Tribunal Supports Modvat Credit Use for By-Products, Overrules Order Against Hindustan Zinc Ltd. on Sulphuric Acid Production.

The Tribunal ruled in favor of the appellant, M/s. Hindustan Zinc Ltd., allowing the appeal and setting aside the impugned order. It concluded that Modvat credit on LDO used in the production of Sulphuric Acid, an exempted product, should not be denied. The Tribunal distinguished between by-products and exempted products, determining that the use of Sulphur Di-oxide, a by-product, to make Sulphuric Acid did not involve direct use of modvatable inputs in the manufacture of exempted products, thus supporting the appellant's position.

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Issues involved: Whether M/s. Hindustan Zinc Ltd. is eligible to avail Modvat credit on LDO used in the manufacture of exempted Sulphuric Acid.

Summary:
The appeal filed by M/s. Hindustan Zinc Ltd. raised the issue of eligibility for Modvat credit on LDO used in the production of Sulphuric Acid exempt from Central Excise duty. The appellant argued that Sulphuric Acid is a by-product and cited precedents supporting the allowance of credit for inputs used in the manufacture of final products even when by-products are generated. The Revenue contended that Sulphuric Acid is a separate product, not a by-product, and therefore, Modvat credit should be denied as per Rule 57C. The Tribunal considered the arguments and relevant rules.

The Tribunal noted that LDO was used in the Smelting operations for manufacturing zinc and lead, resulting in the generation of Sulphur Di-oxide as a by-product. Rule 57D(1) stipulated that credit shall not be denied if inputs are part of a by-product. While Sulphuric Acid was consciously produced, it was held that LDO did not directly contribute to its manufacture. The Tribunal distinguished between by-products and exempted products, emphasizing that using Sulphur Di-oxide to make Sulphuric Acid did not equate to using modvatable inputs in the production of exempted products. Precedents were cited to support this interpretation, highlighting that the marketability of by-products is not a decisive factor. Consequently, the Tribunal ruled in favor of the appellant, setting aside the impugned order and allowing the appeal.

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