2010 (3) TMI 550 - AT - Central Excise

Cenvat/Modvat - In the course of manufacture of Liquid Glucose, Gluten, and Spent Carbon emerge as unavoidable by-products both of which are fully exempted from duty. The point of dispute is as to whether in respect of clearances of Gluten and Spent Carbon an amount equal to their sale value was payable by the Respondents in terms of Rule 6(3)(b) of the Cenvat Credit Rules, 2002, as the Respondent have not maintained separate account and separate inventory of the inputs meant for use in the manufacture of dutiable finished products and the inputs meant for use in manufacture of exempted finished products. Held that - in the light of the decision of Narmada Gelatines Ltd. v. CCE, Bhopal, 2009 -TMI - 32224 - CESTAT NEW DELHI, demand in terms of Rule 6(3)(b) of Cenvat Credit Rules, 2004 not sustainable. No infirmity in impugned order.

Summary

Issues:
1. Interpretation of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 regarding payment for clearances of unavoidable by-products.
2. Application of separate account and inventory maintenance requirements for dutiable and exempted finished products.
3. Comparison of judgments in similar cases to determine applicability to the current scenario.

Detailed Analysis:
Issue 1: The main issue in this case revolved around the interpretation of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 concerning the payment obligation for clearances of unavoidable by-products such as Gluten and Spent Carbon. The Revenue issued a show cause notice demanding payment from the Respondent for these clearances, as separate accounts for dutiable and exempted products were not maintained. The Asst. Commissioner initially dropped the proceedings, citing that the by-products were unavoidable and the Cenvated input was not used in their manufacture. The Revenue appealed this decision, arguing that the recent judgment of the Bombay High Court set a precedent for such cases.

Issue 2: Another crucial aspect of the case was the application of the requirement to maintain separate accounts and inventories for inputs used in the manufacture of dutiable and exempted finished products. The Revenue contended that failure to maintain separate records should trigger the provisions of Rule 6(3), irrespective of the challenges in maintaining such accounts. The Respondent, on the other hand, argued that as the unavoidable by-products emerged during the production of the intended finished product, Liquid Glucose, separate account maintenance was impractical, citing relevant Tribunal decisions to support their stance.

Issue 3: The Tribunal analyzed the judgments in similar cases, such as Narmada Gelatines Ltd. and Rallis India Ltd., to determine their applicability to the current scenario. The Tribunal differentiated the facts of this case from the judgment of CCE, Thane v. Nicholas Piramal (India) Ltd., where separate accounts were required for dutiable and exempted finished products. The Tribunal concluded that as the intended finished product was only Liquid Glucose and the unavoidable by-products were not the primary focus of production, the Bombay High Court's judgment was not directly relevant to the present case. Consequently, the Tribunal dismissed the appeal, upholding the impugned order.

In conclusion, the Tribunal's detailed analysis focused on the interpretation of relevant rules, the practical challenges of maintaining separate accounts, and the application of precedent judgments to arrive at a decision that favored the Respondent in this case.