2007 (12) TMI 125 - AT - Central Excise

Manufacturers of refined vegetable oils (dutiable), by-product viz. de-oiled cake (exempted) - Demand raised u/r 6(3)(b) CCR to pay 8% of the price of the exempted product, for non-maintaining separate inventory accounts for common input Hexane - maintenance of separate accounts with reference to dutiable and exempted products is impossible in instant case, hence Rule 6(3) does not get attracted - entire credit taken on Hexane has been reversed so demand is not sustainable

Summary

Issues:
1. Stay application by Revenue for impugned order demanding over Rs. 47.00 lacs under Cenvat Credit Rules, 2002.
2. Interpretation of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 regarding dutiable and exempted final products.
3. Application of Rule 6(3) in a case involving refined vegetable oils and de-oiled cake.
4. Consideration of separate accounts for common inputs in the manufacturing process.
5. Analysis of Tribunal's Larger Bench decision in Rallies India Ltd. v. CCE, Chennai.
6. Comparison with the Apex Court's judgment in Commissioner of Sales Tax, Bombay v. Bharat Petroleum Corpn. Ltd.

Analysis:

1. The Revenue filed a stay application for an impugned order demanding over Rs. 47.00 lacs under Cenvat Credit Rules, 2002. The order set aside the demand raised by the original authority under Rule 6(3)(b) of the Cenvat Credit Rules, 2002. The appellate Commissioner held that Rule 6(3)(b) was not attracted in the case, leading to the Revenue's appeal. The Tribunal decided to proceed with the appeal after dismissing the stay application.

2. The case involved manufacturers of refined vegetable oils where the by-product, de-oiled cake, was chargeable to 'nil' rate of duty. The department sought to invoke Rule 6(3) of the Cenvat Credit Rules, 2002, based on the use of Hexane as a solvent in the manufacturing process. Despite initially taking Cenvat credit on Hexane, the manufacturers later reversed the credit, leading to the dispute.

3. The Revenue heavily relied on the Tribunal's Larger Bench decision in Rallies India Ltd. v. CCE, Chennai, regarding the classification of unintended by-products as 'final products' under Rule 57CC. The argument was that since separate accounts were not maintained for Hexane used in dutiable and exempted products, 8% of the price of the exempted product should be paid under Rule 6(3)(b).

4. The Tribunal analyzed the manufacturing process of refined vegetable oils and de-oiled cake, highlighting the common use of Hexane in the production. Due to the nature of the process where Hexane was recovered and reused, maintaining separate accounts for dutiable and exempted products was deemed impractical. The manufacturers' decision not to maintain separate accounts under Rule 6(2) was justified, and Rule 6(3) was deemed inapplicable.

5. The Tribunal concluded that Rule 6(3) did not apply in this case as the manufacturers were incapable of maintaining separate accounts for Hexane. The reversal of the entire credit on Hexane and its reuse in the manufacturing process further supported the dismissal of the demand raised by the Revenue.

6. The decision aligned with the lower appellate authority's ruling and dismissed the Revenue's appeal based on the misconception in applying Rule 6(3) to the case involving refined vegetable oils and de-oiled cake.