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TMI Blog2004 (4) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... cts are also cleared on payment of duty except a small portion which is cleared as exempted by observing the conditions in Chapter X Procedure, etc. We have already held above that Rule 57D is applicable to the present case. We also note that even in accordance with Rule 57CC the manufacturer is required to maintain separate account only in a case 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 (emphasis supplied by us) which is not chargeable to duty and in case he does not do so, he is required to pay an amount equal to 8% of the price payable on the goods. In the present case the assessee has cleared the final product viz. copper anode on payment of duty and no other final product emerged and sulphuric acid was a by-product as admitted by the revenue vide para 34 of the Order-in-Original and also in the grounds taken in the revenue appeals. Sulphur-di-oxide was also a by-product as admitted by the revenue vide para 36 of the Order-in-original and even the by-products such as sulphuric acid and phosphoric acid have also been cleared on payment of duty except a small portion cleared under Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91 - HIGH COURT OF DELHI AT DELHI] has held that Circular u/s 327B cannot be issued contrary to the decision of the Tribunal. The Tribunal in the case of CCE v. Bata India Limited,[ 2000 (3) TMI 819 - CEGAT, KOLKATA] have held that quasi judicial authorities are to decide matters independently and are statutorily protected from such instructions and can follow judgments of appellate forum instead of following such instructions. Conclusion: The order of the Commissioner was set aside, and the appeals of the assessee-appellants were allowed. The appeals filed by the Revenue were dismissed. The Tribunal upheld that Rule 57D applies, and the assessee is not required to pay 8% of the sale price under Rule 57CC. - Shri S.L. Peeran, Member (J) and Jeet Ram Kait, Member (T) Shri N. Venkataraman and Muthuvenkataraman, Advocates, for the Appellant. Shri V.T.K. Nayanar, Jt. CDR and Smt. Bhaghya Devi, SDR, for the Respondent. ORDER Appeal Nos. E/314 to E/335/2003 are filed by M/s. Sterlite Industries (India) Ltd. against Order-in-Original Nos. 1 to 22/2003, dated 27-3-2003 passed by the Commissioner of Central Excise, Tirunelveli, and Appeal Nos. E/450 E/451/2002 are filed by the Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 (hereinafter referred as CERGCMEGR) read with Notification No. 6/2002, dated 1-3-2002. The imported goods were cleared for home consumption on payment of applicable Basic Customs Duty including countervailing duty. Modvat/Cenvat credit is availed by the appellants on the countervailing duty paid on the copper concentrate, which is the input for manufacture of Copper Anode falling under Chapter 7402. 3.1. The copper concentrate is smelted in the ISA Smelt furnace to obtain blister copper which is further processed into copper anodes as finished product which is cleared on payment of Central Excise duty. In the course of obtaining blister copper through the process of smelting, Sulphur-di-oxide in gaseous form emerges. Being a hazardous gas, the same cannot be let out in open air. It is an environmental compulsion that this cannot be allowed to be vented to air. Consequently, sulphur-di-oxide gas is taken through pipes from the ISA smelter and conveyed to the mixing chamber and then this gas (1,40,000 M3/HR) at 350 centigrade enters the gas cleaning and cooling section through the main gas duct. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tanks, 43% P2O5 acid is an intermediate product formed in the reaction and it is sent to concentration section for recovery of 54% of phosphoric acid. The phosphoric acid is sold to various independent buyers after payment of 16% duty and in the case of fertilizer units for use in the manufacture of fertilizers and these are again cleared under Chapter X Procedure read with the Central Excise (Removal of Goods) at Concessional Rate of Duty for Manufacture of Excisable Goods, Rules, 2001 read with Notification No. 3/2001, dated 1-3-2001 and No. 6/2002, dated 1-3-2002 respectively. In other words, duty paid imported copper concentrate is smelted to the furnace and after processing the same results in copper anode as finished excisable goods on which appropriate excise duty is paid. 3.2 In the course of manufacture of copper anode, Sulphur-di-oxide (SO2) emerges during the course of Smelting Copper Concentrate as an intermediate product and is captively consumed in the manufacture of Sulphuric acid, within the factory of production by availing the benefit of duty exemption under Notification No. 67/95, dated 16-3-1995. The basic raw material used, namely copper concentrate for produci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the Commissioner of Central Excise, Tirunelveli whereby he has confirmed a duty demand of Rs 16,11,90,936/- in terms of Section 11A of the C.E. Act, 1944 read with Rules 6 12 of the Cenvat Credit Rules, 2001/2002 and Rule 57CC/57AD/57AH(1) of the CE Rules, 1944. He has also ordered recovery of interest at the appropriate rate under Section 11AB of the Act apart from imposing penalty of Rs. 3,00,00,000/- (Rupees three crores only) under Rule 173Q of the Rules, 1944 and/or Rule 25 of the Central Excise Rules, 2001/2002 read with Rules 13 of the Cenvat Credit Rules, 2001/2002. It is against the above order of the Commissioner, the appellants have come in appeal. The period involved in the appeal of the appellants is 9/2000 to 7/2002 for Sulphuric acid and for the other product viz. Phosphoric acid the period is 1/2001 to 7/2002. For the earlier period, April, 2000 to August, 2000, the Deputy Commissioner of Central Excise, Tuticorin vide order-in-original No. 12/2001, dated 25-6-2001 and order-in-original No. 20/2001 dated 31-7-2001 confirmed the demand holding that Rule 57CC is applicable to the said case. Appellants preferred appeals against these two Orders-in-Original bearing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/2001, dated 1-3-2001 and 6/2002, dated 1-3-2002. In the written submissions, it is stated as under: (a) Imported copper concentrate is employed in the smelter for manufacture of dutiable copper anodes during which process sulphur- di-oxide emerges in gaseous form. (b) The role of Copper concentrate and its employment in the smelter for the manufacture of copper anode during the course of which sulphur-di-oxide emerges as a gas is not under dispute. (c) The copper concentrate is no where employed for manufacture of sulphuric acid or phosphoric acid in the sulphuric acid plant or