2022 (6) TMI 555 - AT - Central Excise

CENVAT Credit - common inputs used in taxable as well as exempt goods - non-maintenance of separate records - pollution control equipment - production of steam - exempt goods - requirement to reverse 10% of the Cenvat credit availed - Rule 6 (3) (b) and Rule 6 (3) (i) of CCR - HELD THAT - Hon ble Apex court in the case of COMMISSIONER OF CENTRAL EXCISE, JAIPUR VERSUS M/S RAJASTHAN SPINNING WEAVING MILLS LTD. 2010 (7) TMI 12 - SUPREME COURT has held that It is not the case of the Revenue that both these items are not required to be used in the fabrication of chimney, which is an integral part of the diesel generating set, particularly when the Pollution Control laws make it mandatory that all plants which emit effluents should be so equipped with apparatus which can reduce or get rid of the effluent gases. Therefore, any equipment used for the said purpose has to be treated as an accessory in terms of Serial No. 5 of the goods described in column (2) of the Table below Rule 57Q. Whether the appellants are required to reverse 10% of the credit availed in view of the fact that the steam generated is exempt? - HELD THAT - In the case of M/S BALRAMPUR CHINI MILLS LTD. THROUGH ITS GENERAL MANAGER VERSUS UNION OF INDIA, MINISTRY OF FINANCE DEPARTMENT OF REVENUE 2019 (5) TMI 972 - ALLAHABAD HIGH COURT , it was enunciated that Bagasse/ Press mud produced during the course of manufacture of sugar cannot be treated as exempted products and the provision of Rule 6 of Central Excise Rule, 2004 cannot be applied - In the instant case steam is generated in the course of manufacture and it cannot be said that the appellants have manufactured steam which is an exempt product. Hon ble Gujarat High Court in the case of COMMISSIONER OF C. EX. CUSTOMS, VADODARA-I VERSUS STERLING GELATIN 2010 (9) TMI 857 - GUJARAT HIGH COURT held that a bye product emerging in the course of manufacture cannot be treated as a manufactured product for the purposes of Rule 6 of Cenvat credit Rules. Nothing survives in the impugned order and the same cannot be sustained - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Eligibility of Cenvat credit on pollution control equipment.
2. Requirement to reverse 10% of Cenvat credit on inputs due to exempted steam generation.

Analysis:

Issue 1: Eligibility of Cenvat credit on pollution control equipment
The case involved the appellants engaged in manufacturing sponge iron, utilizing Waste Heat Recovery Boiler for cooling Hot Flue Gases, generating steam sold to a sister concern. Revenue denied Cenvat credit on the pollution control equipment, citing exemption rules. The appellant argued citing various precedents, emphasizing the necessity and integral nature of the equipment in pollution control. The tribunal referred to the Apex court's decision in Rajasthan Spinning & Weaving Mills Ltd., acknowledging the equipment as capital goods under Rule 57Q. The tribunal upheld the eligibility of Cenvat credit on pollution control equipment.

Issue 2: Requirement to reverse 10% of Cenvat credit on inputs due to exempted steam generation
The second issue revolved around the demand to reverse 10% of Cenvat credit due to the generation of exempted steam. The tribunal examined precedents like M/s Balrampur Chini Mills Ltd. and Sterling Gelatin, emphasizing that the steam generated during manufacturing cannot be considered an exempt product. Referring to Rule 6 of Cenvat Credit Rules, the tribunal highlighted the necessity of maintaining separate accounts for inputs used in dutiable and exempted goods. The tribunal, in line with past judgments, concluded that the emergence of steam as a by-product does not warrant reversal of Cenvat credit. Citing the decision in SKI Carbon Black (India) Private Ltd. Vs CCE Chennai II, the tribunal reiterated the technological necessity of utilizing by-products like lean gas for steam generation. Consequently, the tribunal set aside the impugned order, allowing the appeal with appropriate relief as per the law.

In conclusion, the tribunal ruled in favor of the appellants, affirming their eligibility for Cenvat credit on pollution control equipment and dismissing the requirement to reverse 10% of the credit due to exempted steam generation, citing relevant legal precedents and interpretations of Cenvat Credit Rules.