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TMI Blog2021 (12) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... MR. RAMESH NAIR, MEMBER (JUDICIAL) AND MR. RAJU, MEMBER (TECHNICAL) Shri T.G Rathod, Additional Commissioner(AR) for the Appellant Shri Vipin Jain, Shri Vishal Agrawal, Shri Ramnath Prabhu Ms. Dimple Gohil Advocates for the Respondent ORDER In these 3 appeals the common issue involved is whether the respondent is required to pay /reverse the amount in terms of Rules 6(3) of Cenvat credit rules, 2004 in respect of input services attributed to LPG manufactured and cleared under PDS under exemption and amount which was paid /reversed is eligible for refund to the respondent. 2. We have heard both sides and perused the records. We find that the identical issue only for the different period i.e. April 2015- March 2016 came up before this Tribunal and this Tribunal vide order No. A /12439-12440/2021 dated 11.10.2021 dismissed the appeals filed by the revenue. The said order is reproduced below:- 4. We have carefully considered the submission made by both sides and perused the records. The issue under consideration before us is that whether in the facts and circumstances prevailing in the present case, the provision of Rule 6 (1) of Cenvat Credit Rules, 2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , excluding exempted goods, and their clearance upto the place of removal; (iii) for the provision of exempted services; and (iv) for the provision of output services excluding exempted services, and shall take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of clause (a) and input services under sub-clauses (ii) and (iv) of clause (b).] To examine their issue it is necessary to analyze the relevant legal provision of Cenvat Credit Rules. The Rule 2 (K) (l) is reproduced below:- [(k) input means- (i) all goods used in the factory by the manufacturer of the final product;or [(l) input service means any service,- (i) used by a provider of taxable service for providing an output service;or (ii) used by a manufacturer, whether directly or indirectly , in or in relation to the manufacture of final products and clearance of final products upto the place of removal, From the reading of the above Rule 2 (k) (l) of Cenvat Credit Rules, 2004, any input or input services used for manufacture of excisable goods are adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of receipt of input and use thereof is absolutely in terms of provisions of CCR. The respondents submission as far as that even if LPG is not generated in course of manufacture there cannot be any reduction in the quantum of use of input and input service for manufacture of motor sprit (MS), High Speed Diesel Oil, aviation Turbine fuel (ATF), Naphtha, Fuel oil etc therefore, the quantum of input and input services was used in the manufacture of motor spirit (MS), High Speed Diesel Oil, aviation Turbine fuel (ATF), Naphtha, Fuel oil etc. will remain same irrespective of the facts whether the LPG is generated or otherwise. Therefore, it cannot be said that any part of input and input services are not used for manufacture of dutiable product i.e. motor sprit (MS), High Speed Diesel Oil, aviation Turbine fuel (ATF), Naphtha, Fuel oil etc. 4.5 The LPG generated during the course of manufacture of motor sprit (MS), High Speed Diesel Oil, aviation Turbine fuel (ATF), Naphtha, Fuel oil etc. is dutiable right from the stage of receipt of input and input services till the completion of manufacture of LPG. Therefore, during that stage availment of Cenvat Credit is absolutely i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble High Court is reproduced below:- 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 the phosphates forming Mono Calcium Phosphate. The phosphate solution commonly known as Mother Liquor is pumped out of the acidulation vats into precipitation tanks where lime solution is added which reacts with Mono Calcium Phosphate converting it into Di- Calcium Phosphate. Insofar as manufacture of Gelatin is concerned, after removal of Mother Liquor the demineralised bones are hydraulically transported to the washing section and thereafter processed further to manufacture Gelatin. The above manufacturing process shows that while soaking the bone chips in Hydrochloric Acid a waste product, viz., Mother Liquor ipso facto comes into existence. It is not as if there is a deliberate attempt on the part of the manufacturer to manufacture the Mother Liquor which emerges as a by-prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use any quantity of the inputs, viz. Hydrochloric Acid for manufacturing Mother Liquor, the entire Hydrochloric Acid is used in the manufacture of Gelatin. Thus, when no input is specifically used for the purpose of manufacturing Di-Calcium Phosphate, there would be no question of maintaining separate accounts for receipt, consumption and inventory of input. . 