phosphoric acid plant. These are employed exclusively in the smelter for manufacture of dutiable copper anodes during which process sulphur-di-oxide emerges. (d) The role of the copper concentrate as an input ends in the smelter after giving out finished products viz. copper anode and non-excisable by product viz. sulphur-di-oxide gas and this is on account of the fact that copper concentrate contains sulphuric impurities. In the process of manufacture and purification in the smelter, copper anode emerges as a finished product and sulphur-di-oxide as a non-excisable by-product. It is reiterated that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the introduction of Modvat regime 21-3-86 to 3-9-94 (prior to the introduction of Rule 57C) and scenario after 4-9-96 (after introduction of Rule 57CC) by stating as follows : 1 .Scenario Prior to Introduction of Modvat Credit The Supreme Court in its landmark judgment in the case of Swadeshi Polytex Limited v. Collector of Central Excise, 1989 (44) E.L.T. 794 (S.C.) was pleased to hold as follows : This was a decision rendered under the proforma regime (set off duty on inputs) wherein provision similar to Rule 57D which permits retention of Modvat credit on inputs even if the same is used in the manufacture of dutiable final products and emergence of by-products, waste or refuse is not to be denied. [Para 20]. It is clear that the Tribunal should have held that even though a part of ethylene glycol was contained in the by-product methanol, yet the credit of duty could not be reduced to the extent of the ethylene glycol contained in the methanol as ineligible. It appears that methanol arises as a part and parcel of the chemical reaction during the process of manufacture when ethylene glycol interacts with DMT to produce polyester fibre. It is not possible to use a lesser quant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion of the inputs which got consumed in the manufacturing process. There is no provision requiring the appellants to declare the actual consumption of the materials in the finished products. Oleum in the manufacture of OSAA Detergent cakes used only to the extent of 49% and remaining portion emerging as spent acid. Benefit of Modvat credit not to be restricted only to the extent of 49% of oleum used up in the manufacturing process but available in respect of total quantity of oleum used. Similar issue came in the case of Collector v. Indichem Chemicals Manufacturing Company Pvt. Ltd., 1996 (87) E.L.T. 127 wherein the Tribunal was pleased to hold that Since credit of duty on sulphuric acid was lawfully available and taken by the respondents, the question of this denial of credit or recovery of the amount utilised out of this credit is not sustainable simply because the spent sulphuric acid is generated as a by-product in the process of manufacture of acid . The above decisions confirm the position that Modvat credit cannot be denied on such quantities of inputs contained in by-products, waste or refuse and therefore cases of these nature get the protection under Rule 57D of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reverse Modvat credit and credit will not be disallowed. (d) Should a manufacturer use duty paid inputs both in the manufacture of dutiable final products and exempted final product, the manufacturer was under an obligation to reverse the Modvat credit on such quantum of inputs employed in the manufacture of exempted final products. This was also confirmed by the Supreme Court in the case of Chandrapur Magnet Wires Private Limited. Since both Central Excise Department and CERA Audit found rampant misuse by the assessees in the case of reversal of inputs used in the manufacture of exempted final products, the Central Government introduced specific provision in the form of Rule 57CC which was inexistence between 4-9-96 to 31-3-2000. This provision was retained in the form of Rule 57AD under the Cenvat Regime for the period 1-4-2000 to 31-3-2001 and later this was carried forward and retained in the form of Rule 6 of the Cenvat Credit Rules, 2001 and later as Rule 6 of the Cenvat Credit Rules, 2002 and this continues to be in vogue even today. As submitted earlier, the purport of introducing Rule 57CC was to only cover such cases which were falling under erstwhile Rule 57C in the form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and exempted final products respectively or pay an amount equal to 8% on the sale price of the exempted products. Therefore, this rule at its very outset would apply one and only for the following situations: The inputs in terms of its accounting inventories are separable or capable of being segregated/bifurcated. For example, assuming a manufacturer receives 100 kgs of inputs he should be in a position to show or demonstrate a portion of that 100 kgs say 30 kgs may be used in the manufacture of dutiable final products and the rest in the manufacture of exempted goods. He is now given an option either to maintain separate accounts of receipts, consumption and inventory and if not pay an amount equivalent to 8% on the total price of the exempted goods at the time of their clearance. In other words, it visualizes duty paid common inputs used in the manufacturing streams of exempted and dutiable final products. A comparison was made between Rule 57CC vis-a-vis Rule 57D and Board Circular dated 3-4-2000 and submitted the following: In short, the contingencies conceived under Rule 57CC, Rule 57AD, Rule 6 of the Cenvat Rules and those conceived under Rule 57D and later by the Board circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usage of these 70 kgs of inputs. This scenario is now totally covered under Rule 57CC. Situation 2 - 100 kgs of inputs are received and credit taken and employed in the manufacture of dutiable final product A in the course of which by-product B emerges and 30 kgs of input is contained in by-product B. Supreme Court in the case of Swadeshi Polytex later Rule 57D and currently Board circular dated 3-4-2000 (para 5) makes it clear that the input credit on 30 kgs contained in by-product B need not be reversed. The principles which got evolved were applied to the facts of the case in the following way: Situation 1 - Duty paid copper concentrate of 100 kgs capable of being used for manufacture of dutiable final product A and exempted final product B is in the ratio of 30 kgs and 70 kgs. Appellants should either maintain separate accounts and restrict availment of credit on 30 kgs or avail credit on the entire 100 kgs and pay an amount equivalent to 8% on the clearance of B. Situation 2 - Availment of credit on 100 Kgs of inputs of copper concentrate. Entire 100 kgs are employed in the manufacture of dutiable final