2004 (2) TMI 266 - AT - Central Excise

Tribunal Rules Calphor By-Product Exempt from 8% Payment, Upholds Modvat Credit Protection for Gelatin Manufacturers.

The Tribunal set aside the impugned order, ruling in favor of the company. It determined that Calphor, emerging as a by-product during gelatin ... Cenvat/Modvat - Credit adjustment - manufacture of gelatin at the very first stage - both dutiable final products as well as exempted product - Whether they are liable to pay an amount equal to 8% of the price of exempted product Calphor emerging during the process of manufacture of their final product gelatin - HELD THAT:- It is not the case of the Revenue that the inputs which are brought for the manufacture of gelatin are also used simultaneously in the manufacture of both gelatin and Calphor. It is only a by-product mother liquor which arises in the course of manufacture of gelatin is used separately for manufacturing Calphor. It, therefore, can not be stated that the inputs are used in the manufacture of both dutiable and exempted products. Similar situation was considered by the Tribunal in the case of Hi Tech Carbon [2003 (3) TMI 238 - CEGAT, NEW DELHI] by the learned Advocate. In the said case the final product of the Appellant was carbon black for the manufacture of which they were bringing inputs namely carbon black feed stock which was subjected to process of thermal cracking which resulted in generation of carbon black in particle form and off gases or lean gases. The Appellants therein were burning carbon monoxide content, which as a result generate the said off gases, which have been used for reason of anti-pollution laws, which result in generation of heat which was used further in the manufacturing process or was utilized for generation of high pressure steam as a by-product in the factory. The Revenue has denied the Modvat credit on the inputs used in the manufacture of steam as steam was exempted from payment of duty. The Tribunal has held that the generation of off gases is nothing but a by-product in the process of manufacture of carbon black and no doubt the steam has been generated by the Appellants as conscious act but it cannot be claimed by the Revenue that any part of the inputs, that is Carbon black feed stock, has been used in the manufacture of steam. The Tribunal also had referred to the decision in the case of Aarti Drugs Ltd. v. Commissioner of Central Excise,[2001 (4) TMI 146 - CEGAT, MUMBAI] wherein it has been held that the provisions of Rule 57CC would not apply in the case of by-product. The issue involved in the present Appeal is not whether Calphor is an excisable product or not, the issue involved is whether the inputs in respect of which Modvat credit has been availed of has been used in the manufacture of Calphor and whether the Appellants are liable to pay an amount equal to 8% of the price of Calphor under Rule 57CC. We, therefore, hold that inputs, in respect of which Modvat credit has been taken, have not been used by the Appellants in the manufacture of a product which attracts nil rate of duty. We, therefore, set aside the impugned order and allow the Appeal. Issues involved: Whether the company is liable to pay 8% of the price of exempted product Calphor emerging during the manufacture of their final product gelatin.Details of the Judgment:1. The company argued that Calphor is a by-product emerging during the gelatin manufacturing process, attracting nil rate of duty. They claimed Modvat credit on inputs as per Rule 57D and Cenvat Credit. They cited precedents where Rule 57CC did not apply to by-products under Rule 57D.2. The Revenue contended that Calphor is consciously manufactured by the company and not a by-product. They referenced legal cases indicating that regular production and sale of subsidiary products suggest an intention to manufacture and sell them, making them liable for 8% payment under Rule 57CC.3. The Tribunal observed that mother liquor, a by-product, emerges during gelatin manufacture, which is then treated to produce Calphor. Rule 57D protects Modvat credit on inputs contained in by-products. The Tribunal clarified that Rule 57CC applies only if inputs are used in both dutiable and exempted products simultaneously, which was not the case here.4. Referring to a similar case, the Tribunal emphasized that the mere use of by-products in a separate manufacturing process does not make the inputs liable for 8% payment. They highlighted that the issue was not the excisability of Calphor but whether the inputs were used in its manufacture. Consequently, the Tribunal set aside the impugned order and allowed the Appeal.