CENVAT rule 6 liability requires prior finding on whether lean gas is a by-product or final product before exclusion applies.

Rule 6 of the CENVAT Credit Rules, 2002 could not be applied without first determining whether lean gas was a by-product or a final product, because the availability of the exclusion turned on that characterisation. The notices, apart from the September 1998 notice, specifically disputed the assessee's claim that lean gas was a by-product, yet that factual and legal issue had not been examined. As the existing record did not permit a proper determination of the levy, the confirmed liability could not be sustained and the matter had to be reconsidered afresh. The impugned order was therefore set aside and the case remanded to the original authority.

---

---

Issues: Whether the demand under rule 6 of the CENVAT Credit Rules, 2002 could be sustained without first determining whether lean gas was a by-product or a final product and whether the exclusion from the rule applied.

Analysis: The demand was founded on the use of common inputs in the manufacture of exempted lean gas. The adjudicating authority had proceeded on the assumption that the prior Supreme Court decision had fully settled the matter, but the impugned notices, except the one for September 1998, specifically disputed the assessee's claim that lean gas was a by-product. The applicability of the exclusion under rule 6 therefore depended on a prior determination of the character of lean gas, which had not been undertaken. In such circumstances, the validity of the confirmed liability could not be examined on the existing record and the matter had to be considered afresh.

Conclusion: The impugned order was set aside and the matter was remanded to the original authority for fresh examination of the applicability of rule 6 to lean gas.

---