2000 (3) TMI 249 - AT - Central Excise

Summary

Issues:
1. Liability of Central Excise duty on Benzyl Chloride and Benzyl Cyanide.
2. Applicability of Notifications 176/86, 217/86, 246/86, and 147/84-C.E.
3. Distinction between marketable and captively consumed Benzyl Cyanide.
4. Benefit of Modvat credit.
5. Interpretation of Notification 217/86 regarding Benzyl Cyanide used in the manufacture of Phenyl Acetic Acid.

Analysis:

1. The case involved the liability of Central Excise duty on Benzyl Chloride and Benzyl Cyanide used in manufacturing processes. The Department issued a show cause notice for duty demand based on the contention that duty was payable on these chemicals.

2. The appellants argued that Benzyl Cyanide produced in their factory was not marketable and thus not liable to duty. They also claimed that duty should be based on manufacturing cost, not selling price. The Adjudicating authority held that no duty could be demanded on Benzyl Chloride under Notification 217/86 if Central excise duty was paid on Benzyl Cyanide. The Collector (Appeals) upheld most of the decision but remanded the Modvat credit claim for further review.

3. The issue of distinction between marketable and captively consumed Benzyl Cyanide was raised. The Tribunal in a previous case involving the same assessees held that captively consumed Benzyl Cyanide was not distinct from marketable cyanide. The benefit of Modvat credit was extended in that case.

4. The assessees argued for the benefit of Notification 217/86 for Benzyl Cyanide used in the manufacture of Phenyl Acetic Acid and aqueous layer. The Tribunal clarified that the exemption under Notification 217/86 was not applicable to the entire quantity of Benzyl Cyanide used in the manufacturing process of exempted final products.

5. The Tribunal analyzed the applicability of Notification 217/86 to Benzyl Cyanide used in the manufacture of Phenyl Acetic Acid. It was determined that the exemption did not cover the entire quantity of Benzyl Cyanide, but only that used in the manufacture of the aqueous layer cleared on payment of duty.

6. The Tribunal differentiated the case from a Supreme Court judgment regarding set-off rules, emphasizing that Notification 217/86 had specific conditions for exemption. It was noted that the assessees were able to segregate the quantity of Benzyl Cyanide used in different manufacturing processes in a previous case, indicating the possibility of correlation between inputs and dutiable commodities.

7. In conclusion, the Tribunal held that the assessees were not eligible for exemption on the entire quantity of Benzyl Cyanide under Notification 217/86. The exemption was deemed applicable only to the quantity used in the manufacture of the aqueous layer cleared on payment of duty. The appeal was disposed of accordingly.