2003 (8) TMI 83 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility for Modvat/Cenvat credit on inputs.
2. Applicability of Rule 57CC/57AD of the Central Excise Rules, 1944.
3. Classification of Corex gas as a final product or by-product.
4. Allegations of suppression of facts and extended period of limitation.
5. Validity of demand and penalty imposed under Rule 57AH and Section 11A of the Central Excise Act, 1944.

Detailed Analysis:

1. Eligibility for Modvat/Cenvat Credit on Inputs:
The appellants claimed Modvat/Cenvat credit on inputs such as iron ore pellets, oxygen, and nitrogen used in the manufacture of hot liquid iron/pig iron in the Corex furnace. They argued that Rule 57D, which states that credit should not be denied on the ground that part of the inputs is contained in any waste, refuse, or by-products, was applicable to their case. The Commissioner, however, concluded that Corex gas, being a by-product, still attracted the provisions of Central Excise Rules, and thus, the credit claimed was not justified.

2. Applicability of Rule 57CC/57AD of the Central Excise Rules, 1944:
The appellants contended that Rule 57CC was not applicable as they were not manufacturing two or more final products, one of which is exempt from duty. They argued that Corex gas was not their intended final product but a by-product. The Commissioner disagreed, stating that Corex gas, being an excisable product, fell under the purview of Rule 57CC/57AD.

3. Classification of Corex Gas as a Final Product or By-Product:
The appellants maintained that Corex gas was a by-product and not a final product. The Commissioner, relying on the Supreme Court's decision in CIT v. Budharaga and Co., concluded that by-products, intermediate products, and residual products are dutiable even if they are not manufactured as final products. Thus, Corex gas, although a by-product, was considered a final product for the purposes of Central Excise Rules.

4. Allegations of Suppression of Facts and Extended Period of Limitation:
The Commissioner alleged that the appellants suppressed facts by not maintaining separate accounts for Corex gas and not recording its production and clearance details. This led to the invocation of the extended period of limitation under Section 11A of the Central Excise Act, 1944. The appellants argued that the emergence of Corex gas was known to the Department and was declared in the Rule 173B declaration, thus challenging the grounds for suppression and extended limitation.

5. Validity of Demand and Penalty Imposed under Rule 57AH and Section 11A of the Central Excise Act, 1944:
The Commissioner confirmed the demand of Rs. 1,79,78,566/- being 8% of the price of Corex gas cleared, along with a penalty of the same amount and interest. The appellants contested this, arguing that the amount required to be deposited under Rule 57CC/57AH has nothing to do with duty and cannot be recovered under Section 11A of the Central Excise Act, 1944. The Tribunal agreed with the appellants, citing the decision in Pushpaman Forgings, and held that in the absence of machinery provisions for recovery, the amounts could not be recovered as demanded.

Conclusion:
The Tribunal set aside the order and remanded the matter back to the Commissioner to reconsider the recovery of credits under Rule 57-I of the Modvat Rules and corresponding provisions. The appellants were granted the right to address the issue of limitations if such recoveries were proposed. The appeal was allowed as a remand to the original authority for re-determination of issues.