2018 (12) TMI 1170 - AT - Central Excise

CENVAT Credit - inputs utilised in by-products/waste products - circular no. B-4/7/2000-TRU dated 3 April 2000 - Held that - There was no cause to examine the applicability of circular no. B-4/7/2000-TRU dated 3 April 2000 in which Central Board of Excise & Customs has negated the scope for invoking exclusion from eligibility for CENVAT credit merely because the inputs had been utilised in waste or by-products. As the show cause notices in the impugned proceedings, except for the one pertaining to September 1998, had sought to invoke the demands by disputing the claim of the assessee that lean gas is a by-product, it was incumbent upon the original authority to examine that as a prerequisite for determination of liability - the validity of the claim of central excise authorities that liability should be confirmed. The original authority is directed to examine the scope of the applicability of the exclusion from rule 6 of CENVAT Credit Rules, 2002 on the lean gas claimed to be a by-product in the manufacturing process of the respondent - appeal allowed by way of remand.

Summary

Issues involved:
- Lack of legality and propriety in dropping demands based on reliance on a Supreme Court decision
- Interpretation of CENVAT Credit Rules and Central Excise Rules regarding demands on exempted products
- Obligation of maintaining separate accounts for utilisation of inputs in exempted products
- Challenge by Revenue despite previous approvals and contentions
- Failure to ascertain if "lean gas" is a final product
- Applicability of circular on eligibility for CENVAT credit
- Determination of "lean gas" as a by-product or final product
- Necessity to examine if "lean gas" is a by-product for liability determination
- Setting aside the impugned order and directing reexamination of the applicability of exclusion from CENVAT Credit Rules on "lean gas"

Analysis:
The judgment concerns the Revenue's appeal against the dropping of demands in seven show cause notices by the Commissioner, based on the reliance on a Supreme Court decision regarding CENVAT credit on inputs used in manufacturing, even when waste or by-products emerge. The demands were related to the value of clearances of 'lean gas' and 'liquefied petroleum gas' manufactured using common inputs, where CENVAT credit had been availed. The Revenue contended that the exempted output was a final product, and the respondent failed to maintain separate accounts, contrary to the decision of the Supreme Court in a similar case.

The Authorized Representative argued that the impugned proceedings should have succeeded as the respondent did not maintain separate accounts for inputs in the exempted product. The Counsel for the respondent questioned the challenge by Revenue despite previous approvals. The judgment noted that the original authority did not determine if 'lean gas' was a final product, and the applicability of a circular on CENVAT credit eligibility was not considered. The Supreme Court decision was favorable to the respondent, leading to the dismissal of the appeals based on the show cause notices' failure to designate the disputed goods as final products.

The Tribunal emphasized the importance of the show cause notice as the foundation of the demand under the Central Excise Act. It was concluded that 'lean gas' was considered a by-product, and the appeals were dismissed based on this fact. The Tribunal directed the original authority to reexamine the applicability of the exclusion from CENVAT Credit Rules on 'lean gas' claimed to be a by-product in the manufacturing process. The judgment was pronounced on 20/12/2018, setting aside the impugned order for further examination.