product namely copper anode. During which process sulphur-di-oxide as a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way : Rule 57CC uses the expression which is used or ordinarily used in or in relation to manufacture of both the aforesaid categories of final products namely dutiable final products and exempted final products . This spirit is retained under Rule 57AD and Rule 6 of the Cenvat Rules which again used the expression Inputs intended to be used in the manufacture of such final products which are chargeable to duty as well as exempted goods . In other words, Rule 57CC, Rule 57AD and Rule 6 of the Cenvat Rules is in line with the main rule Rule 57A and these rules obligate physical use of the inputs either used in the manufacture (Rule 57AD and Rule 6) or used in or in relation to manufacture as in the case of Rule 57CC. To the contrary, the language employed in Rule 57D and later Board Circular dated 3-4-2000 is inputs contained in any waste, refuse or by-products . Rule 57D nowhere employs the expression used in the manufacture or used in or in relation to manufacture . The expression contained has so much significance. When inputs are used in or in relation to manufacture of final products, waste, by-product or refuse may emerge and these waste, by-product or refuse may contain duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d exempted final products and the consequences of the Rule can be made to follow but in the instant proceedings no credit whatsoever has been availed on any of these inputs whether they have been used for the manufacture of dutiable final products or exempted final products. Consequently these transactions do not come within the realms of Rule 57CC/Rule 57AD/Rule 6 of the Cenvat Credit Rules, 2002. The case on hand also satisfies one more test. In terms of Swadeshi Polytex case of the Supreme Court, copper concentrate is employed wholly for manufacture of copper anode which are dutiable. They are not employed for manufacture of sulphuric acid or phosphoric acid. In the words of the Apex Court, appellants cannot produce sulphuric acid or phosphoric acid by stopping the production of copper anode by employing copper concentrate. To the contrary, appellants can very well employ copper concentrate and allow the waste sulphur-di-oxide in the air if permitted and need not produce sulphuric acid or phosphoric acid. Also for this reason, it can be submitted that copper concentrate is not an input for sulphuric acid or phosphoric acid. 12. Appellants placed reliance on the following case la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price of biomanure on the ground that EID Parry has availed Modvat credit on various chemicals used in the manufacture of sugar and emergence of pressmud. This Hon ble Tribunal heard the matter on 1-12-2003 and allowed assessee s appeal setting aside the order of the Commissioner, Trichy on the following counts: What is processed is pressmud and effluent water into biomanure Various chemicals on which duty had been availed were employed only in the manufacture of sugar and not in the manufacture of pressmud which emerges as a natural non-excisable by-product These chemicals cannot be stated to be used in the emergence of pressmud In the circumstances, Rule 57CC is inapplicable and 8% amount cannot be demanded on biomanure. Applying the facts and ratio of the present case Duty paid copper concentrate is employed only in the manufacture of copper anode and sulphur-di-oxide as a non-excisable by-product emerge the similarity being sugar and pressmud. This sulphur-di-oxide is further processed with various other chemicals on which no credit is availed into sulphuric acid and phosphoric acid the similarity being pressmud and effluent water being further processed into biomanure. Sulphu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered by the Commissioner in this case as to whether burnt dolomite, coal tar and ammonium sulphate are by-products in the manufacturing process undertaken by the appellants . Appellants submit neither the referring order reported in 2002 (141) E.L.T. 695 nor the Larger Bench decision of the referring order reported in 2002 (143) E.L.T. 442 applies to the facts of the case. The reason being : The Larger Bench has observed that the Commissioner has not given a definite finding as to whether the items under question are by-products whereas the Commissioner in the present case has clearly held that sulphur-di-oxide is a by-product. The same is the position in the case of Aarti Drugs. When the finding of facts are not clear, question of differing or referring to Larger Bench would not arise. In any view, Larger Bench has not spelt any view on the matter referred and has remanded it as sought for by the appellants claiming some other benefit through a separate Board Circular. In the circumstances, the decision in the case of Aarti Drugs Limited continues to be good Law and has not been dissented or differed till date. (v) CCE v. Bazpur Co-operative Sugar Factory Limited - 2003 (59) R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facture of finished goods, during which process waste or scrap emerge such waste and scrap should be cleared on payment of duty. This is a simple balancing act for having availed credit. GTC India did not pay duty on dust and winnowings in terms of Rule 57F18 for having used duty paid inputs and cleared the same under 2401.10 claiming nil rate. To put it more precisely, Credit was availed on cut tobacco It was used in the manufacture of Cigarettes and dust and winnowings. Dust and winnowings as scrap should be cleared on payment of duty under Rule 57F18 which GTC did not do so. They claimed nil rate of duty benefit under 2401.10. Under such circumstances, the department did not deny the input credit on cut tobacco but demanded duty of an amount of 8% on dust and winnowings since no duty was paid as waste and scrap under Rule 57F18. In short, the facts of the case are totally different and therefore cannot be relied upon. Dujodwala Resins Terpenes Ltd. v. Collector of Central Excise, Chandigarh - 1997 (93) E.L.T. 451 (Tribunal) Kirloskar Oil Engines Ltd v. Collector of Central Excise, Pune - 1994 (73) E.L.T. 835 (Tribunal) Orissa Extrusions v. Collector of Central Excise, Bhubaneswa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se notices have proceeded on the footing that sulphur-di-oxide is a intermediate product used in the manufacture of sulphuric acid and phosphoric acid. However, the Commissioner of Central Excise concedes in various places of his order that sulphur-di-oxide is only a by-product. Having said so, learned authority ought to have dropped the proceedings on that score alone but still proceeded to confirm