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. . 12 . On behalf of the appellant it has been submitted that comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Speed Diesel Oil, aviation Turbine fuel (ATF), Naphtha, Fuel oil etc. does not get reduced that same entire quantity of input and input services has been used in manufacture of dutiable goods even though the LPG is generated in the stream of entire manufacture process. The Cenvat credit of only such quantity of input and input services to be denied which is not used in the manufacture dutiable goods but in the present case there is no dispute that the entire quantity of input and input services has been used for manufacture of dutiable goods therefore even though the LPG arising in the course of manufacture only because of that it cannot be said that there is reduction in the quantity of input and input services used in the manufacture dutiable goods. 4.7 The similar issue has been considered by Hon ble Supreme Court in the case of National Organic Chemical Industries Limited-2008 (232) ELT 193 (S.C), in that case exemption under notification No. 217/86-CE dated 02.04.1986 was available to ethylene and propylene (falling under chapter 29) when captively used in the process cracking raw naphtha for the manufacture of ethylene and propylene. In the process cracking met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the notification. The Tribunal came to the categoric finding that the respondent could not have manufactured ethylene and propylene without manufacturing its by-products ethane and methane. The Tribunal held that in any technology the emergence of ethane and methane was inevitable and hence while it is no doubt correct to say that the ethylene and propylene have been used in or in relation to the manufacture of ethane and methane, the identical quantity of the same goods has simultaneously been used in the manufacture of ethylene and propylene. The emergence of ethane and methane, therefore, cannot be a ground to deny the benefit of exemption to the respondent. 31 . In our considered view, no interference is called for in the wellreasoned judgment/order of the Tribunal. The appeal being devoid of any merit is accordingly dismissed. However, in view of the facts circumstances of the case, the parties are directed to bear their own costs. The ratio of the aforesaid judgment is equally applicable to the respondent s case in as much as it had not used any incremental input and input services for manufacture exempted quantity of LPG and that the entire qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lene glycol content used/consumed in the methanol, the ethylene glycol residual waste and polyester fibre waste; and that not to utilize the proforma credit or set-off credit till the data was furnished and the same was authenticated by the Chemical Engineer. The classification list submitted by the appellants was modified in terms of the said letter. 5 . Hence, it is the case of the appellants that from 11-4-1981 even though some part of the input may be contained in any waste, refuge or by-product which is chargeable to nil rate of duty, the credit of the duty paid on the inputs could not be denied. By this order the set-off of duty in respect of duty paid ethylene glycol was allowed from 11-4-1981 onwards except in the case of ethylene glycol used/consumed in polyester waste used for recovery of DMT on the ground that this polyester waste was chargeable to nil rate of duty. Similarly, duty paid on ethylene glycol which was used for recovery of DMT was held not to be allowable while paying duty on polyester fibre. . 20 It is clear, therefore, that the Tribunal failed to interpret the words of the exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6A and the Notifn. No. 201/79 that these deal with the identical situation. . 22 . In our opinion , the same analogy and reasoning would apply when the methanol arises as a result of chemical reaction and not as a result of any by-product. In the instant case, the methanol was nonexcisable. Just because methanol arises as a part and parcel of the chemical reaction during the process of manufacture, it cannot be said that methanol was not used in the manufacture of polyester fibre. The intention of the Government is evident furthermore, from the trade notice of Pune Collectorate No. 31/81. The Tribunal, therefore, should have taken into consideration the trade notice for interpretation of exemption Notifn. No. 201/79, which was para materia with Rule 56A. From the above judgments it is settled that any particular process of manufacture of dutiable goods any exempted goods which are inevitable emerges it cannot be said that out of the total input and input services use in the manufacture is with lesser quantity attributed to the dutiable product. In other words the entire quantity of input and input services are used for dutiable