2018 (8) TMI 1670 - AT - Central Excise

CENVAT credit - inputs used in manufacture of both exempted goods and dutiable goods - Remand order - determination of value of chloroquine at 115% of the cost of manufacture for discharge of liability at 8% under rule 57AD of the erstwhile Central Excise Rules 1944 - Held that - That chloroquine phosphate is an exempted product is not in dispute. Payment of duty on exempted products does not, in any way, take it out of sphere of the definition of the exempted goods in the Central Excise Rules, 1944 or the successor rules carved out for administration of CENVAT Credit Rules, 2004. Accordingly, to the extent that chloroquine phosphate is an exempted goods and that in the manufacture of those, and other dutiable goods, the appellant has utilized common inputs taking credit thereof, without distinguishing between utilization on exempted goods and on dutiable goods, the liability under rule 57AD of Central Excise Rules, 1944 cannot be avoided. The appellant has claimed that duty liability has been discharged on both chloroquine phosphate and bulaquine by adopting a value which takes into account both these products. If that is so, the duty discharged on chloroquine phosphate is liable to be set off against liability under rule 57AD owing to the exempt nature of the chloroquine phosphate . That is an aspect that needs to be ascertained by the lower authorities. Matter remanded for ascertaining (i) to ascertain if duty liability has been discharged on chloroquine phosphate at 16% of the value; (ii) determine the value of chloroquine phosphate for the purpose of liability under rule 57AD of Central Excise Rules, 1944; and to compute the resultant duty liability that remains - appeal allowed by way of remand.

Issues:
1. Determination of value of 'chloroquine' for discharge of liability under rule 57AD of Central Excise Rules 1944.
2. Availment of CENVAT credit on inputs used in the manufacture of exempted and dutiable goods.
3. Classification and packaging of 'chloroquine phosphate' and 'bulaquine' as a composite product 'aablaquin'.
4. Discharge of duty liability on 'chloroquine phosphate' and 'bulaquine' and its impact on liability under rule 57AD.
5. Interpretation of rules regarding exempted and dutiable goods in relation to CENVAT credit.

Analysis:
1. The appeal involved a dispute regarding the determination of the value of 'chloroquine' for discharging liability under rule 57AD of the Central Excise Rules 1944. The appellant, a manufacturer of 'chloroquine phosphate' and 'bulaquine', sold them as a composite pack called 'aablaquin'. The issue arose when the lower authority required the value of 'chloroquine' to be determined at 115% of the cost of manufacture for liability discharge at 8%. The appellant claimed they cleared the goods at the appropriate rate applied to the composite pack and sought CENVAT credit on common inputs used for both products.

2. The crux of the matter revolved around the availment of CENVAT credit on inputs used in the manufacturing of both exempted and dutiable goods. The appellant contended that the duty liability had been discharged on the composite pack, including both 'chloroquine phosphate' and 'bulaquine'. However, the remand order aimed to determine if the duty liability on 'chloroquine phosphate' had been discharged at 16% of the total value and to calculate the remaining duty liability under rule 57AD.

3. The issue of classification and packaging of 'chloroquine phosphate' and 'bulaquine' as 'aablaquin' was raised. The appellant argued that the composite packaging did not create a new product and that the goods should be cleared separately as distinct products. The absence of a clear chemical description of 'aablaquin' and the necessary license under the Drugs and Cosmetics Rules 1945 indicated that the products should be treated separately.

4. The judgment highlighted that 'chloroquine phosphate' being an exempted product did not exempt it from the liability under rule 57AD. The duty paid on exempted products did not exclude them from the definition of exempted goods, necessitating the appellant to differentiate between the utilization of common inputs for exempted and dutiable goods to avoid liability under the rule.

5. The appellate tribunal modified the remand order to ascertain the duty liability discharge on 'chloroquine phosphate', determine its value for liability under rule 57AD, and compute the resulting duty liability. The decision emphasized the importance of correctly determining the duty liability and differentiating between exempted and dutiable goods for CENVAT credit purposes.

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