2005 (4) TMI 148 - AT - Central Excise

Cenvat/Modvat - duty paid on the input - by-product - duty liability - Waste - Import of zinc concentrate - foreign supplier - absence of machinery provisions to recover sums payable under Rule 57CC - HELD THAT - In the present case the input that has gone into the production of Sulphuric Acid in zinc concentrate. The fact that the appellant has paid the foreign supplier only for the zinc component of that concentrate cannot lead to a conclusion that the concentrate in question is not the input which has gone into the manufacture of sulphuric acid. We therefore hold that the zinc concentrate is the input used in the manufacture of sulphuric acid on which no duty is paid. Rule 57CC/R6 is attracted . We note that Rule 57CC itself does not make distinction between exempted final product and exempted by-product. The Central Excise Act provides for levy of duty on all goods manufactured or produced whether they are byproducts or otherwise. The expression 'by-product' occurring in Rule 57D has to be read in the context in which it is used and in line with the other words such as 'waste, refuse' mentioned therein. This Rule merely says that credit shall not be varied on the grounds mentioned therein. The Department is not attempting to vary the credit. It is only interpreting Rule 57CC, which provides for collection of certain amount at a certain percentage under the circumstances mentioned therein. As the DR rightly points out that the provisions of Rule 57D cannot negate the provisions of the preceding Rule 57CC. We observe that the appellants do not dispute the amounts involved. In other words they do not question the way the sums due are calculated. One could take a view that since at the time when the sums were demanded there were no provisions to recover them, the matter should be remanded to start recovery proceedings under Rule 6 read with Rule 12 of Cenvat Credit Rules, 2002. Such a views at best is pedantic and does not serve the ends of justice. We are of the opinion that the ends of justice are better served if the impugned orders of the Commissioner are upheld, in view of the fact that the liability exists and the machinery provisions are brought into force w.e.f. 1-3-2002. Nobody would be the gainer if another round of fruitless proceedings are started to confirm the same amounts as indicated in the impugned orders. The matter would have been entirely different had the appellants questioned the quantum of amounts. In the absence of such a plea we uphold the demands but set aside the penalty. The appeals are thus partly allowed the following terms. The orders of the Commissioner are upheld to the extent of demands indicated therein. Penalty is set aside. Appeals are thus partly allowed.

Summary

Issues:
- Non-observance of Rule 57CC/R6 regarding reversal of credit for exempted goods
- Applicability of Rule 57CC/R6 on clearance of by-products without payment of duty
- Absence of machinery provisions for recovery of sums under Rule 57CC

Analysis:
1. The judgment deals with the non-observance of Rule 57CC/R6 by the appellants in relation to the reversal of credit for exempted goods. The appellants imported zinc concentrate and manufactured Zinc from it, availing Modvat credit for the CVD paid on the zinc concentrate. The issue arose when sulphur present in the concentrate got converted into Sulphur Di-oxide during the manufacturing process, leading to the production of Sulphuric acid cleared with or without duty payment. The Department contended that the appellants failed to reverse 8% of the price of exempted goods, as required by Rule 57CC, resulting in demands and penalties confirmed by the Commissioner.

2. The appellants argued that Rule 57CC was not applicable as they paid for the zinc component of the concentrate, not the sulphur, and the sulphuric acid was a by-product. They also highlighted the absence of specific recovery provisions before 2002. However, the Department maintained that Rule 57CC/R6 applied as the duty-paid zinc concentrate was used in producing duty-exempt Sulphuric acid. The Tribunal held that the concentrate was indeed the input for Sulphuric acid and Rule 57CC was applicable, rejecting the appellants' contentions regarding the nature of the product and recovery provisions.

3. The judgment also addressed the issue of whether Sulphuric acid could be considered a by-product exempt from Rule 57CC/R6. The appellants cited various cases to support their argument, but the Tribunal emphasized that the acid was not a by-product but a subsidiary product deliberately manufactured for commercial purposes. Drawing a distinction between by-products and subsidiary products, the Tribunal upheld the applicability of Rule 57CC/R6 to the clearance of Sulphuric acid without duty payment.

4. Another significant issue was the absence of machinery provisions for recovering sums under Rule 57CC before 2002. The appellants contended that the introduction of recovery provisions in 2002 did not have retrospective effect, but the Tribunal referred to precedents emphasizing the liability to pay remaining intact until specific recovery provisions were in place. Despite the lack of retrospective provisions, the Tribunal upheld the demands, considering the existence of liability and the introduction of machinery provisions in 2002.

5. Ultimately, the Tribunal partly allowed the appeals by upholding the demands indicated in the Commissioner's orders while setting aside the penalties. The judgment aimed to serve the ends of justice by recognizing the liability under Rule 57CC/R6 and the subsequent introduction of machinery provisions, ensuring a fair resolution of the dispute.