Incidental by-product manufacture does not trigger Rule 57CC reversal when no separate process produces the by-product.

Silver emerging incidentally as an unavoidable by-product in the pyro-metallurgical manufacture of zinc and lead was held not to involve any separate manufacturing activity. On those facts, the Tribunal stated that the by-product could not be treated as distinct manufacture for attracting Rule 57CC of the Central Excise Rules, 1944, and that credit could not be denied merely because part of the input was contained in the by-product. The Revenue's reliance on a cited Supreme Court decision was distinguished, and the demand was held not sustainable.

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Issues: Whether demand under Rule 57CC of the Central Excise Rules, 1944 was sustainable in respect of silver emerging as a by-product during the process of manufacture of zinc and lead.

Analysis: The silver was found to emerge only as an unavoidable by-product during the pyro-metallurgical process of extracting zinc and lead from concentrates. No separate manufacturing activity was undertaken to produce silver, and the record showed that the same material emerged incidentally during refining and was cleared as such. The Tribunal held that, on these facts, the production of the by-product could not be treated as a distinct manufacture attracting Rule 57CC. It further relied on earlier decisions holding that credit cannot be denied merely because part of the input is contained in a by-product, and distinguished the Revenue's reliance on the Supreme Court decision cited by it.

Conclusion: The demand under Rule 57CC was not sustainable and the appeals were allowed in favour of the assessee.

Ratio Decidendi: A by-product that emerges incidentally and without any separate manufacturing process does not attract proportionate reversal or denial under Rule 57CC when the inputs are used in the manufacture of the principal dutiable final products.

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