the demands. The submission of the appellants before the Commissioner (Appeals) that sulphuric acid is a by-product is based on technical literature and materials which literature has not been denied or disputed in the impugned order. Learned authority erred in stating that there is misrepresentation of facts and non-appreciation of facts. Having referred to the decision of the West Regional Bench in the case of Aarti Drugs Limited v. Commissioner, 2001 (133) E.L.T. 385. Learned authority has chosen not to give any findings whatsoever as to its applicability/non-applicability to the facts of the case. The presence of sulphur in the copper concentrate is not denied anywhere by the appellants. Sulphur-di-oxide emerges only because sulphur content in the copper concentrate reacts with oxyg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to hold that quasi judicial authorities are to decide matters independently and are statutorily protected from such instructions and can follow judgments of appellate forum instead of following such instructions. In view of the above, learned Commissioner erred in placing reliance on the Board Circular. Reliance by the learned authority on Board Circular No. 654/45/2002-CX, dated 19-8-2002 is clearly not sustainable as that circular has no application to the facts of the case and appellants have never relied on the same. Appellants finally state that when demands are not sustainable, question of imposition of penalty and interest are not maintainable. 18. Shri VTK Nayanar, learned Jt. CDR appearing for Revenue submitted that the copper concentrate is the primary input for the manufacture of copper anodes during which sulphur-di-oxide emerges as a by-product which in turn is used in the manufacture of sulphuric acid and phosphoric acid in the integrated plants located within the factory. In the synopsis of the oral submissions made, he has invited our attention to Annexures II and III to the order-in-original which gives the chemical composition of typical copper concentrate impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turer shall maintain separate accounts for receipt consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take Cenvat credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. The manufacturer opting not to maintain separate accounts, shall pay an amount equal to either per cent of the total price excluding Sales Tax and other taxes, in case the exempted goods are other than those falling under Chapters 50 to 63 of the CETA, black and white TV sets falling within Chapter 85 and newsprint in rolls or sheets falling within Chapter heading 48.01. The learned JCDR submitted that the contention of the appellants that copper concentrate is not the input and sulphur-di-oxide is the input for the manufacture of sulphuric acid does not hold good inasmuch as the words any input used in the Rule makes it clear that credit need necessarily be taken in respect of all the inputs to attract the mischief of sub-rule (2) of Rule 57AD. He has further submitted that copper concentrate has sulphur contents in the range of 30 - 35% depen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sulphur-di-oxide gas and therefore is liable to Central Excise duty. Reliance was placed on the decision of the Tribunal in the case of CCE, Mangalore v. Mangalore Refinery and Petrochemicals Ltd. - 2002 (147) E.L.T. 788 wherein it was held that for manufacture of a final product the appellants in the said case had purchased various duty paid inputs such as synthetic gum, gas mixture, sulphur-di-oxide, helium, etc., and consequently it was submitted that if credit is availed on sulphur-di-oxide it would only go to show manufacturers are producing sulphur-di-oxide and clearing the same on payment of duty and therefore the sulphur-di-oxide gas that emits in the process in the appellant s factory is liable to Central Excise Duty. In response to the said submission, appellants place reliance on the following case laws : Before Case Laws are furnished it is submitted that (a) at no point of time, either in the show cause notice or in any other proceedings, Revenue has alleged or stated that sulphur-di-oxide which gets emitted is an excisable product. Every show cause notice issued by the revenue on this issue only states that appellants are engaged in the manufacture of copper anode, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to be made liable to excise duty must be a commodity that is marketable as it is and not a commodity that may by further processing be made marketable . It further held that The order of the Collector shows that the calcium carbide that was manufactured by the respondent for further utilisation in the production of acetylene gas was not of a purity that rendered it marketable nor was it packed in such a way as to make it marketable, that is to say, in airtight containers. This is a finding of fact. Applying the ratio of the Moti Laminates judgment thereto, we must hold that the calcium carbide manufactured by the respondents is not excisable commodity which is sought to be made liable to excise duty must be a commodity that is marketable as it is and not a commodity that may by further processing be made marketable . Reliance is placed on the decision of the Supreme (e) Court in M/s. Moti Laminates v. CCE - 1995 (76) E.L.T. 241 (S.C.) wherein the Hon ble Apex Court was pleased to hold that mere tariff entry is not sufficient and marketability is a must for levy of excise duty. It was contended by the Revenue that the (f) sulphur-di-oxide is consumed captively and therefore re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent of the ethylene glycol contained in the methanol as ineligible. It is clear that the appellants are not engaged in the production of methanol but in the production of polyester fibre. That position is undisputed. Therefore, it appears that the Tribunal erred when it held that the appellants were not entitled to a part of the credit of duty since ethylene glycol when it interacts with DMT also gives rise to methanol. Shri N. Venkataraman, the learned Advocate, therefore, prayed that the above case laws may kindly be taken on record and thus render justice. 