2025 (1) TMI 5 - AT - Central Excise

Reversal of Cenvat credit on inputs and input services used in the manufacture of exempted goods, specifically Di-Ammonium Phosphate (DAP), under Rule 6(3)(i) of the Cenvat Credit Rules, 2004 - by-product in the manufacturing process of copper products - exempt goods or not - HELD THAT - Di-Ammonium Phosphate (DAP) is being manufactured by the appellant by using phosphoric acid and in-house manufacturing of the sulphuric has been obtained by processing sulphuric acid. It is an accepted fact that sulphuric acid is unintended product which emerges during the process of copper concentrate while manufacturing various types of copper products. This Tribunal in the appellant s own case, vide final order No. 12425-12427/2023 dated 02.11.2023 reported under 2023 (11) TMI 1070 - CESTAT AHMEDABAD has held ' it is clear that any input/input services contained in any by- product/waste/refuse, Cenvat Credit cannot be varied or denied. With this statutory clarification demand under Rule 6 in respect of by-product is not applicable. This issue has been considered in various judgments as cited by Learned Counsel. Once it is established that the product in question is by-product then it is settled that in respect of by-product demand under Rule 6 will not sustain. Accordingly, in the present case also, Sulphuric Acid being a by-product, no demand under Rule 6 shall sustain.' Thus, sulphuric acid which is an unintended by-product, has further been used by the appellant for manufacture of phosphoric acid and the same has further found use in the manufacturing of Di-Ammonium Phosphate (DAP) which is chargeable to 1% rate of Central Excise duty as provided in Notification No. 12/2012-CE dated 17.03.2012 - Since the Di- Ammonium Phosphate (DAP) has been manufactured by utilizing a product which has emerged as unintended by-product, following the various legal pronouncements including the Hon ble Supreme Court decision in the case of BIRLA CORPORATION LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE 2005 (7) TMI 104 - SUPREME COURT and in the case of Commissioner vs. Sterling Gelatin 2015 (10) TMI 557 - SC ORDER , it is held that even after the amendment to Rule 6 by Notification No. 6/2015-CE dated 01.03.2015, so far as demand of Cenvat credit pertaining to use of sulphuric acid/phosphoric acid for manufacturing Di-Ammonium Phosphate (DAP) is not sustainable. Since the impugned order-in- original has not specifically mentioned the use of any input service on which Cenvat credit has been taken by the appellant while manufacturing and clearing Di-Ammonium Phosphate by the appellant and if so, he has to re- calculate the demand of Cenvat credit giving benefit of the fact that appellant is entitled not to reverse Cenvat credit on the inputs which have been availed on the copper concentrate while manufacturing various copper products. Conclusion - Sulphuric Acid being a by-product, no demand under Rule 6 shall sustain. The Adjudicating Authority has to segregate the demand of Cenvat credit into two segments, one which has been demanded on the primary inputs namely copper concentrate etc. and second, the demand on the use of common input and input services which have gone into manufacture of exempted DAP - matter remanded for fresh adjudication on the above terms - The appeals are allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the appellant is required to reverse or pay Cenvat credit on inputs and input services used in the manufacture of exempted goods, specifically Di-Ammonium Phosphate (DAP), under Rule 6(3)(i) of the Cenvat Credit Rules, 2004.
• Whether the sulphuric acid, which is a by-product in the manufacturing process of copper products, should be treated as an exempted good under the amended Rule 6(1) of the Cenvat Credit Rules, 2004, effective from 01.03.2015.
• Whether the common input services used in the manufacture of both dutiable and exempted goods necessitate the reversal of Cenvat credit.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Reversal of Cenvat Credit under Rule 6(3)(i)

• Relevant legal framework and precedents: Rule 6(3)(i) of the Cenvat Credit Rules, 2004 mandates reversal of credit when inputs or input services are used for both dutiable and exempted goods. The explanation inserted in Rule 6(1) effective from 01.03.2015 includes non-excisable goods cleared for consideration as exempted goods.
• Court's interpretation and reasoning: The Tribunal relied on the Supreme Court's judgment in the appellant's own case, which established that sulphuric acid is a by-product, not a manufactured product. Therefore, the reversal of Cenvat credit under Rule 6 is not applicable.
• Key evidence and findings: The Tribunal found that sulphuric acid is an unintended by-product in the copper manufacturing process, and its use in producing DAP does not constitute manufacturing exempted goods.
• Application of law to facts: The Tribunal applied the precedent that by-products are not subject to reversal of Cenvat credit under Rule 6.
• Treatment of competing arguments: The Department argued that the explanation to Rule 6(1) post-01.03.2015 necessitates reversal. However, the Tribunal found this irrelevant as the by-product does not meet the definition of manufactured exempted goods.
• Conclusions: The Tribunal concluded that the appellant is not required to reverse Cenvat credit for sulphuric acid used in DAP production.

Issue 2: Treatment of Sulphuric Acid as Exempted Goods

• Relevant legal framework and precedents: The explanation to Rule 6(1) of the Cenvat Credit Rules, 2004, and the Supreme Court's ruling in the appellant's case.
• Court's interpretation and reasoning: The Tribunal emphasized that sulphuric acid, as a by-product, does not fall under the category of exempted goods requiring credit reversal.
• Key evidence and findings: The Tribunal noted the absence of conscious manufacturing of sulphuric acid, reinforcing its status as a by-product.
• Application of law to facts: The Tribunal applied the legal principle that by-products are not manufactured goods and thus not subject to Rule 6.
• Treatment of competing arguments: The Department's reliance on the explanation to Rule 6(1) was deemed inapplicable as the by-product is not manufactured.
• Conclusions: Sulphuric acid is not considered an exempted good for credit reversal purposes.

Issue 3: Common Input Services

• Relevant legal framework and precedents: Rule 6 of the Cenvat Credit Rules, 2004, and Notification No. 12/2012-CE.
• Court's interpretation and reasoning: The Tribunal noted that the impugned order did not specify which input services necessitated credit reversal.
• Key evidence and findings: The Tribunal found no evidence of specific input services used exclusively for exempted goods.
• Application of law to facts: The Tribunal required a clear distinction between input services used for dutiable and exempted goods.
• Treatment of competing arguments: The Tribunal remanded the matter for further adjudication to determine the specific use of input services.
• Conclusions: The Tribunal remanded the issue for detailed examination of input service usage.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "Sulphuric Acid being a by-product, no demand under Rule 6 shall sustain."
• Core principles established: By-products are not subject to reversal of Cenvat credit under Rule 6; the explanation to Rule 6(1) does not apply to by-products.
• Final determinations on each issue: The Tribunal allowed the appeals by remanding the matter for fresh adjudication on the use of common input services, while holding that sulphuric acid, as a by-product, does not necessitate credit reversal.