By-product credit reversal rules do not apply where exempt sulphuric acid emerges only as a technological necessity in manufacture.

The writ petitions at the show-cause stage were maintainable because the challenge extended beyond the notices to the vires of the credit provisions, and the same issue was already before the appellate forum; the objection of prematurity was therefore rejected. On the substantive issue, Rule 57CC of the Central Excise Rules, 1944 and Rule 6 of the Cenvat Credit Rules, 2004 did not apply to sulphuric acid that arose only as a technological by-product in the manufacture of zinc or copper, since no common input was used to produce it as an independent final product. Credit could not be reversed, and the 8% payment was not attracted; the Revenue's appeals failed.

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Issues: (i) Whether the writ petitions filed at the show-cause stage were maintainable despite the availability of alternate statutory remedy. (ii) Whether Rule 57CC of the Central Excise Rules, 1944 and Rule 6 of the Cenvat Credit Rules, 2004 applied to sulphuric acid emerging as a by-product, so as to require reversal of credit or payment of an amount equivalent to 8% of its value when cleared to fertiliser plants under exemption.

Issue (i): Whether the writ petitions filed at the show-cause stage were maintainable despite the availability of alternate statutory remedy.

Analysis: The challenge was not confined to the show-cause notices. The assessee had also questioned the vires of the relevant credit provisions, and the same legal issue arose in the connected statutory appeal. In those circumstances, the High Court's exercise of writ jurisdiction could not be faulted, and the plea of premature interference did not survive.

Conclusion: The objection to maintainability was rejected.

Issue (ii): Whether Rule 57CC of the Central Excise Rules, 1944 and Rule 6 of the Cenvat Credit Rules, 2004 applied to sulphuric acid emerging as a by-product, so as to require reversal of credit or payment of an amount equivalent to 8% of its value when cleared to fertiliser plants under exemption.

Analysis: The decisive consideration was that sulphuric acid arose only as a technological necessity in the process of extracting zinc or copper and not from any part of the common input being diverted to that product. The entire ore concentrate was consumed in the manufacture of the dutiable final products, and the sulphuric acid was commercially and technologically a by-product. Reading the scheme of the credit rules as a whole, especially Rule 57D, the Court held that credit could not be denied or varied merely because a by-product or waste emerged during manufacture, and the 8% amount under Rule 57CC was not attracted.

Conclusion: Rule 57CC and Rule 6 did not apply to the by-product sulphuric acid cleared under exemption, and no reversal or 8% payment was payable.

Final Conclusion: The appeals by the Revenue failed and the assessee's entitlement to retain the credit was upheld.

Ratio Decidendi: Where the exempt commodity emerges only as a by-product or technological necessity and no common input is used in its manufacture as an independent final product, the provisions requiring reversal of credit or payment on exempt final products are not attracted.

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