2005 (10) TMI 401 - AT - Central Excise

Manufacturing liability for 8% payment under Cenvat Credit Rules faces uncertainty in Larger Bench decision.

The case revolves around the liability of a manufacturing company to pay 8% of the selling price of exempted goods under Rule 6 of the Cenvat Credit ... Cenvat/Modvat Issues:1. Liability to pay 8% of the selling price of exempted goods under Rule 6 of the Cenvat Credit Rules, 2002.Analysis:The appellant, engaged in manufacturing Gelatine, purchased animal bones and Hydro Chloric Acid for the manufacturing process. The appellant availed credit on duty paid Hydro Chloric Acid to discharge duty on Gelatine. During the manufacturing process, a compound named Phosphoryl liquor/mother liquor is obtained, which is further processed to manufacture Phosphoryl B and Phosphoryl A, falling under exempted goods category. The issue in this appeal revolves around whether the appellant is liable to pay 8% of the selling price of exempted goods under Rule 6 of the Cenvat Credit Rules, 2002, considering the utilization of duty paid Hydro Chloric Acid in the production process.In the case of Rama Industries, the Tribunal held that there is no obligation to pay 8% of the selling price of exempted goods under Rule 57CC of the erstwhile Central Excise Rules, 1944 (equivalent to Rule 6 of the Cenvat Credit Rules, 2002). This decision was based on the fact that the exempted goods were obtained after processing Mother liquor and not as a by-product during the Gelatine manufacturing process. Conversely, in the case of Binani Zinc, the Tribunal ruled that 8% of the selling price of exempted goods, such as Sulphuric Acid, must be paid under Rule 57CC of the Central Excise Rules, 1944, as it was derived after processing a subsidiary product. This conflicting interpretation of the rules has led to uncertainty in the application of the law.Given the conflicting views within the Tribunal and unresolved issues in previous cases like Indian Iron and Steel Co., the matter has been referred to the Hon'ble President for the constitution of a Larger Bench. The Larger Bench will address the issue of whether 8% of the amount, as per the relevant rules, needs to be paid before the removal of by-products/subsidiary products when those products are exempted from duty, aiming to resolve the discrepancies in the interpretation of the law. The decision of the Larger Bench will provide clarity on the liability of the appellant in this case regarding the payment of 8% of the selling price of exempted goods, ultimately impacting the outcome of the appeal.