By-product clearance under Cenvat Credit Rules not treated as exempt final product for reversal demand

Spent Sulphuric Acid, arising inevitably as a by-product in the manufacture of Acid Slurry, was not treated as a separately manufactured exempt final product for Rule 6(3)(1)(b) of the Cenvat Credit Rules, 2004. Following the settled view under the comparable Rule 57CC framework, the Tribunal held that a demand based on eight per cent reversal or payment could not be raised on such by-product clearances, and the absence of separate input accounts did not sustain the demand.

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Issues: Whether an amount under Rule 6(3)(1)(b) of the Cenvat Credit Rules, 2004 was payable in respect of Spent Sulphuric Acid cleared at nil rate of duty under Notification No. 6/2006-CE dated 01.03.2006.

Analysis: Spent Sulphuric Acid arose as a by-product in the manufacture of Acid Slurry and was not a final product manufactured along with the dutiable product in the sense contemplated by the rule. The Tribunal followed the settled view that the older Rule 57CC of the Central Excise Rules, 1944, which is comparable in substance, could not be invoked to demand eight per cent on such by-product clearances. On that reasoning, the absence of separate accounts for inputs used in dutiable and exempt clearances did not justify the demand.

Conclusion: The demand under Rule 6(3)(1)(b) was not sustainable and the issue was decided in favour of the assessee.

Ratio Decidendi: A by-product emerging inevitably in the course of manufacture is not to be treated as a separately manufactured exempt final product for the purpose of reversal or payment under the Cenvat credit scheme.

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