Treatment of by-product coal tar in Cenvat credit claims found not liable for reversal under Rule 6(3); appeal allowed

Issue concerns whether Cenvat credit attributable to coal tar, generated incidentally during coal gas production, must be reversed under Rule 6(3) of the Cenvat Credit Rules. Tribunal reasoning: where by product generation is a technically inevitable consequence and the quantity of inputs required for dutiable final products remains unchanged, no specific input is used for the by product and Rule 6(3) does not apply. Outcome: credit need not be reversed for the coal tar and the impugned proceedings/orders are set aside, allowing the appeal with consequential relief.

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Issues: Whether the appellant is liable to reverse Cenvat credit attributable to 'coal tar' which emerged as an unintended by-product in the process of manufacture of refractory products and whether Rule 6(3) of the Cenvat Credit Rules, 2004 applies.

Analysis: The question concerns applicability of Rule 6 of the Cenvat Credit Rules, 2004 where a by-product (coal tar) emerges incidentally during generation and cleaning of coal gas used as fuel for manufacture of dutiable refractory goods. The Tribunal applied the principle that where generation of a by-product is an inevitable technical necessity and the quantity of inputs required for manufacture of the dutiable final product does not change, it cannot be said that inputs have been used for manufacture of the by-product. The Tribunal relied on precedents establishing that in such circumstances the conditions of Rule 6(3) are not attracted and no proportionate reversal of credit is required. The Tribunal also noted that no input was specifically used to produce the coal tar and that the proceedings originated from Circular No.904/24/09-CX which was later withdrawn by Circular No.1027/15/2016-CX.

Conclusion: Rule 6(3) of the Cenvat Credit Rules, 2004 is not applicable and the appellant is not required to reverse any Cenvat credit attributable to the generation of coal tar; the impugned demand, penalty and related proceedings are set aside and the appeal is allowed.

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