2004 (1) TMI 283 - AT - Central Excise

Cenvat/Modvat - Adjustment of credit - Whether the Modvat Credit of the duty paid on LDO is to be denied proportionately as the Sulphuric Acid - HELD THAT - It has not been disputed by the Revenue that LDO, in respect of which Modvat Credit has been availed of by the appellants, is used in the Smelting operations undertaken by them for manufacture of their final products, i.e., zinc and lead and Sulphur Di-oxide is generated as a result of Smelting operation. The generation of Sulphur Di-oxide gas is nothing but a by-product in the process of manufacture of zinc/lead. It is, apparent from the provisions of Rule 57D(1) of the Rules that credit shall not be denied on the ground that part of the inputs is contained in a by-product. It is also not disputed that by-product in the present matter, namely, Sulphur Di-oxide gas is taken to Sulphuric Acid Plant for converting the same into Sulphuric Acid. The issue in the present matter is not whether the process undertaken by the appellants to get Sulphuric Acid amounts to manufacture or not. The issue involved is whether the Modvat Credit of the duty paid on LDO is to be denied proportionately as the Sulphuric Acid, which has already been obtained by the appellants is exempted from payment of duty. It has been observed by the Tribunal in the case of Aarti Drugs Ltd. 2001 (4) TMI 146 - CEGAT, MUMBAI that by insertion of Rule 57CC, there was no intention to eliminate the benefit available under Rule 57D(1) to a by-product.... The Marketability or otherwise of by-product is not really an issue. We, therefore, hold that the Modvat Credit is not deniable to the appellants. Accordingly, we set aside the impugned order and allow the appeal.

Summary

Issues involved: Whether M/s. Hindustan Zinc Ltd. is eligible to avail Modvat credit on LDO used in the manufacture of exempted Sulphuric Acid.

Summary:
The appeal filed by M/s. Hindustan Zinc Ltd. raised the issue of eligibility for Modvat credit on LDO used in the production of Sulphuric Acid exempt from Central Excise duty. The appellant argued that Sulphuric Acid is a by-product and cited precedents supporting the allowance of credit for inputs used in the manufacture of final products even when by-products are generated. The Revenue contended that Sulphuric Acid is a separate product, not a by-product, and therefore, Modvat credit should be denied as per Rule 57C. The Tribunal considered the arguments and relevant rules.

The Tribunal noted that LDO was used in the Smelting operations for manufacturing zinc and lead, resulting in the generation of Sulphur Di-oxide as a by-product. Rule 57D(1) stipulated that credit shall not be denied if inputs are part of a by-product. While Sulphuric Acid was consciously produced, it was held that LDO did not directly contribute to its manufacture. The Tribunal distinguished between by-products and exempted products, emphasizing that using Sulphur Di-oxide to make Sulphuric Acid did not equate to using modvatable inputs in the production of exempted products. Precedents were cited to support this interpretation, highlighting that the marketability of by-products is not a decisive factor. Consequently, the Tribunal ruled in favor of the appellant, setting aside the impugned order and allowing the appeal.