goods, if so, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned with as on the date the inputs received the sulphuric acid the final product with which we are concerned was chargeable to duty at the rate of 15%. The manufacturer had not been exempted from payment of duty on his end product nor the duty prescribed in the sulphuric acid under the tariff was nil nor there was unconditional exemption to the manufacturer on payment of duty at Nil rate on any condition to be fulfilled by him. We have already noticed above that General Exemption No. 66 which prescribed nil rate of sulphuric acid used in manufacture of fertilizers. It did not provide nil rate of duty on production or manufacture of Sulphuric Acid as such. Therefore, the end product sulphuric acid was not subjected to exemption. If Rule 57CC is read closely, the exemption or nil rate must be related to the end product of the manufacturer. It does not speak of the nil rate or exemption from payment of duty on user of the commodity produced by the subsequent manufacturer using the same as his raw material or inputs. Obviously where the nil rate of duty is on the user of the commodity by the third person or used in manufacture of the another commodity, it is not the exemption or rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cenvat credit validly availed at the time of receipt of input and input services. This view is further supported by the following judgments: CCE vs Goyal Proteins Ltd 2015 (325) ELT 165 (Tri. Del) SRF Ltd vs. CC 2015 (318) ELT 607 (SC) Dai Ichi karkaria- 1999 (112) ELT 353 (SC) CCE vs. Premier Tyres LTd 2001 (130) ELT 417 (Ker) HMT vs. CCE 2008 (232) ELT 2017 (tri.LB) In view of the above judgment when at the time of taking credit it was validly taken no mechanism was provided to recover the same. 4.11 The similar circumstance in the case of Service tax matter this tribunal has considered in Almebic 2019 (28) GSTL 71 (Tri. Ahd) which was also upheld by the Hon ble Gujarat High Court reported at 2019 (29) GSTL 625.In that case the facts was service provider constructed residential building and availed the cenvat credit in respect of various input services at the time of commencement of construction of building as per the Finance Act, 1994. The building of residential complex is liable to service tax however; the service tax is chargeable only if the flats in the building are sold before receipt of complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in byproduct inevitably emerged. it was held that it was impossible for the assessee to maintain separate account and inventory of the Input and input services meant for dutiable final products and exempted final products as this can be done only if two different final products, one dutiable and the other exempted are being manufactured consciously. The tribunal held that when compliance of provisions is impossible, an assessee cannot be penalized for his failure to comply with the same. 4.13 In the case of SRF Ltd -2015 (318) ELT 607 (SC) the Hon ble supreme court held that the benefit of exemption cannot be denied if its conditions are impossible to be satisfied. In view of the above judgment in the present case also since there is no use of input and input services particularly for manufacturer of LPG whereas the Input ad Input services primarily used for manufacture of dutiable products it is impossible to maintain separate account in terms of Rule 6(2) of Cenvat Credit Rules, 2004. 4.14 The respondents without prejudice also submitted that the provision of Rule 6(2) applies only where the manufacturer manufactures final product which is chargeable to duty and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... W which was affirmed by Hon ble Madras High Court has been followed in several decisions of this tribunal including that of SU Motors Pvt Ltd 2017- TIOL- 3087- CESTAT-MUM and CCE vs. Tanfac Industries and Greaves Ltd. The relevant order of Tanfac Industries and Greaves Ltd is as follows: In view of the above decision, particularly dealing with Notification no 10/97-CE it was conclusively held that Rule 6(3) shall be applicable only when manufacturer of the goods manufacture goods of two types, one is excisable and another is exempted. However, in case where goods manufactured are dutiable at the time of manufacture, Rule 6(3) will not be applicable . As regards judgments relied upon by the Ld. A.R I observed that in none of the case law, the issue of exemption notification which is end use based exemption ws dealt with, therefore, ratio of the decisions relied upon by the learned AR are not applicable. As per my above discussion, impugned order is set aside, and appeal is allowed with consequential relied, if any, in accordance with law. 4.16 In the present case the LPG which emerges during the refining process is not per se the exempted product. The respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussed