2018 (8) TMI 774 - AT - Central Excise

CENVAT Credit - Common inputs have been used in the manufacture of appellants final excisable product i.e. lead ingots and also in the manufacture of exempted silver bullion - non-maintenance of separate records - Held that - The appellants are essentially and primarily engaged in the manufacture of lead ingots. During the course of manufacture of said final product, dross emerges as an inevitable evil. Such dross is sent by the appellant to their job workers for extraction of silver bullion. The emergence of dross is in the nature of waste material and such waste material further been utilized for extraction of silver bullion to a small extent. Hon ble Bombay High Court decision in the case of Rallies India Ltd. vs. Union of India 2008 (12) TMI 46 - HIGH COURT BOMBAY has held that provisions of Rule 6 are not applicable when the product emerges either as a waste or as a by-product. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Applicability of Rule 6 regarding payment of duty on exempted products.
2. Use of common inputs in the manufacturing process.
3. Classification of lead dross and silver bullion as waste or by-product.
4. Interpretation of relevant case law.

Analysis:

1. The issue in this case revolves around the applicability of Rule 6 concerning the payment of duty on exempted products. The appellant, engaged in manufacturing lead ingots and alloys, avails Cenvat credit on duty paid raw materials. The contention was that common inputs were used in the manufacturing of both final excisable products and exempted silver bullion, leading to a demand for payment of duty on the exempted product.

2. It was argued that during the manufacturing process of lead ingots, lead dross emerges, which is not considered the final product. This lead dross is then processed by job workers to produce silver bullion, which is exempt from duty payment. The authorities initiated proceedings against the appellant, resulting in a demand for duty payment, interest, and penalties.

3. Upon careful consideration, the Tribunal observed that the appellant's primary activity is manufacturing lead ingots, with the emergence of lead dross being an inevitable by-product. The dross is sent to job workers for silver bullion extraction, with the waste material being utilized to a small extent for this purpose. Citing the decision of the Bombay High Court in Rallies India Ltd. vs. Union of India, it was established that Rule 6 does not apply when the product emerges as waste or a by-product. As the dross and silver bullion are considered by-products during the lead ingot manufacturing process, the Tribunal found the Bombay High Court's decision applicable and set aside the impugned order, allowing the appeal with any consequential relief.

4. In conclusion, the Tribunal's analysis focused on the classification of lead dross and silver bullion, the interpretation of Rule 6, and the application of relevant case law to determine the appellant's liability for duty payment on exempted products. The decision highlights the importance of distinguishing between waste, by-products, and final products in the context of excise duty liability, providing clarity on the treatment of such materials in the manufacturing process.