By-product treatment in refinery operations excludes Rule 57CC demand where sulphur is incidentally recovered

Sulphur recovered in a sulphur recovery plant was treated as a by-product of refining, not an independent final product. Crude oil refining generated sulphurous acidic gases, which were later processed to obtain sulphur, and no material showed use of any Modvatable input in the manufacture of sulphur. On those facts, Rule 57D of the Central Excise Rules, 1944 applied, so the demand raised by invoking Rule 57CC was unsustainable.

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Issues: Whether sulphur recovered in the sulphur recovery plant was a by-product of the refining process so as to attract Rule 57CC of the Central Excise Rules, 1944 and require payment of an amount equal to 8% of its value, or whether the assessee was entitled to the benefit of Rule 57D of the Central Excise Rules, 1944.

Analysis: Crude oil was refined into petroleum products and, during that process, sulphurous acidic gases emerged as a consequence of refining. Those gases were then sent to a separate recovery plant where sulphur was obtained. No material showed that any Modvatable input had been used in or in relation to the manufacture of sulphur. On the facts, sulphur was not an independent final product but a by-product arising incidentally in the course of manufacture. Once that position was accepted, the benefit of Rule 57D applied and the demand raised by invoking Rule 57CC could not stand.

Conclusion: Rule 57CC was not applicable and the demand of 8% of the value of sulphur was unsustainable. The appeal succeeded in favour of the assessee.

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