2018 (5) TMI 207 - AT - Central Excise

CENVAT credit - inputs contained in the by-products - Rule 57D of the Central Excise Rules, 1944 - demand of 8% of the value of the by - products - Held that - all the three products viz. wool grease, lanolin anhydrous and technical lanolin are generated unavoidably during the course of manufacture of final product i.e. wool tops. Therefore, all these products are by-products - From the plain reading of the erstwhile Rule 57D and sub-para (3.7) of CBEC s Central Excise Manual, it is mandated that if any input is contained in the by - product, waste or refuse, the cenvat credit on the said quantity of inputs can not be denied. This provision is with the clear logic that the credit is available on the inputs so long as it is used in the manufacture of final product which is cleared on payment of duty. In the present case, all the inputs are used for manufacture of final product viz. wool tops which is cleared on payment of duty. However, the by - products are emerged unavoidably. Hence in the light of the above provisions, canvat credit cannot be denied on the input contained in the by - products. The provisions of Rule 57CC of the Central Excise Rules, 1944, Rule 6(2)/6(3)(b) of the Cenvat Credit Rules, 2002/2004 have no application in the facts of this case. Demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the appellant is liable to pay an amount equal to a percentage of the total price of exempted final products due to non-maintenance of separate records for common inputs used in manufacturing exempted goods under Rule 6(2) of the Cenvat Credit Rules, 2002/2004.

Analysis:
The appellant, engaged in manufacturing various products falling under specific chapters of the Central Excise Tariff Act, availed cenvat credit facility under Cenvat Credit Rules, 2002/2004. The dispute arose as the appellant cleared wool grease, lanolin, and technical lanolin at nil rate of duty, but the department alleged non-maintenance of separate records for common inputs used in their manufacture. Consequently, a demand of ?53,78,509 was imposed under Rule 6(3)(b) of the Cenvat Credit Rules, 2002/2004, along with penalties and interest. The appellant contended that the by-products arose unavoidably during the manufacturing process of final products like wool tops, and therefore, the cenvat credit on inputs in by-products cleared at nil rate of duty cannot be denied, citing relevant judgments.

The Tribunal analyzed the provisions of Rule 57D of the Central Excise Rules, 1944, and CBEC's Central Excise Manual, emphasizing that cenvat credit on inputs contained in by-products cannot be denied. It was noted that the inputs were used for manufacturing final products cleared on payment of duty, and the by-products emerged unavoidably. Referring to the judgments cited by the appellant, including the Supreme Court's ruling in UOI vs. Hindustan Zinc Ltd., the Tribunal concluded that Rule 57CC and Rule 6(2)/6(3)(b) of the Cenvat Credit Rules, 2002/2004 were inapplicable in the case at hand. The Tribunal highlighted the commercial reality in trade and the legislative recognition of by-products, emphasizing that equating by-products with final products would disregard their inherent differences.

Based on the legal position established by previous judgments, the Tribunal held that the demand of 8% of the value of the by-products was unsustainable. Consequently, the impugned order was set aside, and the appeal was allowed, ruling in favor of the appellant.

This detailed analysis of the judgment highlights the legal intricacies surrounding the issue of cenvat credit on inputs in by-products cleared at nil rate of duty and the applicability of relevant rules and precedents in determining the appellant's liability in this case.