Off-gas and by-product treatment in manufacture excluded credit reversal demand under Cenvat credit rules.

Corex Gas arising during the manufacture of Hot Rolled Coils was treated as an off gas and by-product because it emerged as a technological necessity in the production process and had been recognised in the environmental record as such. The reasoning relied on earlier treatment of similar emergent products, including lean gas and non-granulated slag, to show that goods arising incidentally in manufacture are not to be treated as final products merely because they are cleared at nil duty. On that basis, the credit reversal and percentage-based demand under Rule 57CC, Rule 57AD and Rule 6(3) were stated to be inapplicable to the by-product.

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Issues: Whether Corex Gas arising in the course of manufacture of Hot Rolled Coils is an off gas and by-product, and whether the demand under Rule 57CC, Rule 57AD and Rule 6(3) of the Cenvat Credit Rules, 2002 is sustainable.

Analysis: Corex Gas arose during the manufacturing process as a technological necessity and was treated by the Ministry of Environment and Forests as an off gas. The same stage of manufacture had earlier been accepted in the appellant's own case as giving rise to non-granulated slag as a by-product. The reasoning applied in the cited decisions on lean gas, off gas and other by-products showed that such emergent products are not to be treated as final products merely because they arise during manufacture or are cleared at nil rate of duty. On that basis, the provisions invoked for reversing credit or demanding a percentage of the price were held inapplicable to the by-product.

Conclusion: Corex Gas was held to be an off gas and by-product, and the duty demand based on Rule 57CC, Rule 57AD and Rule 6(3) could not be sustained.

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