2006 (12) TMI 4 - AT - Central Excise

Central Excise Cenvat/Modvat credit - Rule 57D of C.Ex. Rules 1944 provisions apply to waste, refuse or by-product which are not excisable and not same which are excisable but exempted Rule 57CC ibid provisions apply if two final products emerging out of use of common inputs are excisable and one of them exempted

Issues Involved:
1. Applicability of Rule 57CC of Central Excise Rules, 1944 (now Rule 6 of Cenvat Credit Rules, 2002) to by-products/subsidiary products exempted from duty.
2. Interpretation of the provisions of Rule 57CC in the context of manufacturing processes involving exempted by-products.
3. Whether mother liquor is a by-product and if Rule 57CC applies to it.
4. Applicability of Rule 57D in relation to by-products and its impact on Rule 57CC.

Detailed Analysis:

1. Applicability of Rule 57CC to By-Products/Subsidiary Products Exempted from Duty:
The primary issue is whether 8% of the amount as per Rule 57CC needs to be discharged before the removal of by-products/subsidiary products when such products are exempted from the whole of duty. The Tribunal noted conflicting views in previous decisions regarding this interpretation.

2. Interpretation of Rule 57CC in the Context of Manufacturing Processes Involving Exempted By-Products:
The appellant manufactures gelatin using animal bones and hydrochloric acid (HCL), availing modvat credit on HCL. During this process, a by-product called mother liquor is produced, which is further processed into Phosphoryl A and B, exempt from duty. The appellant argued that Rule 57CC should not apply as mother liquor is a by-product. The Tribunal examined Rule 57CC, which states that if a manufacturer uses inputs for both dutiable and exempted final products, they must pay 8% of the price of the exempted goods unless separate accounts are maintained.

3. Whether Mother Liquor is a By-Product and if Rule 57CC Applies to It:
The appellant contended that mother liquor is a by-product, not a final product, thus Rule 57CC should not apply. The Tribunal, however, noted that Phosphoryl A and B are final products, consciously manufactured and regularly sold, thereby not qualifying as mere by-products. The Tribunal referenced the Supreme Court's decision in Rallis India Ltd. vs. State of Tamil Nadu, where gelatin was deemed obtainable without HCL, suggesting HCL's use in manufacturing Phosphoryl A and B. Therefore, HCL is used in producing these exempted final products, invoking Rule 57CC.

4. Applicability of Rule 57D in Relation to By-Products and Its Impact on Rule 57CC:
The appellant referenced Rule 57D, which states that modvat credit should not be denied if part of the input is contained in waste or by-products. The Tribunal clarified that Rule 57D applies to non-excisable waste or by-products, whereas Rule 57CC applies to excisable products, whether intended or unintended. The Tribunal concluded that Rule 57CC applies to exempted final products, including by-products, if they are excisable.

Conclusion:
The Tribunal concluded that Rule 57CC applies to exempted final products, including by-products like Phosphoryl A and B, as long as they are excisable. The decision emphasized the literal interpretation of Rule 57CC, which does not distinguish between intended final products and by-products. The reference was answered in these terms, and the case was sent back to the regular bench for disposal of the appeal.

Pronouncement:
The judgment was pronounced in court on 13.12.2006.

← Previous Next →