2021 (10) TMI 307 - AT - Central Excise

CENVAT Credit - exempted product/by-product - Silica Sand and Ball Clay - common input service is used for mining of Lignite as well as Silica Sand and Ball Clay (taxable as well as exempt goods) - applicability of Rule 6 of Cenvat Credit Rules, 2004 - HELD THAT - The main contract is for mining of Lignite while doing the excavation to achieve Lignite, the over burden has to be removed and this over burden constitute Silica Sand and Ball Clay etc., thereafter the Lignite is excavated. With this it is clear that to excavate the Lignite unavoidably upper layer has to be removed and, in that process the said by-products are also removed. Therefore, from the nature of mining of Lignite as discussed above, it is clear that the Silica Sand and Ball Clay are generated unavoidably which is inevitable. Any input/input services contained in any by-product/waste/refuse, Cenvat Credit cannot be varied or denied. With this logic demand under Rule 6 in respect of by-product is not applicable - Once it is established that the product in question are by-product then it is settled in respect of by-product demand under Rule 6 will not sustain. Accordingly, in the present case also, Silica Sand and Ball Clay being a by-product, no demand under Rule 6 shall sustain. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
Whether the appellant is required to pay an amount under Rule 6 of Cenvat Credit Rules, 2004 for exempted products Silica Sand and Ball Clay used in mining of Lignite.

Analysis:

1. Interpretation of Rule 6: The appellant argued that Silica Sand and Ball Clay are by-products generated during Lignite excavation and, therefore, no payment is required under Rule 6. They cited various judgments supporting this argument, emphasizing that demand under Rule 6 for by-products is not sustainable.

2. Limitation Period: The appellant contended that one show cause notice is time-barred, and their interpretation of Rule 6 was based on bona fide belief supported by legal precedents. They argued that being a Government Corporation, they lacked malicious intent to evade duty, making the extended period inapplicable.

3. Nature of Products: The revenue argued that Silica Sand and Ball Clay, along with Lignite, are final products and exempted, hence Rule 6 should apply. They relied on judgments supporting their view that all three minerals are distinct and not solely by-products.

4. Contractual Clauses Analysis: The Tribunal examined the contract clauses related to mining operations, highlighting that the main contract was for Lignite mining. It was noted that Silica Sand and Ball Clay were extracted as by-products during Lignite excavation, indicating their incidental generation in the mining process.

5. CBEC's Manual and Precedents: Referring to CBEC's manual, the Tribunal emphasized that Cenvat Credit is admissible for inputs in by-products. Citing legal principles and the appellant's ratio chart showing minimal by-product percentage, it was concluded that Silica Sand and Ball Clay are indeed by-products, exempting them from Rule 6 liability.

6. Judgment: Ultimately, the Tribunal ruled in favor of the appellant, setting aside the impugned orders and allowing the appeals based on the finding that Silica Sand and Ball Clay are indeed by-products, hence not subject to payment under Rule 6.

This detailed analysis of the judgment showcases the thorough consideration of legal arguments, contractual terms, precedents, and statutory provisions leading to the Tribunal's decision in this CESTAT AHMEDABAD case.