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2022 (5) TMI 650 - HC - Central ExciseReversal of CENVAT Credit - clearance of LPG, which was produced as joint petroleum product with other dutiable petroleum product by chemical reaction/fraction of common blend of raw material is proper - byproduct or not - It is the case of the appellant that the respondent has been availing credit of duty paid on the input and capital goods and input service in terms of the provisions of the CENVAT Credit Rules, 2004 - HELD THAT - In the case of COMMISSIONER OF C. EX. CUSTOMS, VADODARA-I VERSUS STERLING GELATIN 2010 (9) TMI 857 - GUJARAT HIGH COURT , the assessee therein had availed credit on hydrochloric acid, which was used in the manufacture of dutiable final product viz. gelatin as well as in the manufacture of exempted goods viz. Di-Calcium Phosphate. The issue before the Court was whether the assessee was required to pay an amount of 8%/10% of the value of exempted goods under Rule 6(3)(b) of the CCR. This Court, held that since the assessee could not have manufactured gelatin (dutiable final product) using a lesser quantity of hydrochloric acid, Rules 6(1) and 6(2) of the CCR would not come into play. The issue whether the LPG is byproduct or otherwise has become academic and need not required to be decide. Appeal dismissed.
Issues Involved:
1. Applicability of Rule 6 of the CENVAT Credit Rules to the clearance of LPG. 2. Requirement for the respondent to pay any amount under Rule 6(3) of CENVAT Credit Rules, 2004 for LPG cleared under exemption. 3. Consideration of LPG as a byproduct and the applicability of Rule 6 in such a case. 4. Classification of LPG as a byproduct or a joint product with other petroleum products. Detailed Analysis: 1. Applicability of Rule 6 of the CENVAT Credit Rules to the Clearance of LPG: The Tribunal exempted the application of Rule 6 to the clearance of LPG, which is produced as a joint petroleum product with other dutiable products. The Tribunal reasoned that LPG, generated during the refining process, is inherently linked to the production of other petroleum products and does not require separate inputs or input services. The Tribunal relied on the Gujarat High Court's decision in the case of Sterling Gelatin, which held that if the entire quantity of inputs is used for manufacturing dutiable products, Rule 6 does not apply. 2. Requirement for the Respondent to Pay Any Amount Under Rule 6(3) of CENVAT Credit Rules, 2004 for LPG Cleared Under Exemption: The Tribunal held that the respondent is not required to reverse or pay any amount under Rule 6(3) for LPG cleared under the Domestic Subsidy Scheme. The Tribunal found that the provisions of Rule 6(1) and 6(2) are not applicable because the exemption for LPG was limited to clearances made to household domestic consumers under the subsidy scheme. The Tribunal emphasized that the entire quantity of inputs and input services is used for the manufacture of dutiable goods, and the emergence of LPG in the process does not necessitate the reversal of CENVAT credit. 3. Consideration of LPG as a Byproduct and the Applicability of Rule 6 in Such a Case: The Tribunal classified LPG as a byproduct that inevitably arises during the refining process. It cited the principle of Equal Economic Importance, noting that the value of LPG clearances under exemption was minimal compared to other products. The Tribunal referenced the case of Sterling Gelatin, where it was held that Rule 6 does not apply if the dutiable final product could not have been manufactured using a lesser quantity of inputs. The Tribunal concluded that the entire input and input services are used for manufacturing dutiable products, and LPG's emergence as a byproduct does not trigger Rule 6. 4. Classification of LPG as a Byproduct or a Joint Product with Other Petroleum Products: The Tribunal determined that LPG is a byproduct rather than a joint product. It emphasized that LPG arises inevitably during the refining process and is not the result of a deliberate manufacturing effort. The Tribunal supported this classification by comparing it to the case of Sterling Gelatin, where a similar byproduct emerged during the manufacturing process. The Tribunal concluded that the provisions of Rule 6 are inapplicable as the entire inputs and input services are attributed to the production of dutiable goods, and the emergence of LPG as a byproduct does not necessitate separate accounting or reversal of CENVAT credit. Conclusion: The Tribunal's judgment, upheld by the High Court, clarified that Rule 6 of the CENVAT Credit Rules does not apply to the clearance of LPG produced as a byproduct during the refining process. The respondent is not required to reverse or pay any amount under Rule 6(3) for LPG cleared under the Domestic Subsidy Scheme. The classification of LPG as a byproduct, supported by the principle of Equal Economic Importance and the Sterling Gelatin case, reinforces that the entire inputs and input services are used for manufacturing dutiable goods, negating the need for separate accounting or credit reversal.
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