Rule 57CC and by-products in continuous manufacture were referred to a Larger Bench amid conflicting Bench views.

Rule 57CC was analysed as applying where Modvat inputs are used directly or indirectly in a continuous manufacturing process producing both dutiable and exempted or nil-rated outputs, without distinguishing intended final products from by-products. Arguments based on Rule 57B and Rule 57D were treated as inapplicable to a demand under Rule 57CC. However, because an earlier coordinate Bench had taken a contrary view on whether the rule extends to by-products, the issue was not finally settled on merits and was referred to a Larger Bench for determination.

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Issues: Whether Rule 57CC of the Central Excise Rules, 1944 applies to by-products or intermediate products emerging in a continuous manufacturing process and cleared at nil rate of duty, and whether the question should be referred to a Larger Bench in view of an earlier contrary decision.

Analysis: The inputs on which Modvat credit had been taken were used in a continuous and uninterrupted process leading to emergence of products cleared without duty. The rule was read as applying where inputs are used directly or indirectly in or in relation to the manufacture of both dutiable and exempted or nil-rated final products, and no distinction was found in the rule between intended final products and by-products. The arguments based on Rule 57B and Rule 57D were held inapposite for the demand under Rule 57CC. However, since an earlier coordinate Bench decision had taken a different view on the applicability of Rule 57CC to by-products, the matter required consideration by a Larger Bench.

Conclusion: The issue was not finally answered on merits and was referred to a Larger Bench for determination.

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