2021 (5) TMI 442 - AT - Central Excise

CENVAT Credit - Inputs or not - by-product - wash oil, sulphuric acid, caustic soda, alum, hydrochloric acid, ion exchanger - generation of ammonium sulphate and CO gas - cenvat credit on common inputs which were used in or in relation to, either directly or indirectly in the manufacture and clearance of dutiable final products as well as exempted final products - ammonium sulphate and CO gas - Rule 6(3)(ii) of the Cenvat Credit Rules. Whether wash oil, sulphuric acid, caustic soda, alum, hydrochloric acid, ion exchanger are inputs in or in relation to generation of ammonium sulphate and CO gas? - HELD THAT - In the case of AARTI DRUGS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI-III 2001 (4) TMI 146 - CEGAT, MUMBAI which was affirmed by the Hon ble Bombay High Court in COMMISSIONER VERSUS AARTI DRUGS LTD. 2009 (2) TMI 800 - BOMBAY HIGH COURT and further affirmed by the Hon ble Supreme Court in COMMISSIONER VERSUS AARTI DRUGS LTD. 2015 (10) TMI 554 - SC ORDER , a Division Bench of the Tribunal has held that ammonium sulphate obtained from mother liquor is a by-product and the provisions of Rule 57CC(1) of the erstwhile Central Excise Rules, 1944, equivalent to Rules 6(2) and 6(3) of the Cenvat Credit Rules, 2004, is inapplicable and cenvat credit of inputs contained in such by-product was permissible. The facts and the issues contained the decisions of the Apex Court and the Tribunal are, on perusal of the impugned orders, the adjudication orders and the documents on record of the present proceedings are found to be the same and hence the said decisions are fully applicable to the instant cases - credit allowed. Whether demand in terms of Rule 6(3)(i) of the Cenvat Credit Rules is appropriate as the appellant availed cenvat credit on common inputs which were used in or in relation to, either directly or indirectly in the manufacture and clearance of dutiable final products as well as exempted final products, namely ammonium sulphate and CO gas, where the appellant had exercised option to follow Rule 6(3)(ii) of the Cenvat Credit Rules in terms of Rule 6(3A) and whether non-acceptance thereof by the Department was correct? - HELD THAT - There is no dispute nor denial in either the show cause notices or in the adjudication orders that the appellant had exercised option in terms of Rule 6(3)(ii) of the Cenvat Credit Rules. Once this fact, established from the materials on record, is not disputed, there can be no demand in terms of Rule 6(3)(i) of the Cenvat Credit Rules - The finding that the appellant was required to pay much higher amount in terms of Rule 6(3) of the Cenvat Credit Rules other than that actual reversed is also without any merit. On plain reading of Rules 6(3) and (3A) it is seen that nowhere it is mentioned that an assessee should pay any amount higher than that of the actual amount calculated under the procedure prescribed under Rule 6(3A) of the Cenvat Credit Rules. The finding that the reversal of credit attributable to the inputs used in the manufacture of exempted products was insufficient in accordance to the demanded amount as calculated in the show cause notices is misconceived. The relevant provisions and procedure nowhere requires that an assessee should pay an amount higher than that of the actual amount calculated under the procedure prescribed under Rule 6(3A) of the Cenvat Credit Rules. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether wash oil, sulphuric acid, caustic soda, alum, hydrochloric acid, ion exchanger are inputs in or in relation to the generation of ammonium sulphate and CO gas.
2. Whether demand in terms of Rule 6(3)(i) of the Cenvat Credit Rules is appropriate where the appellant availed cenvat credit on common inputs used in the manufacture and clearance of both dutiable and exempted products, and whether the Department's non-acceptance of the appellant's compliance with Rule 6(3)(ii) was correct.

Issue-Wise Detailed Analysis:

Issue (i):
The first issue revolves around whether certain chemicals (wash oil, sulphuric acid, caustic soda, alum, hydrochloric acid, ion exchanger) are considered inputs in the generation of ammonium sulphate and CO gas. The judgment refers to the Supreme Court decision in Union of India Vs. Hindustan Zinc Ltd., which held that by-products emerging as a technological necessity during the manufacturing process cannot be considered final products. In this case, sulphur dioxide was converted to sulphuric acid as a non-polluting measure, similar to how CO gas and ammonium sulphate are by-products in the appellant's manufacturing process. The Tribunal also referenced the case of Aarti Drugs Ltd., where ammonium sulphate was deemed a by-product, making Rule 6(2) and Rule 6(3) of the Cenvat Credit Rules inapplicable. The Tribunal concluded that the chemicals in question are not inputs for the generation of the by-products, thus the findings of the Commissioner (Appeals) and the Adjudicating Authority on this issue are unsustainable.

Issue (ii):
The second issue addresses whether the demand under Rule 6(3)(i) of the Cenvat Credit Rules is appropriate given the appellant's compliance with Rule 6(3)(ii) and Rule 6(3A). The Tribunal found that Rule 6(3A) provides a comprehensive scheme for reversing or paying an amount equivalent to the cenvat credit attributable to inputs used in the manufacture of exempted goods. The adjudicating authority has no right to demand payment under Rule 6(3)(i) if an assessee has exercised the option under Rule 6(3)(ii) and complied with Rule 6(3A). The Tribunal cited the Telengana High Court decision in Tiara Advertising Vs. Union of India, which held that authorities cannot choose an option on behalf of the assessee if the latter has not complied with Rule 6(3). The Tribunal concluded that the appellant had indeed exercised the option under Rule 6(3)(ii), making any demand under Rule 6(3)(i) unsustainable. The findings of the Commissioner (Appeals) and the Adjudicating Authority on this issue were also deemed unsustainable.

Conclusion:
The Tribunal set aside the impugned orders dated February 28, 2018, and March 5, 2018, passed by the Commissioner (Appeals), and allowed both appeals of the appellant with consequential relief. The issues involved were settled by decisions of the Supreme Court and High Court, making it unnecessary to remand the matters to the adjudicating authority. The order was pronounced in open court on May 12, 2021.