2020 (12) TMI 856 - AT - Central Excise

Reversal of CENVAT Credit - clearance of sulphuric acid from the factory of the responden - demand raised under rule 6(3) of the CENVAT Credit Rules 2004 - Department entertained a view that sulphuric acid, cleared to the fertilizer units without payment of duty, is an exempted product and hence the respondent is liable to pay an amount in terms of rule 6(3)(i) of the Credit Rules - HELD THAT - What is important to note is that for the demands raised under rule 6(3)(i) of the Credit Rules in respect of sulphuric acid for the earlier period, the Supreme Court in UNION OF INDIA OTHERS VERSUS M/S. HINDUSTAN ZINC LTD. 2014 (5) TMI 253 - SUPREME COURT held that sulphuric acid is a by- product and there is no necessity to maintain separate records for the zinc concentrate used in the production of sulphuric acid and that rule 57CC does not talk about emergence of final product and a by-product. The judgment of the Supreme Court in UNION OF INDIA OTHERS VERSUS M/S. HINDUSTAN ZINC LTD. 2014 (5) TMI 253 - SUPREME COURT was subsequently followed by the Tribunal in several cases, including that of the respondent in M/S. HINDUSTAN ZINC LTD. VERSUS CCE ST, UDAIPUR 2018 (2) TMI 1303 - CESTAT NEW DELHI where it was held that 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 . Thus, when the Tribunal rejected the contention of the Department regarding the distinction made between input and input service , it is not possible to accept the submission made by the learned authorized representative of the Department that the judgement of the Supreme Court in Hindustan Zinc Ltd. would not be applicable to the present case since it relates to input services and not inputs - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Applicability of Rule 6(3) of the CENVAT Credit Rules, 2004 to sulphuric acid cleared without payment of duty.
2. Classification of sulphuric acid as a by-product or a final product.
3. Relevance of the Supreme Court judgment in Union of India vs. Hindustan Zinc Ltd. to the present case.

Detailed Analysis:

1. Applicability of Rule 6(3) of the CENVAT Credit Rules, 2004:
The Department contended that sulphuric acid cleared to fertilizer units without payment of duty is an exempted product. Consequently, the respondent was liable to pay an amount under Rule 6(3)(i) of the CENVAT Credit Rules, 2004. A show cause notice dated May 15, 2017, was issued to recover 6% of the value of sulphuric acid. However, the respondent argued that sulphuric acid arises as a by-product during the manufacture of zinc and no inputs or input services were used in its manufacture. They cited the Supreme Court judgment in Union of India vs. Hindustan Zinc Ltd., which held that Rule 6(3) is not applicable to by-products.

2. Classification of Sulphuric Acid:
The Commissioner (Appeals) had to determine whether sulphuric acid is an excisable good under Section 2(d) of the Central Excise Act, 1944, and whether it qualifies as exempted goods under Rule 2(d) of the CENVAT Credit Rules, 2004. The adjudicating authority initially found that any by-product, though emerging due to technological necessity, would be included in the definition of 'goods' and thus fall within the ambit of 'final product,' making Rule 6 applicable. However, the Commissioner (Appeals) concluded that sulphuric acid emerged as a by-product, not a manufactured product, and thus was not covered under the definition of 'excisable goods' or 'exempted goods.'

3. Relevance of the Supreme Court Judgment:
The Supreme Court in Union of India vs. Hindustan Zinc Ltd. ruled that sulphuric acid is a by-product and there is no necessity to maintain separate records for zinc concentrate used in its production. The Joint Commissioner had initially dismissed the relevance of this judgment, stating it pertained to inputs and not input services. However, the Commissioner (Appeals) and the Tribunal found no legal or factual justification for this distinction. The Tribunal reiterated that the Supreme Court's ruling applies to both inputs and input services, rejecting the Department's contention.

Conclusion:
The Tribunal upheld the Commissioner (Appeals)'s order, dismissing the Department's appeal. It was concluded that sulphuric acid is a by-product, and Rule 6(3) of the CENVAT Credit Rules, 2004, does not apply. The Supreme Court's judgment in Union of India vs. Hindustan Zinc Ltd. was deemed applicable, affirming that the emergence of sulphuric acid as a by-product does not necessitate separate records for zinc concentrate. The appeal filed by the Department was dismissed.