20. On 12-12-2003 Shri VTK Nayanar, learned Jt. CDR accompanied by Smt. R. Bhaghya Devi, SDR also filed a synopsis in the Court of the oral submissions made by them during the course of personal hearing on 5-12-2003 after the matter was reserved on 5-12-2003 and after the appellants filed a further written submission on 10-12-2003. Their submissions are as under :- M/s. Sterlite Industries (I) Ltd., Tuticorin, 1. manufactures copper anodes falling under Chapter 7402 of the Central Excise Tariff, which are cleared on payment of duty. Copper anodes are manufactured from the principal raw material, copper concentrate, which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which sulphur-di-oxide emerge as by-product which in turn is used in the manufacture of sulphuric acid and phosphoric acid in the integrated plants located within the factory premises. The assessee has availed Cenvat credit on copper concentrate. The other inputs used : Maxtreat - a chemical used in smelter plant and (i) captive power plant Cenvat credit taken. (On all the inputs used within the smelter furnace, viz copper concentrate and maxtreat used for the manufacture of copper anodes and sulphur-di-oxide, the assessee has availed Cenvat credit). Ferric chloride, Ferric sulphate and Magnfloc are (ii) used for removal of dirt from water in the water treatment plant attached with the sulphuric acid plant. (Cenvat credit not availed). Water treatment chemicals - Water is used in the (iii) sulphuric acid plant to take the heat out from the process and for which cool water is to be circulated. The cool water comes from the cooling towers which contains some bacteria, corrosive elements and scaling elements. Water treatment chemicals are nothing, but chemicals which enable to remove the bacteria, corrosive agents and scaling agents from the above water. Caustic soda flakes used in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xempted final products, viz. sulphuric acid and phosphoric acid. The provisions correspond to Rule 57CC of erstwhile Central Excise Rules with some variations. The demands raised in all the show cause notices have 6. a common background, i.e., the assessee is using the imported copper concentrate and also indion as an input in or in relation to the manufacture of copper anodes, sulphuric acid and phosphoric acid. Input credit is availed on copper concentrate and indion. Sulphur-di-oxide emerges as a by-product from the smelter plant wherein the copper anode is manufactured. Then the sulphur-di-oxide is converted into sulphur-tri-oxide and thereafter sulphuric acid in an integrated process of manufacture within the same factory of manufacture. While part of the sulphuric acid is cleared on payment of duty another part is cleared without payment of duty under the Chapter X Procedure. Further, one more portion of sulphuric acid is captively used for the manufacture of phosphoric acid within the same factory premises. Part of the phosphoric acid is cleared on payment of duty and part as exempted product. Rule 57AD of the Central Excise [Second Amendment 7. (Amendment)] Rules, 2000 stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained, the manufacturer shall pay an amount equal to 8 per cent of the total price of the exempted final product. The usage of the word any inputs in the Rule makes it clear that credit need not necessarily be taken in respect of all the inputs to attract the mischief of sub-rule (2). Further, as per definition, inputs need not necessarily be directly used for the manufacture of final products. Also, it can be indirectly used and it need not necessarily be contained in the final products. In the circumstances, the assessee s contention that copper concentrate is not the input and sulphur-di-oxide is the input for the manufacture of sulphuric acid does not hold good. Also, the assessee s contention that they have not taken Cenvat credit on 10 chemicals like water treatment chemicals, magnofloc, ferric chloride, ferric sulphate etc., also is of no avail in view of the language used in the sub-rule (2) which refers to any inputs . There is no dispute that the assessee has taken Cenvat credit on copper concentrate and maxtreat used in the smelter furnaces. As already stated, copper concentrate has sulphur 11. contents in the range of 30-35%, depending upon the country of origin, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nput of Sodium sulphate in the manufacture of paper would cease to be a Raw-material by reason alone of the fact that in the course of the chemical reactions this ingredient is consumed and burnt-up. The expression Raw-Material is not a defined term. The meaning to be given to it is the ordinary and well-accepted connotation in the common parlance of those who deal with the matter. The ingredients used in the chemical technology of manufacture of any end-product might comprise, amongst others, of those which may retain their dominant individual identity and character throughout the process and also in the end-product ; those which, as a result on interaction with other chemicals or ingredients, might themselves undergo chemical or qualitative changes and in such altered form find themselves in the end- product; those which, like catalytic agents, which influencing and accelerating the chemical reactions, however, may themselves remain uninfluenced and unaltered and remain independent of any outside the end-products and those, as here, which might be burnt-up or consumed in the chemical reactions. The question in the present case is whether the ingredients of the last mentioned clas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat process must be deemed to be raw material or component part of the end product and must be deemed to have been used in completion or manufacture of the end product . The court also observed that so long as it can be shown that the material used as inputs have a nexus with the process which is integrally connected with the ultimate production of goods till the same are fit for being put in the marketing stream and such process is so integrally connected with ultimate production of goods that it would be commercially inexpedient to produce the finished goods without that process, all such goods would fall within the expression in the manufacture of goods . This view has been reiterated by the Hon. South Zonal Bench of CEGAT in the case of Collector of Central Excise v. Seshasayee Paper Boards Ltd. reported in 1992 (61) E.L.T. 304 (Tri.). The issue before the Tribunal was whether hydrochloric acid and sulphuric acid being used for treatment of water can be considered as inputs used in or in relation to manufacture of paper. Hydrochloric acid was used for de-mineralisation of water, which is turned into steam. Specific use of hydrochloric acid resulted in the treated water fit for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice is not on the by-product, but it is on the final products, viz. sulphuric acid and phosphoric acid manufactured out of the by-product, viz. sulphur-di-oxide, emerging in the process of manufacture of copper anodes, using the input - copper concentrate - on which Cenvat credit is taken. In this regard the decision of the Tribunal reported 18. in 2002 (141) E.L.T. 695 (Tri. Kolkata) - Indian Iron Steel Co. Ltd. v. Commissioner of Central Excise, Bolpur, may be referred. The Calcutta Bench of the Tribunal held that Rule 57CC of the Central Excise Rules does not make any distinction between intended final product and by-product. The said rules required the assessee to pay an amount equal to 8% of the price of the final product, cleared at NIL rate of duty even where the inputs have been directly or indirectly used in the manufacture of such final product and even where they are not contained in the said final product. The Bench also held that when it is not the credit originally taken that is being demanded, but an amount equal to 8% of the price of the exempted by-product, the erstwhile Rule 57D is not applicable. In page 2 of the paper book the appellants have 19. stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In page 22 the appellants are trying to make a 22. distinction between an intermediate product and by-product. They argue that sulphur-di-oxide is a by-product and not an intermediate product as stated in the show cause notice. It is also non-excisable. Therefore, Rule 57D is applicable and not Rule 6 of the Cenvat Credit Rules. As already pointed out, Rule 57D is no longer in force and there are no parallel provision in the present Cenvat Credit Rules. Therefore, retaining the credit on by-products does not arise. It is also not the case of the appellant or the Revenue that they have been denied the credit. The department is simply demanding 8 per cent of the price of the exempted product since they are manufacturing both dutiable and exempted products, using common inputs and are not maintaining separate accounts and inventories. No doubt, sulphur-di-oxide may be a by-product in the smelting operation of copper concentrate, but it is an intermediate product in the manufacture of sulphuric acid, as would be evident from the chain of reactions. Sulphur in the copper concentrate gets converted into sulphur-di-oxide on heating in the presence of air, which in turn is converted into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Courts. As regards the marketability of the product is concerned, we do not need any further proof other than the fact that they themselves are consuming it for the manufacture of sulphuric acid which would clearly imply that the sulphur-di-oxide produced from the copper concentrate is a marketable commodity which can be used for the manufacture of sulphuric acid. The following case laws may be relied 24. upon. 1982 (10) E.L.T. 606 (GOI) - In Re : Daccon Sugar and Adkhari Co. Ltd. In this case the petitioners manufactured sulphur-di-oxide gas and used the same in the factory of production in the process of manufacture of sugar. They have contended that the gas in question is impure sulphur-di-oxide which is not marketable and therefore not excisable. The Govt. observed that the very fact that the gas in question has been actually used in the manufacture of sugar answers the test of marketability of the goods and hence excisable. The Govt. also observed that the ratio of the Supreme Court judgment in the South Bihar Sugar Mills Ltd. case is not applicable to the present issue. In the case cited the Supreme Court held that kiln gas is not classifiable as carbon-di-oxide under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Central Excise, Managalore v. Mangalore Refinery Petrochemicals Ltd. The issue relates to eligibility to Modvat credit on certain items including sulphur-di-oxide. The Hon. Tribunal held that credit is admissible. This would clearly indicate that sulphur-di-oxide gas are goods , bought and sold in the market and cleared from factories on payment of duty. The reliance of the appellants on the 29. Swadeshi Polytex Ltd. v. Commissioner of Central Excise case [1989 (44) E.L.T. 749 (S.C.)] has no relevance to the facts in the present case since the said case also deals with retention of Modvat credit on inputs contained in the by-products under Rule 57D, which is not the case here. The case law of 30. South Bihar Sugar Mills Ltd. v. Union of India, reported in 1978 (2) E.L.T. (J 336) (S.C.), deals with the classification of kiln gases - whether it can be classified as carbon-di-oxide under the relevant tariff entry. The Hon. Supreme Court held otherwise on the ground that the mixture of gases produced from the kiln is known to both trade and in science as kiln gas, although one of its constituents is carbon-di-oxide, yet it is not known as carbon-di-oxide. There is no ambig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs of the Central Excise Tariff. The process description at Exhibit A submitted by EID Parry along with their appeal memorandum is also annexed (as Annexure-IV). Briefly, sugarcane pieces are fed into the mill and the juice is extracted. The bagasse which emerges after final milling is conveyed to the boiler and used as fuel for generating steam, which is used for running the turbine. The extracted juice is heated to 70 degree centigrade in the primary juice heater and then treated with lime and sulphur-di-oxide gas for removal of impurities in the juice. The treated juice is further heated to 102 degree centigrade in the secondary juice heaters and then pumped to clarifiers where the impurities are settled in the form of mud and the overflow as clear juice is separated. The muddy thick juice is mixed with fine powder of bagasse and further filtered in vacuum drums for extraction of the maximum amount of the juice. The mud filtrate so extracted is recycled into the juice extracted by the mills. The pressmud is removed from the Oliver station as a waste and used as manure. The clear juice is concentrated, bleached and then crystallized in the pan station. The product is dropped into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme 40. Court in various cases is only a waste product and not final product and hence not excisable. They have not taken any credit on the inputs used 41. for the production of bio compost. The various inputs used on which credit has been availed by the appellants and their uses are as follows: (i) Phosphoric acid - used in the sugar process for sedimentation of non-sugar elements in the juice. This does not contribute in any manner to the characteristic of pressmud : (ii) Ammonium Bi-flouride - used for killing micro organism in the raw juice. (iii) Flocculants used for sedimentation of non-sugar elements in the juice. This is used by all sugar factories irrespective of whether they sell organic manure or not. (iv) De-naturants - This is added to alcohol to make it non-potable when it is sold in the market. (v) Sugar cane - it has got all ingredients required for a manure or fertilizer. The fertilizer elements and the