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TMI Blog2010 (9) TMI 857X X X X Extracts X X X X X X X X Extracts X X X X ..... exempted goods? (2) Whether, in the facts and circumstances of the case, the learned CESTAT has erred in law by allowing the appeal filed by the assessee and setting aside the order of the Commissioner after applying the Rules 57CC and 57D of erstwhile Central Excise Rules, 1944 which was effective till 28-2-2001 and no such provisions exist in new applicable Rules viz., Cenvat Credit Rules 2002/2004? 2. The respondent-assessee is engaged in the manufacture of Gelatin and Di-Calcium Phosphate. The assessee was availing of the benefit of Cenvat Credit of duty paid on the inputs/raw materials consumed in the final products manufactured by it under Rule 3 of the Cenvat Credit Rules, 2002 (the Rules). The assessee was manufacturing two products namely, Gelatin and Di-Calcium Phosphate (Animal Feed Grade). Gelatin is classified under Chapter sub-heading No. 3503.00 (Rate of duty : 16%), and Di-Calcium Phosphate is classified under Chapter sub-heading No. 2303.00 (Rate of duty : Nil). The case of the revenue is that upon scrutiny of ER-1 for the month of April, 2004 to December, 2004 submitted by the assessee, it was revealed that the assessee had taken Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvat Credit Rules, 2002, the respondent was required to maintain separate accounts for receipt, consumption and inventory of input meant for use in the manufacture of dutiable final products and the quantity of input meant for use in the manufacture of exempted products and take Cenvat credit only on that quantity of input which was intended for use in the manufacture of dutiable goods. It was submitted that if the assessee was not in a position to maintain separate accounts for receipt, consumption and inventory of inputs, it could have followed the options as provided under sub-rule (3) of Rule 6 namely, to pay an amount as provided under sub-rule (3) of the value of exempted goods as Gelatin was liable to duty, whereas Di-Calcium Phosphate was an exempted product. It was submitted that the assessee having failed to maintain separate accounts as envisaged under sub-rule (2) of Rule 6, it was liable to pay the amount as prescribed under sub-rule (3) thereof in respect of the exempted goods. Since, the assessee had failed to do so, the adjudicating authority had rightly confirmed the demand for duty alongwith interest and penalty. It was submitted that as to whether Di-Calcium Phos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om payment of duty and as such, in the facts of the present case, the input in question being Hydrochloric Acid having been utilized for the manufacture of dutiable as well as exempted final products, the respondent assessee was liable to pay a duty at an amount equal to 8% of the total price of the exempted final product. 5. The learned counsel has also placed reliance upon a decision of the Bombay High Court in the case of Commissioner of Central Excise, Thane-I v. Nicholas Piramal (India) Ltd., 2009 (244) E.L.T. 321 (Bom.) wherein it has been held that hardship in maintaining accounts or following rules does not make the rules absurd or unjust. Rule 6(2) is mandatorily applicable once dutiable and exempted products are manufactured from common inputs and credit can be availed only in terms of Rule 6(3) of the Rules. 6. The undisputed facts of the case are that for the purpose of manufacture of Gelatin, cleared bone chips are charged to acidulation vats with the help of conveyors. Each vat is filled with pre-determined quantity of bone chips and then soaked with Hydrochloric Acid. The bones contain mineral matter like Phosphate Salts. The Hydrochloric Acid leaches out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of inputs which is intended for use in the manufacture of dutiable goods. Sub-rule (3) of Rule 6 makes provision for the conditions which a manufacturer of goods opting not to maintain separate accounts is required to follow. 8. Thus, on a plain reading sub-rule (1) of Rule 6, it is apparent that CENVAT credit is admissible in respect of the inputs used in the manufacture of dutiable goods and is inadmissible on such quantity of inputs which is used in the manufacture of exempted goods. Sub-rule (2) imposes an obligation on the manufacturer who manufactures final products and exempted goods from the common input to maintain separate accounts for receipt, consumption and inventory of inputs. Examining the applicability of the aforesaid rules to the facts of the present case, as noted hereinabove, it is not as if more quantity of Hydrochloric Acid is used than that required for manufacturing Gelatin or that by using a smaller amount of Hydrochloric Acid, the production of Mother Liquor could be averted. In the manufacturing process adopted by the assessee, it is not possible to manufacture Gelatin without Mother Liquor coming into existence. Thus, when the entire quantity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound to deny the benefit of the exemption notification. 10. In the facts of the present case, it is not as if by using a smaller quantity of input Hydrochloric Acid, the respondent could have averted the emergence of Mother Liquor. In other words, in the technology utilized by the respondent for the manufacture of Gelatin, the emergence of Mother Liquor was inevitable. Hence, while it is no doubt correct to say that Hydrochloric Acid has been used in or in relation to manufacture of Mother Liquor, the identical quantity of the same goods has simultaneously been used in the manufacture of Gelatin. The emergence of Mother Liquor during the course of manufacture of Gelatin, therefore, by itself is not a ground to invoke the provisions of Rule 6 of the Rules. 11. Under the Scheme of the Central Excise Act and the Rules framed thereunder, credit of the duty paid on inputs used in the manufacture of dutiable goods is given under the Cenvat Credit Rules so as to prevent the cascading effect of duty. Cenvat Credit is availed in respect of duty paid on the inputs used in the manufacture of final product. At the time of clearance of the goods, the amount of credit being availed w ..... 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