Common parlance classification of spent sulphuric acid and Modvat credit on input acid upheld for the assessee.

Spent sulphuric acid emerging as a by-product in the manufacture of nitrobenzene and acid slurry was held not to answer the common parlance meaning of sulphuric acid under Chapter 28 because it contained only about 51% to 60% acid and lacked the characteristics of commercial sulphuric acid. As a distinct residue or by-product, and being sold and used as a separate chemical in fertilizer manufacture, it was classified under Heading 3823.00 as a chemical product. On the Modvat issue, credit on duty-paid sulphuric acid input could not be curtailed or reversed merely because only part of the input was chemically consumed in the sulphonation reaction; the assessee remained entitled to the credit.

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Issues: (i) whether spent sulphuric acid emerging as a by-product in manufacture of nitrobenzene and acid slurry was classifiable as sulphuric acid under Chapter 28 or as a chemical product under Heading 3823.00; (ii) whether Modvat credit taken on sulphuric acid used as input could be restricted or reversed on the footing that only the concentrated sulphuric acid actually consumed in the sulphonation reaction was eligible.

Issue (i): whether spent sulphuric acid emerging as a by-product in manufacture of nitrobenzene and acid slurry was classifiable as sulphuric acid under Chapter 28 or as a chemical product under Heading 3823.00

Analysis: The product contained only about 51% to 60% sulphuric acid and lacked the characteristics of commercial sulphuric acid, which is ordinarily far more concentrated and known in trade as sulphuric acid. Applying the common parlance approach, the product could not be treated as sulphuric acid under Chapter 28. Since it emerged as a by-product or residue during manufacture and was also sold and used in fertilizer manufacture, it was a distinct chemical product falling under Heading 3823.00.

Conclusion: The product was not classifiable as sulphuric acid under Chapter 28 and was classifiable under Heading 3823.00.

Issue (ii): whether Modvat credit taken on sulphuric acid used as input could be restricted or reversed on the footing that only the concentrated sulphuric acid actually consumed in the sulphonation reaction was eligible

Analysis: Once the spent acid was held to be a separate by-product and not the same as the input sulphuric acid, the credit on duty paid input could not be denied or curtailed on the reasoning that only a part of the input had been chemically consumed. The provisions governing reversal of credit were held inapplicable on these facts, and the assessee remained entitled to the credit already taken.

Conclusion: The Modvat credit could not be restricted or reversed, and the assessee was entitled to the benefit of the credit.

Final Conclusion: The common order upheld the classification of spent sulphuric acid as a distinct chemical product and sustained the assessee's entitlement to Modvat credit on the input sulphuric acid, while the connected appeals were dismissed.

Ratio Decidendi: A by-product containing a substantially lower percentage of sulphuric acid than commercial sulphuric acid, and not known in trade as sulphuric acid, is classifiable as a distinct chemical product under the residuary chemical heading, and Modvat credit on the original input cannot be curtailed merely because part of that input is transformed in manufacture.

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