quality in the 42. organic manure are obtained not from any of the Modvated inputs, but from the soil itself which contribute to the characteristic of sugar cane which in turn contribute to the characteristic of pressmud. The Commissioner (Appeals) in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sulphuric acid and phosphoric acid, both of them being excisable and dutiable under the relevant Tariff entries. Exemption from duty is permitted only on clearances under particular circumstances. There is a clear nexus between the copper concentrate, sulphur-di-oxide, sulphuric acid and phosphoric acid, the basic input being one and the same, namely copper concentrate. Copper concentrate gives sulphur-di-oxide, which is converted to sulphur-tri-oxide, which in turn is converted into sulphuric acid, which again is converted into phosphoric acid. The inter-dependence of one compound for the formation of the other is the striking factor in this case. In the EID Parry case, the non-excisable waste product, pressmud, is further used for the manufacture of bio-compost. Bio-compost is totally exempt from duty. As stated by the appellants themselves, bio-compost can be prepared out of any waste, rotten vegetable or animal matter and even from garbage and the duty paid chemicals have no nexus to the formation of bio-compost. Bio-compost itself has been produced outside the factory premises. (v) In the Sterlite Industries case, Cenvat credit was availed on the basic input, copper concentra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into Copper Cathode and other finished products such as Copper rods/wires and are sold. During the course of manufacture of Copper anode at the Tuticorin unit, two by-products namely Sulphur-di-oxide and granulated slag emerge. The manufacturing process does not come to an end at that stage and in the continuous and integrated process of manufacture, sulphur-di-oxide is further used in the manufacture of Sulphuric acid falling under tariff heading 2807 of the First Schedule to the CETA, 1985. A portion of the sulphuric acid is further used captively in the manufacture of Phosphoric acid falling under heading 2809 of the First Schedule of the CETA, 1985 in conjunction with imported rock phosphate. The assessee clears Sulphuric Acid on payment of duty at the rate of 16% to independent buyers, whereas, they clear a part of it without payment of duty for manufacture of fertilizer following the procedure set out in Chapter X of Central Excise Rules, 1944 vide Notification No. 3/2001, dated 1-3-2001. The assessee continued to clear the Sulphuric Acid on payment of duty @ 16% to independent buyers, and after framing of the Central Excise (Removal of Goods at Concessional Rate of Duty fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtilizer units for manufacture of fertilizers, these are removed without payment of duty under Chapter X Procedure read with Central Excise (Removal of Goods) at Concessional Rate of Duty for Manufacture of Excisable Goods Rules, 2001 read with Notification No. 3/2001 dated 1-3-2001 and No. 6/2002 dated 1-3-2002, respectively. A portion of sulphuric acid is captively consumed in the manufacture of phosphoric acid by reacting with rock phosphate. The process of manufacture consists of reacting rock phosphate and sulphuric acid in three reactors. The temperature of the slurry in the reaction system is controlled by flash cooler system which removes excess heat of reaction and dilution. Slurry, from the flash coolers is fed to the filter and treated counter currently. The acid collected from the first filterate is a product acid on 43% P2O5. About 5% of P2O5 fed in the rock is co-precipitated in the hemi-hydrate. The purpose of next stage is, therefore, to recover this by transforming hemi-hydrate to di-hydrate. Hemi-hydrate cake is discharged to transformation tank and it is converted into dry di-hydrate by the adoption of the H2SO4 at a temperature of 70 centigrade. The di-hydrate c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final products are ferric sulphate, ferric chloride, Indion, Magnafloc, Caustic soda flakes. The sulphuric acid is captively consumed in the manufacture of phosphoric acid which is partly cleared without payment of duty for manufacture of fertilizer products, under Chapter X Procedure, etc. as well as cleared at the factory gate on payment of duty. 24. We observe that the case of the assessee-appellants is that: (a) Employment of duty paid copper concentrate in the smelter is for the manufacture of dutiable copper anodes during which process sulphur-di-oxide emerges as a non-excisable by-product. (b) The duty paid copper concentrate is exhausted fully in the manufacture of dutiable copper anodes and sulphur-di-oxide emerges only as a by-product which is conceded at every point by the Department and once it is conceded that sulphur-di-oxide gas is a by-product there is no option for the Revenue except to classify the same under Rule 57D and not under Rule 6 of the Cenvat Rules. (c) Copper concentrate is nowhere employed for manufacture of sulphuric acid or phosphoric acid in the sulphuric acid plant or phosphoric acid plant. (d) The role of the copper concentrate as an input ends i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t per cent 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. Rule 57D as it stood at the relevant time reads as under : Credit of duty not to be denied or varied in certain circumstances - (1) Credit of specified duty shall not be denied or varied on 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. (2) Credit of specified duty shall also not be denied or varied in case any intermediate products have come into existence during the course of manufacture of final products or the inputs are used in the manufacture of capital goods as defined in Rule 57Q and such intermediate products or capital goods are not chargeable to duty of excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also formed when many reducing agents react with hot concentrated sulphuric acid. Sulphur-tri-oxide forms slowly when sulphur-di-oxide and oxygen are heated together, the reaction is exothermic. 2SO2 O +2 r H = 197.8kJ If the temperature of the system is raised to about 400 C, equilibrium is reached more rapidly, but with reduced yield due to a shift in equilibrium to the left with increasing . 27. From the definition it would be seen that the definition speaks about the characteristics of Oxides of sulphur and also as to how sulphur-di-oxide is produced. This is therefore, not relevant to the issues that arose for determination by the Tribunal. 