2018 (2) TMI 1303 - AT - Central Excise

Applicability of Rule 6(3) (i) of Cenvat Credit Rules, 2004 - Sulphuric Acid, a by-product, emerged during the course of manufacture of dutiable Zinc and Lead - clearance of taxable as well as exempt goods - Held that - identical issue decided in appellant own case Union of India & Others Versus M/s. Hindustan Zinc Ltd. 2014 (5) TMI 253 - SUPREME COURT , where it was held that the Sulphuric Acid, which has emerged as a technical necessity, which is a by-product, cannot attract the provisions of the said Rule, as the same are applicable only to the final products . Generation of sulphur dioxide gas, during the course of manufacture of Zinc and Lead, is a technical necessity and no input service has been used exclusively or commonly in such process. This much is very clear from the verification report. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability of the appellant to pay a percentage of the value of exempted sulphuric acid cleared under Rule 6(3) of Cenvat Credit Rules, 2004.

Analysis:
The judgment pertains to appeals against an order passed by the Commissioner of Central Excise, Udaipur, regarding the liability of the appellant to pay a percentage of the value of exempted sulphuric acid cleared during the manufacture of Zinc and Lead. The Revenue contended that since common input services were used, Rule 6 of Cenvat Credit Rules, 2004, applies, requiring the appellant to pay an amount equivalent to 6% of the exempted goods. The appellant argued that the sulphuric acid, a by-product, is not their final excisable product and thus, Rule 6 does not apply. The appellant relied on a previous decision of the Hon’ble Supreme Court in their own case to support their contention.

The Tribunal noted that the Hon’ble Supreme Court had previously examined a similar situation in the appellant’s case under the erstwhile Rule 57CC of Central Excise Rules, 1944. The Supreme Court held that the provisions of Rule 57CC, akin to Rule 6(3) in the present case, do not apply to a by-product like sulphuric acid, which emerges as a technical necessity during the manufacture of Zinc and Lead. The Court emphasized that such non-excisable goods arising during manufacturing do not attract the said Rule, which pertains to final products. The Tribunal found no legal or factual basis to distinguish this precedent in the present case.

Moreover, the impugned order attempted to differentiate between common inputs and common input services, contending that the Supreme Court’s ratio applied only to the former. However, the Tribunal disagreed, stating that the Supreme Court’s decision applied to both common inputs and common input services, as the essence of the ruling was about the payment of a percentage on exempted goods. The Tribunal also highlighted a spot verification report that confirmed no input services were used directly in the process of generating sulphuric acid from sulphur dioxide gas during Zinc and Lead manufacture. This factual finding further supported the Tribunal’s decision to set aside the impugned order and allow the appeals.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing that the provisions of Rule 6(3) did not apply to the exempted sulphuric acid and that the attempt to distinguish the Supreme Court’s decision was legally unsustainable. The impugned order was set aside, and the appeals were allowed.