2015 (6) TMI 778 - AT - Central Excise

Reversal of cenvat credit on emergence of exempted by-product Hydrol i.e Acid Oil - Demand of 8% of the sale value of the acid oil - Non maintenance of separate account and inventory of the input/input services used in or in relation to the manufacture of exempted final products and dutiable final products - Held that - While the main product being manufactured by the respondent i.e , refined vegetable oil being manufactured by M/s Goyal Proteins and Dextrose Monohydrate and Dextrose Anhydrous being manufactured by M/s Starch Chemicals were dutiable final products and the respondent have availed cenvat credit in respect of input/input services used in the manufacture of these dutiable final products. In course of manufacture of these dutiable final products, some by-products exempt from duty also arose. Acid oil emerges in the manufacture of refined vegetable oil and during the manufacture of Dextrose Monohydrate and Dextrose Anhydrous, a by-product viz. hydrol emerges. In these circumstances of the case, it was impossible for the Respondents to maintain separate account and inventory of the inputs/input services meant for dutiable final products and exempted final products as this can be done only if two different final products, one dutiable and the other exempted are being manufactured consciously. When compliance of a provision is impossible, an assessee cannot be penalized for his failure to comply with the same. - provisions of Rule 6(2) read with Rule 6(3)(b) of Cenvat Credit Rules, 2002/2004 would not be applicable in such cases when in course of manufacture of dutiable final products some exempted final products also emerge as inevitable by-product. - Decided against Revenue.

Summary

Issues:
1. Interpretation of Rule 6(3)(b) of the Cenvat Credit Rules, 2002/2004 in cases involving the manufacture of dutiable final products and exempted final products.
2. Application of Rule 6(2) read with Rule 6(3)(b) of Cenvat Credit Rules, 2002/2004 when exempted final products arise as unavoidable by-products during the manufacturing process.

Analysis:

Issue 1:
The appeals involved the interpretation of Rule 6(3)(b) of the Cenvat Credit Rules, 2002/2004 concerning the maintenance of separate accounts for input/input services used in the manufacture of exempted final products and dutiable final products. The Revenue contended that failure to maintain separate accounts warranted the imposition of demands and penalties. However, the Commissioner (Appeals) set aside the orders of the Assistant Commissioner, leading to the appeals by the Revenue.

Issue 2:
In another case, the question arose regarding the application of Rule 6(2) along with Rule 6(3)(b) of the Cenvat Credit Rules, 2002/2004 when exempted final products emerged as unavoidable by-products during the manufacturing process. The respondents argued that it was impossible to maintain separate accounts and inventory for inputs meant for dutiable and exempted final products due to the nature of the manufacturing process. They relied on legal precedents such as the judgment of the Hon'ble Bombay High Court and the Tribunal in similar cases.

The Tribunal analyzed the circumstances of the cases where dutiable final products were being manufactured alongside exempted final products arising as by-products. It noted that maintaining separate accounts would be practically impossible when exempted final products emerged unavoidably during the manufacturing process. The principle of lex non cogit ad impossibilia was applied, emphasizing that an assessee cannot be penalized for non-compliance when compliance is impossible. Citing legal precedents, the Tribunal concluded that Rule 6(2) along with Rule 6(3)(b) would not be applicable in such scenarios.

Therefore, the Tribunal upheld the impugned orders of the Commissioner (Appeals) and dismissed the Revenue's appeals, ruling in favor of the respondents based on the impossibility of maintaining separate accounts for inputs used in the manufacture of dutiable and exempted final products when exempted final products arise as inevitable by-products.