2017 (3) TMI 550 - AT - Central Excise

Applicability of Rule 6(3) of CCR, 2002/2004 - a byproduct called spent sulphuric acid emerging in the manufacturing process of LABSA - Such bye product whenever sold without end-use necessity of the law, duty was realized and that was paid to the treasury. Whenever this spent sulphuric acid is cleared with end-use requirement of N/N. 6/2002-CE dated 1.3.2002 for use thereof in manufacture of fertilizer, there was no duty realization made since such clearance is exempt as per the notification - appellant claims that clearances made to notified end user under specific notification being exempt, the case of the appellant is beyond the purview of Rule 6(3) of CCR, 2002/2004. Held that - appellants conduct clearly shows that it has distinguished the clearances to two different buyers. The first category of buyers are duty paying buyers and the second category buyers are notified end users. Therefore, there appears no prejudice caused by appellant to Revenue to be debarred from grant of the CENVAT credit to it nor the prescribed percentage of levy is imposable on it - spent sulphuric acid not being final product, the appellant cannot be denied of the CENVAT credit available to it on the input used to manufacture LABSA. Mere emergence of spent sulphuric acid does not debar the appellant to this benefit - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellant is entitled to CENVAT credit on spent sulphuric acid cleared to notified end users for use in the manufacture of fertilizer?
2. Whether the appellant is liable to pay duty on spent sulphuric acid sold to buyers not covered by the end user notification?
3. Whether the emergence of spent sulphuric acid as a by-product in the course of manufacturing LABSA affects the appellant's eligibility for CENVAT credit?
4. Whether the appellant's conduct in distinguishing clearances to different buyers justifies the grant of CENVAT credit?

Analysis:

Issue 1:
The appellant contended that spent sulphuric acid cleared to notified end users for fertilizer manufacturing, as per a specific notification, is exempt from duty realization. The appellant argued that the exemption does not attract Rule 6(3) of CENVAT Credit Rules, 2002/2004 since the by-product emerged as a technological necessity during LABSA manufacture. The Tribunal held that when sold to notified end users, duty exemption applies, and it does not render the appellant liable for manufacturing exempted goods.

Issue 2:
Revenue argued that the duty was appropriately paid on spent sulphuric acid sold to buyers not covered by the end user notification. However, the Tribunal noted that the appellant's conduct demonstrated a clear distinction between duty-paying buyers and notified end users. As such, the Tribunal found no prejudice to Revenue, and the appellant was not debarred from CENVAT credit or subjected to a levy.

Issue 3:
The emergence of spent sulphuric acid as a by-product, beyond the appellant's control during LABSA manufacture, raised concerns regarding CENVAT credit eligibility. The Tribunal referenced legal precedents, including the Apex Court's judgments, to support the appellant's position that the by-product's production did not hinder CENVAT credit entitlement due to technological constraints and lack of control over the by-product's generation.

Issue 4:
The appellant's conduct in distinguishing clearances to different buyers, i.e., duty-paying buyers and notified end users, was crucial in determining CENVAT credit eligibility. The Tribunal emphasized that the appellant's differentiation between buyer categories did not prejudice Revenue, aligning with the High Court's ruling that spent sulphuric acid, not being the final product, did not deprive the appellant of CENVAT credit on inputs used for LABSA manufacturing.

In a specific appeal regarding the time bar aspect, the Tribunal directed the appellate Commissioner to first examine the limitation issue. As the examination was not conducted, the matter was remanded to the Commissioner for a decision on the limitation aspect before addressing the merits of the case.

Overall, the Tribunal allowed the appeals based on the factual and circumstantial considerations, affirming the appellant's entitlement to CENVAT credit on spent sulphuric acid cleared to notified end users and emphasizing the absence of prejudice to Revenue in the appellant's conduct.