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2006 (12) TMI 162 - AT - Central ExciseCenvat/Modvat - Interpretation of statutes of Rule 57CC - manufacture of gelatin - Phosphoryl Liquor/Mother Liquor removed - HELD THAT - It is clear from the reading of the Rule 57CC and Rule 6 the same applies to the final product dutiable or exempted and makes no distinction between a intended final product or unintended emergence of by-product. The said rule in simple terms requires the assessee to pay an amount equal to 8% of the value of the goods cleared at nil rate of duty even where the inputs have been used directly or indirectly in the manufacture of such final product. As we have already held that HCL has been used in the manufacture of final product Phosphoryl A B which attract nil rate of duty the provisions of Rule 57CC would apply. The expression in or in relation to has been interpreted by various decisions to be of wide connotation. It is impossible to obtain the mother liquor or the resultant Phosphoryl A B without the use of HCL. As long as it is held that HCL is used in the manufacture of Phosphoryl A B the applicability of provisions of Rule 57CC cannot be ruled out. The issue in the instant case is not relatable to reversal of the credit originally taken by the appellant on the ground of emergence of any by-product. The issue before us is a straight and simple interpretation of Rule 57CC which as already held does not make any distinction between exempt final product or exempt by product. As along as the excisable product cleared from the assessees factory enjoys exemption or attracts nil rate of duty provisions of Rule 57CC will come into play. T he straight answer to the above question lies in the literal interpretation of the language employed in the said Rule without straining to find out the legislative intent especially when the language used is unambiguous. As already observed the provisions of Rule 57CC or Rule 6 envisage common use of inputs in two final products i.e. one dutiable and other exempted for the applicability of the same. As such we are of the view that as long as two final products emerging out of use of common inputs are excisable and one of them is exempted the provisions of Rule 57CC will apply. The exempted final product may be intended manufacture or unintended by-product. As such we agree with the view expressed in Binani Zinc Ltd. 2005 (4) TMI 148 - CESTAT BANGALORE . Reference is answered is above terms. File is sent back to the regular bench for disposal of appeal.
Issues Involved:
1. Applicability of Rule 57CC of Central Excise Rules, 1944 (now Rule 6 of Cenvat Credit Rules, 2002) to by-products/subsidiary products exempted from duty. 2. Interpretation of the manufacturing process and the classification of Phosphoryl A and Phosphoryl B as by-products or final products. 3. Reversal of Modvat credit on inputs used in the manufacture of exempted products. 4. Conflicting views in precedent decisions regarding the application of Rule 57CC. Detailed Analysis: 1. Applicability of Rule 57CC to By-Products/Subsidiary Products Exempted from Duty: The core issue referred to the Larger Bench was whether 8% of the amount as per Rule 57CC is required to be discharged before the removal of by-products/subsidiary products when such products are exempt from the whole of duty. This question arose due to conflicting views in previous decisions. 2. Interpretation of Manufacturing Process and Classification of Phosphoryl A and B: The appellants manufacture gelatin using animal bones and hydrochloric acid (HCL). During this process, a by-product called Phosphoryl Liquor/Mother Liquor is produced, which is further processed into Phosphoryl A and Phosphoryl B, classified under Heading 2302 of the Central Excise Tariff Act, 1985, attracting nil rate of duty. The appellants argued that the mother liquor is a by-product, and thus, Rule 57CC should not apply. 3. Reversal of Modvat Credit on Inputs Used in Exempted Products: The Revenue contended that since HCL is used in the manufacture of both gelatin (dutiable) and Phosphoryl A and B (exempted), the appellants must reverse 8% of the value of the exempted goods as per Rule 57CC. The appellants countered that the entire quantity of HCL is used for gelatin, and the emergence of mother liquor is incidental, making it a by-product, not a final product. 4. Conflicting Views in Precedent Decisions: The Tribunal noted conflicting decisions: - In Rama Industries Ltd. and Narmada Gelatines Ltd., it was held that 8% payment under Rule 57CC is not required for by-products. - In Indian Iron & Steel Co. Ltd. and Binani Zinc Ltd., it was held that Rule 57CC applies irrespective of whether the final product is intended or a by-product. Tribunal's Findings: Interpretation of Rules: The Tribunal examined Rule 57CC and Rule 6, noting that they do not differentiate between final products and by-products. The rules require the manufacturer to pay 8% of the value of exempted goods if inputs are used in their manufacture, directly or indirectly. The Tribunal emphasized that HCL is used in the manufacture of Phosphoryl A and B, making Rule 57CC applicable. Manufacturing Process and Product Classification: The Tribunal referenced the Supreme Court's decision in the appellant's own case, which stated that gelatin can be obtained without HCL, indicating HCL's use for extracting inorganic parts of bones for Phosphoryl A and B. Thus, HCL is used in manufacturing these products, making them final products, not by-products. Precedent Decisions and Legislative Intent: The Tribunal acknowledged the decisions favoring the appellants but concluded that Rule 57CC applies to all excisable products, whether intended final products or by-products. The rule's language is clear and unambiguous, requiring 8% payment for exempted goods. Conclusion: The Tribunal held that Rule 57CC applies to Phosphoryl A and B, as they are excisable products cleared at nil duty. The appellants must pay 8% of the value of these exempted goods. The reference was answered in favor of the Revenue, and the file was sent back to the regular bench for disposal of the appeal. Pronouncement: The judgment was pronounced in court on 13-12-2006.
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