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2023 (11) TMI 1070 - AT - Central ExciseCENVAT Credit - sulphuric acid (by- product) - common input used for manufacture of taxable as well as exempt goods - non-maintenance of separate records - reliance placed upon Explanation (1) introduced w.e.f. 01.03.2015 and Board circular dtd. 25.04.2016 to demand the amount in terms of Rule 6(3) of Cenvat Credit Rules, 2004. HELD THAT - A perusal of Rule 6(1) clearly shows that the manufacturer has to manufacture dutiable goods as well as exempted goods. It has to be seen that though the said explanation puts forward a deeming provision that non-excisable goods cleared on payment of consideration are also to be considered as exempted goods, there is no corresponding amendment made in sub-rule (1) of Rule 6 so that the goods that emerged out of process of manufacture falling in clause (1) are also to be considered as exempted goods. As per the settled decisions, the disputed goods which are not consciously manufactured by the appellant and which emerged unavoidably in the process of manufacture of other goods cannot be considered as goods manufactured by the appellant. Since disputed goods is not manufactured goods but the by-product which emerges/comes into existence in the process of manufacture of copper products, and therefore the production of Sulphuric Acid cannot be held to be manufacture of exempted goods. From para 3.7 of Chapter 5 of Circular dtd. 25.04.2016, it is clear that any input/input services contained in any by-product/waste/refuse, Cenvat Credit cannot be varied or denied. With this statutory clarification demand under Rule 6 in respect of by-product is not applicable - Once it is established that the product in question is by-product then it is settled that in respect of by-product demand under Rule 6 will not sustain. Accordingly, in the present case also, Sulphuric Acid being a by-product, no demand under Rule 6 shall sustain. Appeal of assessee allowed.
Issues Involved:
1. Applicability of Explanation 1 to Rule 6(1) of the Cenvat Credit Rules, 2004. 2. Classification of Sulphuric Acid as a by-product or exempted goods. 3. Validity of demands for reversal of Cenvat credit under Rule 6(3) of the Cenvat Credit Rules, 2004. Summary of Judgment: 1. Applicability of Explanation 1 to Rule 6(1) of the Cenvat Credit Rules, 2004: The department argued that post 01.03.2015, Sulphuric Acid should be considered as "exempted goods" due to Explanation 1 inserted to Rule 6(1) of the Cenvat Credit Rules, 2004, and the Board Circular dated 25.04.2016. This explanation included "non-excisable goods cleared for a consideration" within the ambit of "exempted goods." However, the Tribunal noted that Sulphuric Acid is specified in the Central Excise Tariff and subjected to excise duty when not cleared to fertilizer manufacturers. Therefore, it cannot be termed "non-excisable goods," making the explanation irrelevant in this case. 2. Classification of Sulphuric Acid as a by-product or exempted goods: The appellant contended that Sulphuric Acid is a by-product in the manufacture of copper cathodes, as established by the Supreme Court in Union of India Vs. Hindustan Zinc Ltd. The Tribunal agreed, stating that by-products emerging unavoidably during the manufacture of another product cannot be considered consciously manufactured goods. The production of Sulphuric Acid, being a by-product, does not qualify as the manufacture of exempted goods. 3. Validity of demands for reversal of Cenvat credit under Rule 6(3) of the Cenvat Credit Rules, 2004: The Tribunal examined Rule 6 and noted that the obligation to reverse Cenvat credit applies to inputs used in the manufacture of exempted goods. Since Sulphuric Acid is a by-product and not consciously manufactured, the demand for reversal of 6% of its value under Rule 6(3)(i) is not sustainable. The Tribunal referenced CBEC's manual and various judgments supporting that Cenvat credit is admissible for inputs used in by-products, waste, or refuse. Conclusion: The Tribunal dismissed the revenue's appeal and allowed the assessee's appeals, concluding that Sulphuric Acid, being a by-product, does not necessitate reversal of Cenvat credit under Rule 6. The cross-objection was also disposed of. Pronounced in the open court on 02.11.2023.
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