2006 (7) TMI 411 - AT - Central Excise

Corex Gas deemed a necessary by-product, exempt from Rule 57CC and Rule 6(3) of Cenvat Credit Rules; appeals allowed.

The Tribunal determined that Corex Gas is a by-product generated as a technological necessity during the manufacture of Hot Rolled Coils. Consequently, it ... Excise duty - Cenvat/Modvat - classifying the Corex Gas as “Carbon Monoxide (CO)” - mis-classified the gas under Chapter No. 2705.00 - Adjudication orders - whether Corex gas is an Off gas and an Off Gas can be treated as a by-product - HELD THAT:- The flow chart indicates that the inputs, raw materials, pellets, iron ore, oxygen, nitrogen etc. are fed in the Corex furnace. In the furnace, these items are all melted at a very high temperature and the liquid hot iron is made to pass through another set of steel mix. The liquid steel passes through slab making and the slabs are hot rolled into coils making and the final product Hot Rolled Coils comes into existence. In terms of the flow chart, it is seen that these gases arise when all the raw materials are put in the furnace and melted. Therefore, on a careful consideration of the flow chart, the plea raised by the assessees that the Corex Gas arises as a technological necessity is required to be accepted. The Ministry of Environment & Forests also has treated the Corex Gas as an ‘off gas’ and as an environmental hazard. The off gases have been treated as by-products in all the three cited judgments viz. (i) GAIL; (2) Hi-tech Carbon and (3) Phillips Carbon Black. Therefore, these three judgments would clearly apply to the facts of the case. Furthermore, we notice that in the appellants’ own case, this Bench, by Final order[2006 (6) TMI 308 - CESTAT, BANGALORE] has considered Non-granulated Slag arising during the course of manufacture of HR Coils as a by-product. The flow chart shows the emergence of slag at the same stage where Corex Gas has come into existence. Therefore, the analogy drawn by the learned Counsel that the Non-granulated Slag, which has been treated as a by-product should be applied to the Corex Gas arising in the same stage, is required to be accepted by following the ratio in the Final Order [2006 (6) TMI 308 - CESTAT, BANGALORE]. In sum, the ratio of the cited judgments would apply to the facts of the case. The plea of the learned JDR that investigation has led to a different conclusion is not the subject matter of these appeals. As there is no estoppel in statute, Revenue can continue with their investigation. At this stage, the learned Counsel refers to Shri Vallabh Glass Works Ltd. and Another v. UOI and Others[1984 (3) TMI 64 - SUPREME COURT] case, which refers to the law of estoppel. It is for the appellants to raise their objection before the pending proceedings. In so far as these proceedings are concerned, the issue is covered by the cited judgments. Therefore, the appeals are allowed with consequential relief, if any. Issues Involved:1. Classification of Corex Gas as either 'Carbon Monoxide (CO)' under heading No. 2811.90 or as a by-product under Chapter No. 2705.00.2. Applicability of Rule 57CC of CE Rules (equivalent to Rule 57AD of CE Rules) and Rule 6(3) of Cenvat Credit Rules, 2002, for demanding 8% of the price of Corex Gas.3. Whether Corex Gas is a by-product and the applicability of cited judgments to the case.4. Allegation of suppression of facts and the applicability of the extended period of limitation.Detailed Analysis:Issue 1: Classification of Corex GasThe Revenue sought to classify Corex Gas as 'Carbon Monoxide (CO)' under heading No. 2811.90, thereby requiring the appellants to discharge Excise duty at 16% ad valorem. The learned JCDR argued that the appellants had misclassified the gas under Chapter No. 2705.00 and that the matter needed to be re-examined based on new findings from departmental investigations. However, the Tribunal noted that the issue of classification was not part of the original Show Cause Notice or adjudication order. Citing the Apex Court judgment in Gujarat State Fertilizers Co. v. CCE, the Tribunal held that it could not adjudicate on matters not included in the original proceedings and thus rejected the Revenue's misc. applications.Issue 2: Applicability of Rule 57CC and Rule 6(3)The Revenue argued that since Corex Gas was cleared at NIL rate of duty, the appellants were required to discharge 8% of the price in terms of Rule 57CC of CE Rules and Rule 6(3) of Cenvat Credit Rules, 2002. The appellants contended that Corex Gas is a by-product and not subject to these provisions. They referred to several judgments, including Gas Authority of India Limited v. CCE, Hi-tech Carbon v. CCE, and Phillips Carbon Black Ltd. v. CCE, which held that by-products like lean gas/off gas are not subject to Rule 57CC. The Tribunal agreed with the appellants, noting that Corex Gas arises as a technological necessity and is a by-product, thus not subject to Rule 57CC or Rule 6(3).Issue 3: By-product Status of Corex GasThe appellants argued that Corex Gas is a by-product, supported by letters from the Ministry of Environment & Forests and various judicial precedents. The Tribunal examined the manufacturing process and the flow chart provided by the appellants, concluding that Corex Gas arises as a technological necessity during the manufacture of Hot Rolled Coils. The Tribunal also noted that similar by-products like non-granulated slag had been treated as by-products in the appellants' own case (Final Order No. 1036/2006). Consequently, the Tribunal held that Corex Gas should be treated as a by-product, following the cited judgments.Issue 4: Allegation of Suppression of FactsThe appellants contended that the demands were barred by time as there was no suppression of facts, and all relevant information was known to the department. The Tribunal noted that the issue of excisability was not part of the current proceedings and that the Revenue's contention of suppression was not sustainable. The Tribunal emphasized that the issue at hand was whether Corex Gas is an off gas and a by-product, which had been settled by the cited judgments.Conclusion:The Tribunal concluded that Corex Gas is a by-product arising as a technological necessity during the manufacture of Hot Rolled Coils and is not subject to Rule 57CC or Rule 6(3) of the Cenvat Credit Rules. The Tribunal rejected the Revenue's misc. applications for reclassification and held that the appellants were not required to discharge 8% of the price of Corex Gas. The appeals were allowed with consequential relief, if any.(Pronounced and dictated in open Court)