Unintended by-product clearances under an end-use exemption did not trigger CENVAT credit reversal for common inputs.

Spent sulphuric acid arising as an unintended by-product in the manufacture of LABSA was not treated as exempted goods merely because some clearances were made under an end-use exemption notification and others on payment of duty. The Tribunal held that the by-product emerged as a technological outcome of the manufacturing process, was not manufactured as a final product, and its exempt clearances were only conditional on end use. On that basis, Rule 6(3) of the CENVAT Credit Rules, 2004 was not attracted, and the assessee was not denied CENVAT credit or required to make the prescribed reversal on common inputs used for the principal dutiable product.

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Issues: Whether spent sulphuric acid emerging as a by-product in the manufacture of LABSA, and cleared partly under an end-use exemption notification and partly on payment of duty, could be treated as exempted goods so as to attract Rule 6(3) of the CENVAT Credit Rules, 2004 and deny CENVAT credit on common inputs.

Analysis: The spent sulphuric acid arose as a technological outcome in the course of manufacture of the principal product and was not intended to be manufactured as a final product. Clearances made to buyers not covered by the exemption notification suffered duty, while clearances to notified end users were exempt only because of the specific end-use condition. Such a situation did not make the by-product exempted goods in the general sense, and the existence of two categories of clearances showed that no prejudice was caused to Revenue. The Tribunal also followed the principle that an unintended by-product emerging in the course of manufacture does not, by itself, deprive the assessee of credit on inputs used for the principal dutiable product.

Conclusion: Rule 6(3) was held not to be attracted, and the assessee was not to be denied CENVAT credit or subjected to the prescribed reversal on this count.

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