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TMI Blog2014 (5) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... t produce sulphur dioxide. In other words, a given quantity of zinc concentrate will result in emergence of zinc sulphide and sulphur dioxide according to the chemical formula on which respondents have no control. On these facts this court is inclined to accept the version of the respondents that the ore concentrate is completely consumed in the extraction of zinc and no part of the metal is forming part of sulphuric acid. - Once we proceed keeping in mind the aforesaid factual, technological and commercial position available on the records, it has to be accepted that the respondents have consumed the entire quantity of zinc concentrate in the production of zinc. The respondents maintained the inventory of zinc concentrate for the production of zinc and we agree with the submission of the respondents that there was no necessity and indeed it is impossible, to maintain separate records for zinc concentrate used in the production of sulphuric acid. - the requirements of 57CC were fully met in the way in which the Respondent was maintaining records and inventory and the mischief of recovery of 8% under Rule 57 CC on exempted sulphuric acid is not attracted. Furthermore, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010, we are concerned with sulphuric acid. In Civil Appeal No. 8631 of 2010, it is caustic soda flakes and trichloro ethylene. In Civil Appeal No. 2337 of 2011, the product is again sulphuric acid and in the case of Civil Appeal No. 5322 of 2010 and the other connected matter of M/s Rallis India Ltd, it is Phosphoryl A and Phosphoryl B. The issue is as to whether the Assessees (respondents) are entitled to Modvat/ Cenvat Credit on inputs used in the manufacture of the aforementioned exempted (or subject to NIL rate of duty) final products. 3.In all these appeals filed by the Revenue, it has taken the position with the common contention as to whether the Respondents are liable to pay 8% excise duty as an amount under Rule 57CC of the Central Excise Rules, 1944 or 57AD of the Central Excise Rules, 2000 or Rule 6 of the Cenvat Credit Rules, 2004 (hereinafter referred to as 'Rules') on the value of by-product namely sulphuric acid which was cleared to fertilizer plants under exemption in terms of the bonds executed by the fertilizer plants. 4.At this stage we would describe the manufacturing process in all three cases and the facts leading to the filing of the present app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces by filing writ petitions under Article 226 before the Rajasthan High Court, primarily challenging the vires of Rule 57 CC on the ground that the Central Government by subordinate legislation, can not fix rates of duties which is the prerogative of the Parliament under Section 3 of the Central Excise Act, 1944 read with Central Excise Tariff Act, 1975. Other contentions regarding the vires of Rule 57 CC were also raised. As an alternative, it was pleaded that even if Rule 57 CC is to be held as intra vires, the demand raised in the show cause notices will not survive on proper interpretation of Rule 57CC of the Rules and hence is to be quashed. The High Court decided the petition in favour of the respondents on the interpretation of Rule 57CC and Rule 57D itself, without going into the question relating to the vires. Department is in appeal before this Court against this judgment. Birla Copper (C.A. NO. 2337/2011) i) The manufacturing process of copper from the copper ore concentrate is similar to that of zinc and the emergence of sulphuric acid as a by-product was conceded by the department before the Tribunal. Here again, Birla Copper were selling the by-product sulphuri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not disputed by the Department before the Tribunal or before the Bombay High Court. The Tribunal decided the matter against the assessee by interpretating Rule 57 CC. The same was challenged before the Bombay High Court, which has reversed the decision of the Tribunal. The Department is in appeal against the decision of the High Court. The aforesaid narration discloses the identity of the issue in the three set of appeals. Henceforth, in our discussion, reference would be to the Hindustan Zinc Ltd., as the respondent. 5.The respondent herein is a Public Limited Company and it was disinvested in April, 2002. The respondent is engaged in the manufacture of non-ferrous metals like zinc, lead as well as Sulphuric Acid and Copper Sulphate. The said products are chargeable under Chapter Sub-heading No. 2807.00, 7901.10 and 2833.10 respectively of the First Schedule to the Central Excise Tariff Act, 1985 respectively among their other products. A show cause notice was issued on 15.3.2005 to the assessee respondent for recovery of Rs. 48,39,883/- under Rule 12 of the erstwhile CENVAT Credit Rules, 2002 and Rule 14 of CENVAT Credit Rules 2004 read with Section 11(e) of the Central Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how cause notice. 8.The High Court after examining the manufacturing process as well as Rule position, came to the conclusion that prohibition against claiming Modvat Credit on exempted goods or subject to nil rate of duty applies in case where such exemption from payment of duty or nil rate of duty on end product is predictably known at the time the recipient of inputs is entitled to take credit of duties paid on such inputs. The fact that due to subsequent notification or on contingency that may arise in future, the end product is cleared without payment of duty due to exemption or nil rate of duty does not affect the availing of modvat credit on the date of entitlement. If on the date of entitlement, there is no illegality or invalidity in taking credit of such modvat/ Cenvat Credit, the right to utilize such credit against future liability towards duty become indefeasible and is not liable to be reversed in the contingency discussed above. 