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2022 (10) TMI 57 - HC - Central ExciseCENVAT Credit - inputs - Wash Oil and Sulphuric Acid which were used directly or indirectly, in or in relation to the manufacture of coal Gas - manufacture of Coke Oven Gas can be said to be final and complete unless it is made usable and/or marketable, or not - whether Wash Oil and Sulphuric Acid have no role to pay in the production of coke oven gas and these are merely used in the production of the by- products or not - scope of the Rule 57C(2) read with Rule 57CC of the Central Excise Rules, 1944 and/or Rule 57AD of the Central Excise Rules, 1944 and/or Rule 6(3)(b) of Cenvat Credit Rules, 2002 - suppression of facts or not - extended period of limitation. HELD THAT - The undisputed facts are that the assessee is an integrated steel plant and in their factory they manufacture and clear excisable goods falling under Chapters 26 to 29, 72, 73 and 84 of the Schedule to the Central Excise Tariff Act, 1945 (the Tariff Act). In the show-cause notice it has been stated that initially coke and crude coke oven gas were manufactured by destructive distillation process and through high temperature carbonization of Bituminous Coal in a separate unit called coke oven battery. The crude coke oven gas containing by-products comes out as exhaust gases from the coke oven unit. The crude gas cannot be used as fuel as it contains coal tar and other organic compounds as by-products which on natural condensation would jam the pipeline thereby disrupting the supply system. The crude coke oven gas is therefore taken to another unit called by-product recovery plant where this crude gas is cleansed from the major by-products namely, Naphthalene, Ammonia, Motor Spirit, light oil etc. and waste (Coal tar) by using MODVAT inputs namely, Sulphuric Acid and Wash Oil - it was stated that the assessee has taken credit of duty on those inputs, utilized those inputs in the manufacture of dutiable as well as Nil rate of duty final products without debiting an amount equal to 20% or 8% of the price of the said final products at the time of their clearance during the period from 1st September, 1996 to 31st March, 2000 in terms of Rule 57CC(1) of the Rules. The manufacturing process adopted by the assessee and the emergence of crude coke oven gas is technological necessity and in evitable by-product and it is not exempted final product and it is neither the case of the department that it is the final product - The decision in Hi-Tech Carbon 2018 (2) TMI 819 - ALLAHABAD HIGH COURT is closest to the facts of the case on hand. The tribunal in the said case held for reversal of input credit utilization to Rule 57C or Rule 57CC of the rules it was pre-requisite that the input on which the input credit has arisen should have been used to manufacture of exempted product along with dutiable product. The Tribunal further held that by insertion of Rule 57CC, there was no intention to deprive the assessee of the benefit available under rules 57D(1) of the rules to a by-product, waste, or refuse. Thus, it was held that no part of input credit availed was to be disallowed. Extended period of limitation - show-cause notice dated 2.05.2001 for the period from 01.07.1996 to 31.03.1997 and 01.04.1997 to 30.03.2003 - HELD THAT - The ingredients of the relevant statutory provisions have not been made to invoke this extended period of limitation. Section 11A of the Central Excise Act states that when any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of fraud, collusion or any willful mis-statement or suppression of facts or contravention of any of the provisions of the Act or the Rules made thereunder with intent to evade payment of duty, such person is levied to pay duty in full or any part accepted by him and interest payable under Section 11AB and penalty equal to 15% of the duties specified in the inputs or the duty was accepted by such person within 30 days of the receipt of the inputs. Section 11AC of the Act deals with penalty for short-levy or non-levy of duty in certain cases. The provision states that where any duty of excise has not been levied or paid or has been short- levied or short-paid or erroneously refunded by reason of fraud, collusion or any willful mis-statement or suppression of facts or contravention of any of the provisions of the Act or the Rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under Section 11A (2) was also liable to pay penalty equal to the duty do determined. Nowhere in the order of adjudication, the authority has recorded a finding that the respondent assessee is guilty of willful mis- statement, suppression of facts with an intent to evade payment of Central Excise Duty. Therefore, the invocation of the extended period of limitation to initiate action is vitiated. The appeal filed by the revenue is dismissed and substantial questions of law are answered against the revenue.
Issues Involved:
1. Whether the respondent took credit of Central Excise duty on inputs (Wash Oil and Sulphuric Acid) used in the manufacture of coal gas, which is chargeable to 'nil' rate of duty, without debiting the required amount. 2. Whether the manufacture of Coke Oven Gas is final and complete unless it is made usable and/or marketable. 3. Whether the Tribunal's view that the inputs (Wash Oil and Sulphuric Acid) have no role in the production of coke oven gas and are used merely for the production of by-products is correct. 4. Whether the Tribunal failed to appreciate the scope of Rule 57C(2) read with Rule 57CC of the Central Excise Rules, 1944, and/or Rule 57AD of the Central Excise Rules, 1944, and/or Rule 6(3)(b) of the Cenvat Credit Rules, 2002. Issue-wise Detailed Analysis: 1. Credit of Central Excise Duty on Inputs: The revenue alleged that the respondent took credit of Central Excise duty on inputs (Wash Oil and Sulphuric Acid) used in the manufacture of coal gas, which is chargeable to 'nil' rate of duty, without debiting the required amount as per Rule 57C(2) read with Rule 57CC of the Central Excise Rules, 1944, and/or Rule 6(3)(b) of the Cenvat Credit Rules, 2002. The respondent argued that the inputs were not used in the manufacture of coal gas but in the production of by-products. The Tribunal accepted the respondent's explanation, stating that the inputs have no role in the production of coke oven gas and are used merely for deriving by-products. 2. Manufacture of Coke Oven Gas: The revenue contended that the manufacture of Coke Oven Gas is not final and complete unless it is made usable and/or marketable, implying that the cleansing process using Wash Oil and Sulphuric Acid is essential. The respondent countered that the crude coke oven gas is an inevitable by-product of the coke manufacturing process and is purified to prevent damage to equipment and to extract valuable by-products. The Tribunal found that the crude coke oven gas is produced in the coke oven and the inputs are used in the subsequent purification process, not in the initial production of the gas. 3. Tribunal's View on Inputs: The Tribunal held that the inputs (Wash Oil and Sulphuric Acid) are not used in the production of coke oven gas but in the production of by-products. The revenue argued that the Tribunal failed to consider the manufacturing process and the use of inputs. The Tribunal noted that the inputs are used after the coke oven gas is produced and are employed in the by-product recovery plant, where by-products like Naphthalene, Ammonia, and Benzene are extracted. 4. Scope of Relevant Rules: The revenue argued that the Tribunal failed to appreciate the scope of Rule 57C(2) read with Rule 57CC of the Central Excise Rules, 1944, and/or Rule 57AD of the Central Excise Rules, 1944, and/or Rule 6(3)(b) of the Cenvat Credit Rules, 2002. The Tribunal, however, concluded that the rules do not apply to the by-products and that the inputs are not used in the manufacture of coke oven gas. The Tribunal's decision was based on the technical literature and the manufacturing process explained by the respondent, which showed that the inputs are used in the purification process and not in the initial production of the gas. Conclusion: The High Court upheld the Tribunal's decision, stating that the inputs (Wash Oil and Sulphuric Acid) are not used in the production of coke oven gas but in the production of by-products. The Court also found that the revenue failed to prove that the respondent willfully suppressed facts or intended to evade duty, and thus, the invocation of the extended period of limitation was not justified. The appeal by the revenue was dismissed, and the substantial questions of law were answered against the revenue.
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