Sulphuric acid by-product from copper manufacturing doesn't require CENVAT credit reversal under Rule 6(3)

CESTAT Ahmedabad allowed the assessee's appeal regarding CENVAT credit on sulphuric acid, a by-product. The revenue demanded reversal under Rule 6(3) of CENVAT Credit Rules, 2004, treating the by-product as exempt goods due to non-maintenance of separate records. The tribunal held that sulphuric acid emerged unavoidably during copper manufacturing and was not consciously manufactured. Since by-products cannot be considered manufactured goods under Rule 6(1), and Board Circular dated 25.04.2016 clarified that CENVAT credit on inputs contained in by-products cannot be denied, the demand was unsustainable. The appeal was allowed.

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Issues Involved:
1. Applicability of Explanation 1 to Rule 6(1) of the Cenvat Credit Rules, 2004.
2. Classification of Sulphuric Acid as a by-product or exempted goods.
3. Validity of demands for reversal of Cenvat credit under Rule 6(3) of the Cenvat Credit Rules, 2004.

Summary of Judgment:

1. Applicability of Explanation 1 to Rule 6(1) of the Cenvat Credit Rules, 2004:
The department argued that post 01.03.2015, Sulphuric Acid should be considered as "exempted goods" due to Explanation 1 inserted to Rule 6(1) of the Cenvat Credit Rules, 2004, and the Board Circular dated 25.04.2016. This explanation included "non-excisable goods cleared for a consideration" within the ambit of "exempted goods." However, the Tribunal noted that Sulphuric Acid is specified in the Central Excise Tariff and subjected to excise duty when not cleared to fertilizer manufacturers. Therefore, it cannot be termed "non-excisable goods," making the explanation irrelevant in this case.

2. Classification of Sulphuric Acid as a by-product or exempted goods:
The appellant contended that Sulphuric Acid is a by-product in the manufacture of copper cathodes, as established by the Supreme Court in Union of India Vs. Hindustan Zinc Ltd. The Tribunal agreed, stating that by-products emerging unavoidably during the manufacture of another product cannot be considered consciously manufactured goods. The production of Sulphuric Acid, being a by-product, does not qualify as the manufacture of exempted goods.

3. Validity of demands for reversal of Cenvat credit under Rule 6(3) of the Cenvat Credit Rules, 2004:
The Tribunal examined Rule 6 and noted that the obligation to reverse Cenvat credit applies to inputs used in the manufacture of exempted goods. Since Sulphuric Acid is a by-product and not consciously manufactured, the demand for reversal of 6% of its value under Rule 6(3)(i) is not sustainable. The Tribunal referenced CBEC's manual and various judgments supporting that Cenvat credit is admissible for inputs used in by-products, waste, or refuse.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's appeals, concluding that Sulphuric Acid, being a by-product, does not necessitate reversal of Cenvat credit under Rule 6. The cross-objection was also disposed of.

Pronounced in the open court on 02.11.2023.

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