2009 (4) TMI 395 - AT - Central Excise

Cenvat Credit- A manufacturer opting not to maintain separate account for the inputs used for dutiable as well as exempted final product products, then they have to pay 10% of the price, excluding sales tax etc., on the value at which the exempted goods are sold. Show cause notices were issued to the appellant for demand of Rs. 1,19,75,862/- being 10% of the value of the goods cleared during the period October, 2005 to February, 2006 and interest was also sought to be, levied and also penalty under the provisions of Rule 15 of CENVAT Credit Rules. In the light of the decision of IOC Ltd. v. CCE, Lucknow, held that- we have clearly held that there is no question of reversing 10% of the amount of the value of the Sulphur cleared from the factory as an exempted product. The issue now stands settled in favour of the assessee, hence, the impugned order is liable to be set aside and we do so. The impugned order is set aside and appeal is allowed with consequential relief, if any.

Issues:
- Whether the appellant is liable to pay 10% value of the Sulphur cleared as an exempted product during the refining process.

Analysis:
1. Facts and Background: The case involves appeals against O-I-O No. 11/2006 dated 31-7-2006. The appellant, a manufacturer, used various inputs like catalysts, chemicals, steam, and hydrogen in the process of refining crude oil to produce sulphur as a by-product. The issue arose regarding the utilization of CENVAT Credit on inputs used for manufacturing exempted goods, specifically sulphur.

2. Legal Provisions: The case referred to Rule 6(2) of CENVAT Credit Rules, 2004, which mandates maintaining separate accounts for inputs used in dutiable and exempted products. Failure to maintain separate accounts requires payment of 10% of the value of exempted goods cleared. The appellant contested the show cause notice, citing previous decisions and arguing that sulphur was a by-product used for pollution control, not commercial purposes.

3. Adjudication: The adjudicating authority disagreed with the appellant's contentions, directing payment of 10% of the value of sulphur cleared during a specific period. The authority also imposed interest and penalties under Rule 15 of the CENVAT Credit Rules. The appellant challenged this decision, citing previous decisions in their favor.

4. Appellant's Arguments: The appellant's counsel referred to previous decisions like IOC Ltd. v. CCE, Lucknow, and others, claiming that the issue was settled in their favor. They argued that sulphur was a by-product of the refining process and not a commercial product, aligning with previous tribunal decisions.

5. Revenue's Position: The Joint CDR argued that common inputs used in manufacturing dutiable and exempted products required payment of 10% of the value of the exempted product. Citing the Rallies India Ltd. case, the Revenue contended that sulphur arising during refining should be subject to the 10% payment rule.

6. Tribunal's Decision: The Tribunal examined the issue and previous decisions, including the IOC Ltd. case. It concluded that sulphur, as a by-product of refining, did not require the appellant to pay 10% of its value when cleared as an exempted product. The Tribunal rejected the Revenue's reliance on the Rallies India Ltd. case, noting that the High Court had set aside the decision.

7. Conclusion: Based on the settled legal position and previous decisions, the Tribunal set aside the impugned order, allowing the appeal in favor of the appellant. The Tribunal held that the appellant was not liable to pay 10% of the value of sulphur cleared as an exempted product, as it was a by-product of the refining process.

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