2006 (3) TMI 16 - AT - Central Excise

Central Excise Cenvat/Modvat credit Common inputs Separate accounts and payment of 8% not applicable to the by products Reversal of credit availed by the assessee

Issues Involved:
1. Demand for payment under Rule 57CC/57AD for non-maintenance of separate inventory for inputs used in the manufacture of Ammonium Sulphate.
2. Legality and applicability of Rule 57CC/57AD.
3. Reversal of proportionate credit instead of 8% of the value of the exempted product.
4. Justification of the demand confirmed by the Commissioner.

Issue-wise Detailed Analysis:

1. Demand for Payment under Rule 57CC/57AD:
The appellants were challenged for not maintaining separate inventory/records for chemicals used in water treatment, which was used in the manufacture of Ammonium Sulphate. The Commissioner noted that as per Rule 57CC(1) and Rule 57AD of the Central Excise Rules, 1944, if a manufacturer uses inputs in the manufacture of a final product cleared at nil rate of duty, they must either maintain separate records or pay an amount equal to 8% of the price of the exempted product. The appellants had not complied with this requirement, leading to a demand for payment of Rs. 1,69,59,226/- for the period 1997-98 to 1999-2000 and Rs. 43,20,867/- for the period April 2000 to December 2000.

2. Legality and Applicability of Rule 57CC/57AD:
The appellants contended that the amount payable under Rule 57CC/57AD is not excise duty but an amount, and thus, the show cause notice lacked clarity. They argued that the rule is ultra vires the powers of the Parliament and the Central Government. They also pointed out the impossibility of knowing at the time of production whether Ammonium Sulphate would be sold as a fertilizer (exempted from excise duty) or otherwise. The Commissioner, however, did not accept these contentions and upheld the demand based on the rules.

3. Reversal of Proportionate Credit:
The appellants argued that they had already reversed the proportionate Modvat credit attributable to the water treatment chemicals and electricity used in the manufacture of Ammonium Sulphate. They cited the Supreme Court decision in Chandrapur Magnets, which held that reversal of credit amounts to non-availment. The Commissioner, however, maintained that the appellants should have reversed the entire credit or paid 8% of the value of the exempted product, as they failed to maintain separate records.

4. Justification of the Demand Confirmed by the Commissioner:
The Tribunal noted that the appellants were using common inputs, and Ammonium Sulphate was a byproduct produced as a pollution control measure in an integrated plant where the final product was iron and steel. It was observed that Rule 57CC/57AD/Rule 6, which prescribes maintenance of separate accounts or payment of 8%, would not apply to byproducts. The Tribunal referred to several judgments, including Sterlite Industries and Kerala Chemicals and Proteins Ltd., which supported the appellants' contention that once the credit of 8% has been reversed, the demands cannot be confirmed. The Board's Circular No. 591/28/2001 Cx., dated 16-10-2001, also permitted reversal of credit availed instead of paying an amount equal to 8% of the duty. Consequently, the Tribunal found no merit in the Commissioner's findings and set aside the impugned order, allowing the appeal.

Conclusion:
The Tribunal concluded that the reversal of credit on an appropriation basis as done by the appellants was justified in law and in line with the cited judgments. The demand confirmed by the Commissioner was incorrect, and the appeal was allowed. The operative portion of the order was pronounced in open court.

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