron Ore. The issue was whether the Iron Ore Fines emerging during the crushing process should be considered as clearance of inputs, necessitating credit reversal. The Revenue contended that the Fines were not a manufactured product and should be treated as such. However, the Tribunal found no justification for this argument. It was noted that the Iron Ore Lumps were crushed to obtain the desired size and consistency, resulting in the emergence of Iron Ore Fines, which could not be used by the respondents. The crucial question was whether these Fines, not utilized in further manufacturing and cleared by the respondents, fell under Rule 3(5) of the Cenvat Credit Rules, 2004. Since the Iron Ore was processed to obtain concentrate for manufacturing and the Fines were incidental by-products not suitable for the same use, the Tribunal held that the Fines did not equate to the original inputs. Therefore, the provisions of Rule 3(5) were deemed inapplicable, and the appeal by the Revenue was rejected.

The Tribunal's decision was based on the understanding that the Iron Ore Fines, being an incidental product of the manufacturing process, did not warrant treatment as inputs requiring credit reversal. The ruling emphasized that the Fines, arising as a by-product during the crushing of Iron Ore Lumps, were not usable in the intended manufacturing process. As the respondents utilized the processed Iron Ore concentrate for further manufacturing and the Fines were cleared for a consideration, the Tribunal concluded that the Fines did not fall under the category of inputs as defined by the Cenvat Credit Rules. The judgment highlighted the distinction between the processed Iron Ore used for manufacturing and the incidental Fines, which were not suitable for the same purpose. Consequently, the Tribunal found no merit in the Revenue's appeal and rejected the claim for credit reversal based on the clearance of Iron Ore Fines.

In conclusion, the Tribunal's analysis revolved around the interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004 in the context of Iron Ore Fines clearance. The decision clarified that the incidental nature of the Fines, arising during the manufacturing process and not utilized for further production, exempted them from being considered as inputs necessitating credit reversal. By differentiating between the processed Iron Ore and the emergent Fines, the Tribunal established that the Fines did not align with the definition of inputs under the Rules. This comprehensive analysis led to the rejection of the Revenue's appeal, affirming the respondents' eligibility to avail cenvat credit on Iron Ore without the need for credit reversal due to the clearance of Iron Ore Fines.