By-product clearances and Cenvat reversal: sulphuric acid from zinc manufacture was treated as outside Rule 6(3)(i).

Sulphuric acid emerging as a technological by-product in zinc manufacture was treated as not attracting reversal under Rule 6(3)(i) of the Cenvat Credit Rules, 2004. The stated legal position was that a by-product arising in the course of manufacture does not become liable merely because it is cleared without duty, and the attempted distinction between common inputs and common input services was not accepted. Earlier Supreme Court and later appellate rulings were noted as supporting the same treatment for by-products and common input services. On that basis, the demand on sulphuric acid was said to be unsustainable.

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Issues: Whether sulphuric acid emerging as a by-product in the manufacture of zinc was liable to the amount prescribed under rule 6(3)(i) of the Cenvat Credit Rules, 2004, including on the footing that it constituted exempted goods and that the earlier decision on inputs did not apply to input services.

Analysis: The agreed factual and legal position was that sulphuric acid arose during the manufacturing process as a technological necessity and not as an independent manufactured final product using common inputs or input services. The earlier Supreme Court ruling had already held, in the context of analogous credit provisions, that a by-product emerging in the course of manufacture does not attract the reversal mechanism merely because it is cleared without duty, and that the distinction sought to be drawn between inputs and input services was not legally sustainable. The subsequent appellate decisions had also applied that ratio to common input services and had rejected attempts to distinguish the by-product treatment of sulphuric acid.

Conclusion: Rule 6(3)(i) of the Cenvat Credit Rules, 2004 was not applicable, and the demand raised on sulphuric acid was unsustainable. The appeal was, therefore, decided in favour of the assessee.

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