Common input credit reversal applies to exempted by-products cleared at nil rate, not just intended final products.

Rule 57CC of the Central Excise Rules, 1944, read with Rule 6 of the Cenvat Credit Rules, 2002, applies where common inputs are used to manufacture both dutiable and exempted final products, even if the exempted goods arise as by-products. The provision does not distinguish between an intended final product and an exempted by-product. Credit taken on inputs used in relation to Phosphoryl A and B was treated as covered because those goods were excisable, though cleared at nil rate. Rule 57D was held to protect credit only for waste, scrap, or by-products that are not excisable at all, not for exempt excisable products. Accordingly, 8% of the value of the exempted product is payable.

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Issues: Whether 8% of the value under Rule 57CC of the Central Excise Rules, 1944, read with Rule 6 of the Cenvat Credit Rules, 2002, is payable when exempted Phosphoryl A and B emerge in the course of manufacture and are claimed to be by-products.

Analysis: The applicability of Rule 57CC turns on whether common inputs are used in the manufacture of both dutiable and exempted final products. The rule does not distinguish between an intended final product and an exempted by-product. HCL was held to be used in relation to the manufacture of Phosphoryl A and B, which are excisable goods cleared at nil rate of duty. Rule 57D was held to protect credit only where waste, scrap or by-products are not excisable at all, and not where the emergent product is an excisable exempt product. The earlier view denying applicability to exempt by-products was not accepted.

Conclusion: Rule 57CC applies and 8% of the value of the exempted product is payable. The reference is answered in favour of the Revenue.

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