Rule 57CC inapplicable where exempt bio-compost arose only from waste and no credit-availed inputs were used in its manufacture.

Rule 57CC of the Central Excise Rules, 1944 applies only where the same credit-availed inputs are used, directly or indirectly, in the manufacture of both dutiable and exempted final products. On the stated facts, duty-paid inputs were used only for sugar, molasses and denatured ethyl alcohol, while press mud and spent wash arose as inevitable waste; no further credit-availed inputs or chemicals were added to make bio-compost fertiliser. Traces of chemicals in the waste or compost were insufficient to show use of modvatted inputs in the exempted product. The demand to pay 8% of the bio-compost price was therefore unsustainable.

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Issues: Whether Rule 57CC of the Central Excise Rules, 1944 applied so as to require payment of 8% of the price of bio-compost fertiliser manufactured from press mud and spent wash, when the duty-paid inputs were used only in the manufacture of sugar, molasses and denatured ethyl alcohol.

Analysis: Rule 57CC is attracted only when the same credit availed inputs are used, directly or indirectly, in or in relation to the manufacture of both dutiable and exempted final products. On the facts, the inputs were used at the initial stage for manufacturing the assessee's dutiable products, and press mud and spent wash emerged only as inevitable wastes. No further credit availed inputs or chemicals were added in the process of converting those wastes into bio-compost. The mere presence of traces of chemicals in the wastes or in the final compost did not establish use of the modvatted inputs in the manufacture of the exempted product. The cases relied on by the Revenue were distinguishable, while the decisions supporting the assessee applied the same principle to similar facts.

Conclusion: Rule 57CC was not applicable and the demand of 8% on the price of bio-compost fertiliser was unsustainable.

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