2013 (11) TMI 1468 - AT - Central Excise

Dispute Over 8% Demand on 'Hydrol' By-Product: Rule 57D Benefits Upheld

The case involved a dispute over the demand of 8% amount on an exempted by-product 'Hydrol.' The Commissioner (Appeals) ruled in favor of the respondents, ... Cenvat Credit - Nil rated Goods cleared along with the dutiable final product – Exemption under Notification No. 6/2002 – Held that:- Following Rallis India Ltd. vs. Union of India reported as [2008 (12) TMI 46 - HIGH COURT BOMBAY ] - there is no liability to pay 8% amount on removal of the by-product/ waste arisen during the course of manufacture of the main product – also in CCE, Ahmedabad vs. Nirma Ltd. [2012 (10) TMI 138 - GUJARAT HIGH COURT] in case of exempted by-product emerging during the process of manufacture, the provisions of Rule 6 of Cenvat credit Rules are not attracted – Decided against Revenue. Issues:1. Interpretation of Cenvat Credit Rules regarding the demand of 8% amount on the exempted product.2. Application of Rule 6 of the Cenvat Credit Rules in the case of a by-product.3. Validity of demand notices issued without proper investigation.4. Precedent set by Tribunal and High Courts on the liability to pay 8% amount on removal of by-products.Analysis:1. The case involved a dispute regarding the demand of an amount equal to 8% of the price of a by-product, 'Hydrol,' cleared under an exemption notification. The Commissioner (Appeals) allowed the appeal of the respondents based on the defense citing case laws, including the Tribunal's decision in M/s. Anil Starch Pvt. Ltd. vs. CCE. The Commissioner found that the demand was not justified as the by-product was entitled to benefit under Rule 57D, and the provisions of Rule 6 of the Cenvat Credit Rules were not attracted in this case.2. The Revenue contended that Rule 57D was not on the statute book, and Rule 6 of the Cenvat Credit Rules required the assessee to pay a percentage of the value of the exempted final product. However, the Tribunal referred to decisions by the Bombay High Court and Gujarat High Court, which held that there was no liability to pay 8% amount on the removal of a by-product during the manufacture of the main product. The Tribunal upheld the Commissioner's decision, citing established precedents.3. The Commissioner criticized the department for not investigating the matter properly and issuing demand notices without a thorough understanding of the issue. The Commissioner noted that the demand was raised without showing the common inputs used in the manufacture of the products. The Commissioner found that no separate inputs were exclusively used for the by-product, and hence, Rule 6 of the Cenvat Credit Rules did not apply in this case.4. The Tribunal, in line with the decisions of the High Courts, rejected the Revenue's appeal, emphasizing that the issue had been settled by previous judgments. The Tribunal found no justification to interfere with the Commissioner (Appeals)'s order, as the liability to pay 8% amount on exempted by-products had been clarified by the courts. The Tribunal upheld the setting aside of the demand and penalty, concluding that there was no interest liability on the appellants based on the Act's provisions.