2008 (9) TMI 301 - AT - Central Excise

Production of exempted goods and reversal of Cenvat Credit - respondents are manufacturing nitrogen gas by using atmospheric air and in the course of manufacturing oxygen gas comes into existence, which is released in to air held that Commissioner (Appeals) reliance on the Board s Circular dated 1-10-96 is correct, as in the said circular, CBEC has concluded on an identical cases, that gases falling under Chapter 28 & 29 produced in a factory and allowed to escape in the atmosphere are not to be regarded as manufactured . It is undisputed in this case that oxygen gas, which is released into air is not a manufactured product. Hence, question of reversal of credit of duty on input as is used productions of the said oxygen gas does not arise.

Summary

Issues:
- Appeal against order dropping proceedings for reversal of Cenvat credit on nitrogen used in oxygen manufacturing.
- Applicability of Rule 6 of Cenvat Credit Rules, 2002 on Cenvat credit availed on liquid nitrogen.
- Interpretation of Board's Circular No. 246/80/96-CX regarding gases released during manufacturing process.

Analysis:
1. The appeal was filed by the revenue challenging the order-in-original that dropped proceedings initiated against the respondents for reversing Cenvat credit on nitrogen used in oxygen manufacturing. The Commissioner (Appeals) upheld the order-in-original, noting that the oxygen gas released during the manufacturing process is not chargeable to duty as per CBEC Circular No. 246/80/96-CX. The revenue contended that Cenvat credit on liquid nitrogen used in manufacturing oxygen should be reversed proportionately.

2. The key contention revolved around the applicability of Rule 6 of the Cenvat Credit Rules, 2002 on the Cenvat credit availed on liquid nitrogen. The Asst. Commissioner adjudicated the case, holding that since there was no sale of oxygen gas, Rule 6 would not be applicable. The Commissioner relied on precedents to support this view, emphasizing that gases lost during the manufacturing process are considered as used in or in relation to the manufacturing process, and hence, credit cannot be denied on the quantity of gas lost.

3. The interpretation of Board's Circular No. 246/80/96-CX was crucial in determining the taxability of gases released during the manufacturing process. The Commissioner found the circular applicable, as it stated that gases allowed to escape into the atmosphere are not to be regarded as "manufactured." As oxygen gas released into the air was not a manufactured product, the question of reversing the credit of duty on the input used in the production of oxygen did not arise.

4. Ultimately, the Tribunal rejected the revenue's appeal, affirming the Commissioner's decision. The Tribunal concurred with the Commissioner's reasoning, emphasizing that the oxygen gas released during the manufacturing process was not chargeable to duty, aligning with the interpretation of the Board's Circular. The impugned order was deemed well-reasoned and did not warrant any interference, leading to the dismissal of the revenue's appeal.