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TMI Blog2008 (12) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... Larger Bench of the Tribunal concurred with the views expressed by the Tribunal in the case of Binani Zinc Ltd. (supra) and by the impugned decision held that the petitioner who manufactured both dutiable and exempted final products by utilizing duty paid common inputs (Modvat credit of which was taken) was liable to pay an amount equal to 8% of the value of the exempted final product under Rule 57CC of Central Excise Rules, 1944/Rule 6 of Cenvat Credit Rules, 2002. The larger Bench has also recorded a finding to the effect that HCL was not a necessary input required in the manufacture of gelatin. 3. Facts relevant to the present case are that since 1971 the petitioner is engaged in the manufacture of gelatin in its factory at Ootacamund, Tamil Nadu. Gelatin is an excisable product and falls under Chapter heading 35.03 of the Central Excise Tariff Act, 1985. 4. According to the petitioner, animal bone is the basic raw material required for the manufacture of gelatin. Animal bones contain both organic material known as protein as well as inorganic material known as phosphorus. According to the petitioner, when the animal bones are treated with HCL, organic and inorganic substances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 9. In the present case, since 1986 the petitioner availed the credit of duty paid on HCL used as input in the manufacture of gelatin and the waste mother liquor arising in the manufacture of gelatin was used in the manufacture of phosphoryl 'A' and 'B' and was cleared without payment of duty in view of the exemption. 10. Rule 57CC was introduced into the Modvat Scheme with effect from 1/9/1996 under which a manufacturer who manufactures by using common inputs, a final product which is chargeable to duty as well as a final product which is wholly exempt or chargeable to nil rate of duty was required to maintain separate accounts regarding the inputs received and used in the manufacture of exempted goods, failing which the manufacturer was liable to pay 8% of the price payable on the exempted final products at the time of its clearance from the factory. 11. At this stage, it would be appropriate to quote Rule 57C, 57CC and 57D (to the extent relevant) as they stood during the period 1998-99 :- "Rule 57C. Credit of duty not to be allowed if final products are exempt.- (1) No credit of the specified duty shall be allowed on such quantity of inputs which is used in the manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inputs on which credit has been taken are not actually used or contained in any particular clearance of final products. (8) If any goods are not sold by the manufacturer at the factory gate but are sold from a depot or from the premises of a consignment agent or from any other premises, the price (excluding sales tax and other taxes, if any, payable) at which such goods are ordinarily sold by the manufacturer from such depot or from the premises of a consignment agent or from any other premises shall be deemed to be the price for the purpose of sub-rule (1). (9) In respect of inputs (other than inputs used as fuel) which are used in or in relation to the manufacture of any goods, which are exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty, the manufacturer shall maintain separate inventory and accounts of the receipt and use of inputs for the aforesaid purpose and shall not take credit of the specified duty paid on such inputs." RULE 57D. 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 the part of the inputs is contained in any waste, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d penalty should not be imposed under the provisions of the Excise Act and the Rules made thereunder. 14. The petitioner in its reply contended that the duty paid HCL was an input used in the manufacture of gelatin. It was contended that the mother liquor arising in the manufacture of gelatin was a waste and, therefore, in terms of Rule 57D, the petitioner was entitled to full credit of duty paid on HCL used in the manufacture of dutiable gelatin. In such a case, it was contended that Rule 57CC was not applicable. 15. By an order in original dated 23-12-2004, the adjudicating authority rejected the contention of the petitioner and held that Rule 57CC was applicable to the present case and accordingly, confirmed the demand with interest and also imposed penalty upon the petitioner. 16. The petitioner filed an appeal against the aforesaid adjudication order and the Tribunal in view of the conflicting decisions, referred the matter to a larger Bench of CESTAT. The larger Bench after hearing the parties, by its decision which is impugned in the present petition, held that :- (a) HCL is not a necessary input required in the manufacture of gelatin and the same can be obtained w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly. 17. We have heard Mr.Sridharan, learned Advocate for the petitioner and Mr.Jetly, learned Advocate for the respondents. On careful consideration of the rival submissions, we find it difficult to sustain the decision of the larger Bench for the reasons enumerated hereinafter. 