2016 (1) TMI 884 - AT - Central Excise

Duty demand - cenvat credit - clearance of slag/dust cleared without payment of duty - Held that - As from reading of sub-rule (2) and sub-rule (3) of Rule 6, it is clear that sub-rule (3) is applicable only when die provisions of sub-rule (2) are not complied with by a manufacturer. In this case, in course of manufacture of MS Ingots, slag dust arises as an inevitable by-product and in the present case, even if manufacturer, in accordance with the provisions of Rule 6 (2), wants to maintain separate account or inventory of inputs/input services used in the manufacture of dutiable product - MS ingots and take credit only in respect of inputs and inputs services used in the manufacture of MS ingots, this is impossible a slag emerges as an inevitable and unavoidable by-product. Separate account and inventory as per the provisions of Rule (2) can be maintained only when a manufacturer using common inputs/input services consciously manufactures final products one dutiable and other exempt in two separate processes. But complying with Rule 6 (2) is impossible where while manufacturing a product A, a product B emerges as an unavoidable by-product or as waste. Lex Non Cogit ad Impossibila is a well settled legal principle applicable in respect of taxation matters also. When it is impossible to comply with the provisions of sub-rule (2) of Rule 6, it would not be applicable. Sub-rule (3) of Rule 6 becomes applicable only when the manufacturer does not comply the provisions of sub-rule (2) and the provisions of sub-rule (3) would not be applicable in the cases where the sub-rule (2) is inapplicable. We find that same view has been taken in the case of Nirma Ltd (2012 (10) TMI 138 - GUJARAT HIGH COURT), case of Rallis India Ltd (2008 (12) TMI 46 - HIGH COURT BOMBAY ) and Hindustan Zinc Ltd. (2014 (5) TMI 253 - SUPREME COURT ). Therefore, the appellant are not liable to pay any amount in respect of clearance of slag/dust which has been cleared by them without payment of duty as same has been emerged during the course of manufacture of M.S. Ingots. - Decided in favour of assessee.

Summary

Issues:
1. Whether the appellant is liable to pay an amount under Rule 6(3) of the Cenvat Credit Rules, 2004 for clearing slag dust at nil rate of duty.
2. Whether the slag dust generated as a by-product is considered excisable goods and subject to taxation.
3. Interpretation of Rule 6(2) and Rule 6(3) of Cenvat Credit Rules, 2004 in the context of maintaining separate accounts for dutiable and exempted final products.

Analysis:
1. The appellant, a manufacturer of M.S. Ingots, generated slag dust as a by-product exempt from duty. The dispute arose as the department demanded payment under Rule 6(3) due to common inputs used for dutiable and exempted goods. The appellant argued that maintaining separate accounts was impossible, citing legal precedents where similar issues were resolved in favor of the manufacturer. The Tribunal noted that Rule 6(3) applies only if Rule 6(2) is not complied with. As it was impossible for the appellant to maintain separate accounts due to the nature of the by-product, the provisions of Rule 6(3) were deemed inapplicable. The Tribunal referred to judgments supporting this interpretation and ruled in favor of the appellant, setting aside the demand.

2. The department contended that slag dust, being a marketable by-product, should be treated as excisable goods subject to taxation. However, the Tribunal analyzed the nature of the by-product and the impossibility of maintaining separate accounts, as per Rule 6(2). Relying on legal principles and previous judgments, the Tribunal concluded that the appellant was not liable to pay any amount for the clearance of slag dust, as it emerged during the manufacturing process of M.S. Ingots. The impugned order was set aside in favor of the appellant.

3. The interpretation of Rule 6(2) and Rule 6(3) was crucial in this case. The Tribunal clarified that Rule 6(3) is applicable only when Rule 6(2) is not complied with. In situations where maintaining separate accounts is impossible due to the nature of the manufacturing process and the emergence of unavoidable by-products, the provisions of Rule 6(3) cannot be enforced. Legal precedents from High Courts and the Apex Court supported this interpretation, emphasizing the practical impossibility of compliance with Rule 6(2) in such scenarios. The Tribunal allowed the appeal, providing consequential relief to the appellant based on this analysis.