2005 (10) TMI 491 - Commissioner - Central Excise

Issues Involved:
1. Applicability of Rule 6(3)(b) of Cenvat Credit Rules, 2002.
2. Generation of Blast Furnace Gas as a by-product.
3. Compliance with Rule 6(2) regarding maintenance of separate accounts.
4. Reversal of credit on inputs contained in waste/by-products.
5. Application of Section 11B concerning the refund claim.
6. Passing on the incidence of duty to customers and unjust enrichment.

Detailed Analysis:

1. Applicability of Rule 6(3)(b) of Cenvat Credit Rules, 2002:
The appellants were required to pay 8% on the selling price of Blast Furnace Gas under Rule 6(3)(b) because they manufactured both dutiable and exempted products. They initially paid this amount but later claimed a refund, arguing that the gas was an unavoidable by-product and not subject to Rule 6(3)(b). The lower authority rejected the refund claims, stating that the appellants did not comply with Rule 6(2) and thus were liable to pay 8% under Rule 57AD and Rule 6(3)(b).

2. Generation of Blast Furnace Gas as a by-product:
The judgment examined whether Blast Furnace Gas was manufactured or a by-product. The court referred to several precedents, including Hi-Tech Carbon v. CCE and Hindustan Zinc Ltd. v. CCE, where by-products were not considered as manufactured exempted goods. It was concluded that the gas was a by-product generated during the manufacturing process and not a separately manufactured product.

3. Compliance with Rule 6(2) regarding maintenance of separate accounts:
The appellants argued that they maintained separate accounts for inputs used in dutiable and exempted goods, complying with Rule 6(2). The court found that since the gas was a by-product and not separately manufactured, the appellants were not required to maintain separate accounts for it. Therefore, they were not liable to pay any amount under Rule 6(3).

4. Reversal of credit on inputs contained in waste/by-products:
The court referred to Circular No. B-4/7/2000-TRU and several judgments, including Anil Starch v. CCE, which held that credit need not be reversed for inputs contained in waste or by-products. The appellants' claim that no credit was required to be reversed for the gas was upheld.

5. Application of Section 11B concerning the refund claim:
The appellants contended that Section 11B did not apply as the claim was for the amount paid under Rule 6(3)(b) and not duty. The court found merit in this argument, stating that the amount paid was not duty but an amount under Rule 6(3)(b), and thus Section 11B's time limit did not apply.

6. Passing on the incidence of duty to customers and unjust enrichment:
The lower authority concluded that the incidence of duty had been passed on to the customers, rejecting the refund claims. The appellants argued that the customers did not pay the 8% or 16% duty, supported by documentary evidence. The court noted that the presumption under Section 12B is rebuttable and can be disproved by evidence. It was established that the buyers did not pay the excess duty, and thus, the incidence was not passed on. Consequently, the rejection of refund claims on the grounds of unjust enrichment was not sustained.

Conclusion:
The court set aside the impugned orders, allowing the appeals with consequential relief. The appellants were not liable to pay the 8% under Rule 6(3)(b) as the Blast Furnace Gas was a by-product, and they had complied with Rule 6(2). The refund claims were valid as the incidence of duty was not passed on to the customers.

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