9.On these findings, the High Court has allowed the Writ Petitions filed by the respondent-Hindustan Zinc. In the process there is a detailed discussion of the relevant rules explaining the scheme contained therein; on the aspect of pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintenance of separate inventory and accounts of inputs by the manufacturer, (1) Where a manufacturer is engaged in the manufacture of any final product which is chargeable to duty as well as in any other final product which is exempt from the whole of the duty of excise leviable there on or is chargeable to nil rate of duty and the manufacturer takes credit of the specified duty on any inputs (other than inputs used as fuel) which is used as ordinarily used in or in relation to the manufacture of both the aforesaid categories of final products, whether directly or indirectly and whether contained in the said final products or not, the manufacture shall, unless the provisions of sub-rule (9) are complied with, pay an amount equal to 8% of the price (excluding sales tax and other taxes, if any, payable on such goods) of the second category of final products charged by the manufacturer for the sale of such goods at the time of their clearance from the factory. The amount mentioned in sub-rule(1) shall be paid by the manufacturers by adjustment in the credit account maintained under sub-Rule(7) of Rule 57G or in the accounts maintained under Rule 9 or sub-Rule 173G and if such adjustm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ground that part of the inputs is contained in any waste, refuse or by-product arising during the manufacture of the final product, or that the inputs have become waste during the course of manufacture of the final product, whether or not such waste or refuse or by-product is exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty or is not specified as a final product under Rule 57A. 14.Mr. Parasaran, the learned Solicitor General, opened his submissions by challenging the very approach of the High Court in entertaining the writ petitions as according to him, stage therefor had not ripened. His contention in this behalf was that merely a show cause notice was issued and no final decision was taken on the said show cause notice. However, instead of showing cause, writ petitions were filed seeking quashing of the show cause notice which should have been dismissed as premature. He referred to certain judgments of this court as well, wherein it is held that High Court, normally, should not entertain writ petition questioning the validity of the show cause notice. 15.On merits, the learned Solicitor General argued that the interpretat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of zinc concentrate only to produce the metal and not produce sulphur dioxide. In other words, a given quantity of zinc concentrate will result in emergence of zinc sulphide and sulphur dioxide according to the chemical formula on which respondents have no control. 18.On these facts this court is inclined to accept the version of the respondents that the ore concentrate is completely consumed in the extraction of zinc and no part of the metal is forming part of sulphuric acid. 19.Once we proceed keeping in mind the aforesaid factual, technological and commercial position available on the records, it has to be accepted that the respondents have consumed the entire quantity of zinc concentrate in the production of zinc. 20.Let us now examine the position contained in Rule 57 CC on the touchstone of the aforesaid position. No doubt, Rule 57CC requires an assessee to maintain separate records for inputs which are used in the manufacture of two or more final products one of which is dutiable and the other is non-dutiable. In that event, Rule 57 CC will apply. For example, a tyre manufacturer manufactures different kinds of tyres, one or more of which were exempt like tyre use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take its colour and meaning from the accompanying words waste and refuse . By-products cannot, in any event, mean final products . This Rule only means that Modvat Credit cannot be denied on the ground that in the course of manufacture, non excisable goods also arise. 22.Elaborating this contention, the learned Solicitor General submitted that the words final products in the context of Modvat and Cenvat Credit have to be understood giving the meaning as assigned to it in the Modvat/ Cenvat Rules. Rule 57A inter alia states that the provisions of this Section shall apply to such finalised excisable goods (referred to in that section as final products). Again, Rule 2(c) of the Cenvat Credit Rules, 2002 defines final products as meaning excisable goods manufactured or produced from inputs except matches. Rule 2(h) of the Cenvat Credit Rules, 2004 defines final products as meaning excisable goods manufactured or produced from input, or using in input service. Thus, final products referred to in the aforesaid provisions can only mean to be excisable goods produced or manufactured. In the present set of cases, sulphuric acid, caustic soda flakes, trichloro ethylene and Phosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the payment of duty on polyester. The department took a position that Ethylene Glycol was used in the production of Methanol and proportionate credit taken on ethylene glycol was to be reversed. This Court ruled that the emergence of Methanol was a technological necessity and no part of ethylene glycol could be said to have been used in production of Methanol and indeed it was held that the total quantity of ethylene glycol was used for the production of polyester. The fact in all these three appeals appear to be identical to the facts and the law laid down in Swadeshi Polytex (supra). Therefore, this judgment is squarely applicable. 26.Furthermore, the provisions of Rule 57CC cannot be read in isolation. In order to understand the scheme of Modvat Credit contained in this Rule, a combined reading of Rule 57A, 57B and 57D alongwith Rule 57CC becomes inevitable. We have already reproduced Rule 57D above. It can be easily discerned from a combined reading of the aforesaid provisions that the terms used are 'inputs', 'final products', 'by-product', 'waste products' etc. We are of the opinion that these terms have been used taking into account c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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