18. At the outset it must be held that the Larger Bench committed a fundamental error in holding that HCL was not an input required in the manufacture of gelatin, because, firstly that was not the question referred to it for its decision. Secondly, the specific case of the revenue set out in the show-cause notice was that HCL was the common input used in the manufacture of two final products namely, gelatin & phosphoryl 'A' and 'B' and since duty on phosphoryl 'A' and 'B' is exempted, Rule 57CC is applicable. Therefore, the finding given by the larger Bench that HCL was not an input required in the manufacture of Gelatin is beyond the scope of reference and contrary to the facts of the case on record. 19. It is evident that the Larger Bench arrived at the aforesaid conclusion by erroneously following the decision of the Apex Court in the assessee's own case reported in [1999] 114 E.L.T. 5 (S.C.). That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phosphoryl 'A' and 'B' by maintaining separate account or alternatively pay the presumptive amount under Rule 57CC ? 22. Animal bones are the basic raw material required to manufacture gelatin. When animal bones are treated with HCL, organic and inorganic substances in the animal bones get separated. Organic substances ('ossein') which are in the insoluble form are separated from the soluble inorganic substances known as 'mother liquor'. Ossein is further processed to manufacture gelatin. It is not in dispute that the mother liquor is a waste arising in the manufacture of gelatin. 23. Under Rule 57C and 57D of the Central Excise Rules, 1944, credit of duty paid on HCL which is used as an input in the manufacture of gelatin cannot be denied or varied merely because HCL is contained in the waste mother liquor arising in the manufacture of gelatin and that no excise duty is payable on the mother liquor. Rule 57D specifically provides that even if no excise duty is payable on the waste arising in the manufacture of dutiable final product, the credit of duty paid on the input used in the manufacture of dutiable final product cannot be denied or varied. In the present case, exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 57CC for not maintaining separate account. 27. The fact that the waste mother liquor arising in the manufacture of gelatin was further processed to manufacture exempted phosphoryl 'A' and 'B' would not attract Rule 57CC, because, if Rule 57CC was not applicable at the time of clearance of the waste mother liquor arising in the manufacture of dutiable gelatin, then the said rule cannot be applied merely because mother liquor was further processed to manufacture exempted final product, namely, phosphoryl 'A' and 'B'. In other words, liability to pay the presumptive amount under Rule 57CC would arise only if the waste mother liquor is held to be a final product. It is not even the case of the revenue that the waste mother liquor arising in the manufacture of gelatin is a final product. Therefore, in the facts of the present case, if Rule 57CC was not applicable at the time of clearance of waste mother liquor, then Rule 57CC would not apply at the time of clearance of the exempt phosphoryl 'A' and 'B' manufactured out of waste mother liquor. 28. The Apex Court in the case of CCE v. Gas Authority of India Ltd. reported in 2008 (88) RLT 123 (SC), has considered the scope of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation Limited reported in (1995) 77 E.L.T. 790 (S.C.). In our opinion that decision has no bearing to the facts of the present case. That decision was rendered in the context of sales tax law and not in the context of excise law. Moreover, the dispute in that case related to availing set off under the Sales tax law on sale of by-product arising in the manufacture of the main product. That decision does not deal with the provisions relating to the Modvat credit. Therefore, reliance placed on the decision of the Apex Court in the case of Bharat Petroleum Corporation Limited (supra) is also misplaced. 31. The larger Bench of the CESTAT has held that Rule 57D referred to waste, scrap and by-products which are not excisable at all. In this connection, the larger Bench has referred to the instances of floor sweepings arising in the manufacture of biscuits, waste and scrap arising in the manufacture of iron products and hydrogen arising as a by-product in the manufacture of oxygen by the process of electrolysis of water. We find it difficult to accept the above finding. What Rule 57D provides is that where modvated input is used in the manufacture of dutiable final product and wast ..... X X X X Extracts X X X X X X X X Extracts X X X X
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