28. Having considered the rival contentions supported by the various case laws the following issues arise for our determination: (1) What is the final product that emerged during the process of manufacture of copper concentrate and was it cleared on payment of duty? (2) What are the by-product emerged in the process of manufacture of copper anode? (3) Whether a product manufactured by using the by-product/waste can be called as a final product or by-product? (4) Whether copper concentrate could be called as a common input for the manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all not be denied or varied on the ground that part of the inputs is contained in any waste, refuse or by-product arising during the course of manufacture of the final product. In terms of sub rule (2) of the same rule, even if intermediate product coming into existence during the course of manufacture of the final product, is not chargeable to duty, credit of specified duty cannot be denied or varied. In the present case, even the by-product/intermediate product, has been cleared on payment of duty at 16% and only a minor portion of the by-product/intermediate product has been cleared as exempted goods under Chapter X Procedure. We are therefore of the opinion that the provisions of Rule 57D are applicable to the present case. (6) As regards the sixth and last issue, both sides have conceded that Rule 57AD and Rule 57CC are worded on similar lines. We are of the considered opinion that the right to avail of the benefit under Rule 57D has not been taken away with the introduction of Rule 57 AD/Rule 57CC. 30. As noted above, in the present case, the final product manufactured by the assessee is copper anode which is cleared on payment of duty only and no part of copper anode is exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermissible under Rule 57D (2) ibid on inputs contained in by-product even if final product is exempted. It was also held that Marketability of exempted product is irrelevant. It was further held by the Tribunal that in terms of Section 2(f), and Section 3 of the CEA, marketable goods are liable to duty if not exempt from duty. It was also held that adjustment of credit under Rule 5CC (1) of CER is not a duty and has no relation to value, under Section 4 of CEA or credit taken on them. This decision squarely applies to the facts of the present case because it is held that credit is permissible under Rule 57D(2) on inputs contained in by-products even if final product is exempted. Further in the case of CCE, New Delhi v. Indichem Chemicals Manufacturing Company Pvt. Ltd., reported in 1996 (87) E.L.T. 127 it was held that Modvat credit is not to be disallowed due to emergence of a by-product. It was also held therein that since credit of duty on sulphuric acid was lawfully available and taken by the respondents, the question of denial of credit or recovery of the amount utilised out of this credit is not sustainable simply because spent sulphuric acid is generated as a by-product in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... huric acid and phosphoric acid both of which are dutiable. This Circular of the Board, in our view, cannot be applied to the facts of the present case for the following reasons: The Board circular is dated 28-1-2002 whereas the decision in the case of Aarti Drugs was rendered as early as 18-4-2001. Board circular has not been taken into consideration the prevailing judicial ruling on the subject and the clarification is not based on any Court rulings. 31. It is well settled that Circulars of Board cannot be relied upon and are not maintainable if the same are contrary to judicial decisions and precedence. The Hon ble Madras High Court in the case of Pioneer Miyagi Chemicals v. CBEC, 2000 (116) E.L.T. 441 (Mad.) has held that Circulars issued by the Board which runs counter to judicial pronouncements are not valid and sustainable. The Hon ble Delhi High Court of Delhi in the case of Kissan Chemicals v. Union of India, 1996 (88) E.L.T. 648 has held that Circular under Section 327B cannot be issued contrary to the decision of the Tribunal. The Tribunal in the case of CCE v. Bata India Limited, 2001 (138) E.L.T. 335 (Tri.-Kolkata) have held that quasi judicial authorities are to decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of manufacturing process or is required to make the article marketable must be deemed to be raw material or component part of the end-product and must be deemed to have been used in completion or manufacture of the end-product. It was also held by the Hon ble Apex Court that so long as it can be shown that the material used as inputs have a nexus with the process which is integrally connected with the ultimate production of goods till the same are fit for being put in the marketing stream and such process is so integrally connected with ultimate production of goods that it would be commercially inexpedient to produce the finished goods without that process, all such inputs would get the benefit of credit of duty. In this case the Hon ble Apex Court was interpreting the meaning of the term component parts and raw materials . The ratio laid down in this case law is not applicable to the present case inasmuch as in the present case the end product was copper anode and not only the dominant character of the input copper concentrate has been lost with the manufacturer of the final product copper anode but also its identity itself has been lost at that stage. (3) Indian Iron Steel Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This case law has no application to the present case because, the question posed in the instant case is not whether sulphuric acid and phosphoric acid are goods or not. (7) AP State Electricity Board v. CCE, Hyderabad. In this case what the Hon ble Supreme Court has held was that So long as goods were marketable, they are goods for the purpose of Section 3. It is not also necessary that the goods in question should be generally available in the market......The marketability of the article does not depend upon the number of purchaser nor is the market confined to the territorial limits of the this country . This case has no relevance to the present case, as the ratio laid down relates to the interpretation of the term goods . (8) CCE v. Kohinoor Mills reported in 1995 (77) E.L.T. 42 (S.C.). In this case, the Hon ble Supreme Court has held that if a manufactured item covered by the charge of excise duty is captively consumed, it would amount to removal of such manufactured item. Consequently, once the yarn is manufactured in the weaving department of the composite textile mill and taken to the spinning department for being captively utilised by way of consumption in the spinning depa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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