and the issue that whether the by-product attracts Rule 6 or otherwise is a question of law which can be taken at any stage. Therefore, considering this issue being legal we consider the same. We find that the LPG emerged unavoidably during the course of manufacture of other dutiable goods therefore the same is nothing but by-product. In this regard we have examined the nature of LPG on the website energypedia.info gives the details on LPG as under: 1. How is LPG produced? LPG is a by-product of natural gas and oil extraction and crude oil refining. Around 60% of LPG stocks in the last years have been separated from raw gas and raw oil during the extraction of natural gas and from the earth, and remaining 40% have been a by-product when crude oil is refined. From the above detail of website energypedia.info it is clear that LPG is a by-product generated during the refining of crude oil. The appellant in their written submission gave a chart of various products including the LPG whereby it is reveals that generation of LPG in the course of manufacture comes to 0.64% in 2015-16 and 0.38% in 2016-17 of total assessable value of all the products. This p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the chlorine emerging during the process of manufacture of subject goods has Equal Economic Importance . In order to consider chlorine a joint product of the status equal to caustic soda we have to examine the guidelines as stipulated in Para 12 of Schedule -III of 1967 Rules. The said para reads as under : 12. Joint products - Where more than one product which is of equal economic importance arises from process, the cost up to the point of separation of products shall be apportioned to joint products on reasonable and equitable basis and shall be applied consistently. The basis on which such joint costs are apportioned to different products arising from the process shall be indicated in the cost records . 15 . We note that the term Equal Economic Importance has not been defined. The plain meaning of the same is that when more than one product emerge during the common manufacturing process, two or more those can be considered to have Equal Economic Importance if they give equal economic return or monetary benefit to the producer. In such situation these products can be considered as joint/co-products. As per Dictionary of Accounting by Jonathan Law - 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Equal Economic Importance when compared to the subject goods. Further, fluctuation in chlorine price even substantially increase during certain times do not make chlorine as a product of equal importance for DI. 16 . We have perused the Cost Audit reports of units of some of the DI. Chlorine has been consistently treated as by-product and the Cost Accounting Standards applicable to such treatment have been applied. The realisation out of chlorine produced shows that the position of Equal Economic Importance cannot be given to chlorine in the Indian context. After careful consideration of all the submissions made by the parties it is evident that chlorine was not of Equal Economic Importance to the DI as compared to caustic soda and thus cannot be treated as joint product. As such, we find that treating chlorine as a by-product in the analysis and to arrive at a finding by the DA is justified. As such, the appeals filed challenging the finding of the DA and consequent Notifications are dismissed. 5.2 In view of the above judgment one of the aspect to be considered after holding the product as byproduct is principle of Equal economic Importance. in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or input services used in the manufacture of main product which is dutiable, it is sufficient to allow the entire credit for the reason that all the input and input services were used for manufacture of dutiable goods even if the small part of the byproduct is generated unavoidably. In the present case also the Input and Input services was used for manufacture of other dutiable goods i.e. MS, HSD,ATF, Naphtha, Fuel oil etc and the LPG emerged unavoidably. The Cenvat Credit cannot be reduced on the input and input services attributed to LPG. With this objective behind the Para 3.7 which is directly applicable in the present case, the respondent is not required to reverse cenvat credit in terms of Rule 6 of CCR on this ground. 5.5 As regard the various judgment relied upon by the Learned AR we are of the view that in all these judgments facts are different as compared to the facts of the present case. As regard the reliance of Learned AR in the case of Essar oil Limited (Supra) we find that very important argument that the LPG emerges in its refinery and there is no deliberate attempt to manufacture it and the reliance placed on Swadeshi Polytex Ltd and Strerling Gelatin was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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