TaxTMI 
TaxTMI 
2014 (5) TMI 253
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.... may be reflected by pointing out that the questions for consideration are as to the entitlement of the Respondents/ assessees to Modvat/ Cenvat Credit for the use of inputs in the manufacture of final products which are exempt or subject to nil rate of duty and the requirement of the assessee to maintain separate accounts with respect to inputs used in dutiable goods as well as exempted goods and the liability arising on the failure of the assessee to maintain such separate accounts. In Civil Appeal Nos. 8621-8630 of 2010, we are concerned with sulphuric acid. In Civil Appeal No. 8631 of 2010, it is caustic soda flakes and trichloro ethylene. In Civil Appeal No. 2337 of 2011, the product is again sulphuric acid and in the case of Civil Appeal No. 5322 of 2010 and the other connected matter of M/s Rallis India Ltd, it is Phosphoryl A and Phosphoryl B. The issue is as to whether the Assessees (respondents) are entitled to Modvat/ Cenvat Credit on inputs used in the manufacture of the aforementioned exempted (or subject to NIL rate of duty) final products. 3.In all these appeals filed by the Revenue, it has taken the position with the common contention as to whether the Respondent....
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....rice to the farmer should be at the lowest. In fact, the government grants subsidies to the fertilizer plants for the difference between the cost of production and sale price determined by the government. It was their defence that any duty demand on the sulphuric acid will defeat the very purpose of grant of exemption and make the fertilizer cost higher than the desirable level. In such a scenario, such higher cost will have to be compensated by the government as subsidy. iv) Respondent challenged the show cause notices by filing writ petitions under Article 226 before the Rajasthan High Court, primarily challenging the vires of Rule 57 CC on the ground that the Central Government by subordinate legislation, can not fix rates of duties which is the prerogative of the Parliament under Section 3 of the Central Excise Act, 1944 read with Central Excise Tariff Act, 1975. Other contentions regarding the vires of Rule 57 CC were also raised. As an alternative, it was pleaded that even if Rule 57 CC is to be held as intra vires, the demand raised in the show cause notices will not survive on proper interpretation of Rule 57CC of the Rules and hence is to be quashed. The High Court deci....
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..... Gelatin is produced by reacting Hydrochloric Acid with bovine animal bones. During the reaction, the bone converts into ossein which in turn is used to produce gelatin. The inorganic substances like phosphorous etc. are washed with water which is called mother liquor, spent liquor or phosphoral liquor. When these by-products and waste products are cleared without payment of duty, the Excise Department demanded duty @ 8% in terms of Rule 57 CC. Here again, whether the mother liquor is a waste product or by-product was not disputed by the Department before the Tribunal or before the Bombay High Court. The Tribunal decided the matter against the assessee by interpretating Rule 57 CC. The same was challenged before the Bombay High Court, which has reversed the decision of the Tribunal. The Department is in appeal against the decision of the High Court. The aforesaid narration discloses the identity of the issue in the three set of appeals. Henceforth, in our discussion, reference would be to the Hindustan Zinc Ltd., as the respondent. 5.The respondent herein is a Public Limited Company and it was disinvested in April, 2002. The respondent is engaged in the manufacture of non-fe....
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....sions of the Rules if common inputs were used for the manufacture of dutiable final product and exempted goods. It was also contended that assuming without admitting that Sulphuric Acid is by-product, it was mandatory to reverse an amount equal to 8% of the value of exempted goods as the words used in the provisions of Rule 6 of the Rules "is exempted goods and not exempted final product". By way of preliminary submission, it was pleaded that the Writ Petition is pre-mature and the assessee had not even replied to the show cause notice. 8.The High Court after examining the manufacturing process as well as Rule position, came to the conclusion that prohibition against claiming Modvat Credit on exempted goods or subject to nil rate of duty applies in case where such exemption from payment of duty or nil rate of duty on end product is predictably known at the time the recipient of inputs is entitled to take credit of duties paid on such inputs. The fact that due to subsequent notification or on contingency that may arise in future, the end product is cleared without payment of duty due to exemption or nil rate of duty does not affect the availing of modvat credit on the date of ent....
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...., though on the basis of bonds posted by the fertilizer plants, but nonetheless, the goods are cleared under total exemption or nil rate of duty and hence 57CC is attracted. It is their contention that Rule 57 D has no application. 13.Since the answer depends on the question as to whether Rule 57CC applies or Rule 57D is attracted, as well as on the correct interpretation of these Rules, we reproduce these rules, at this juncture:- Rule 57CC - "Adjustment of credit on inputs used in exempted final products or maintenance of separate inventory and accounts of inputs by the manufacturer, (1) Where a manufacturer is engaged in the manufacture of any final product which is chargeable to duty as well as in any other final product which is exempt from the whole of the duty of excise leviable there on or is chargeable to nil rate of duty and the manufacturer takes credit of the specified duty on any inputs (other than inputs used as fuel) which is used as ordinarily used in or in relation to the manufacture of both the aforesaid categories of final products, whether directly or indirectly and whether contained in the said final products or not, the manufacture shall, unless the p....
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.... used as flue) which are used in or in relation to the manufacturer of any goods, which are exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty, the manufacturer shall maintain separate inventory and accounts of the receipt and use of inputs for the aforesaid purpose and shall not take credit of the specified duty paid on such inputs." Rule 57D - "Credit of duty not to be denied or varied in certain circumstances - (1) Credit of specified duty shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse or by-product arising during the manufacture of the final product, or that the inputs have become waste during the course of manufacture of the final product, whether or not such waste or refuse or by-product is exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty or is not specified as a final product under Rule 57A." 14.Mr. Parasaran, the learned Solicitor General, opened his submissions by challenging the very approach of the High Court in entertaining the writ petitions as according to him, stage therefor had not ripened. His contention in this beha....
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....ounsel appearing for the respondent while explaining the manufacturing process in detail, also pointed out that the ore concentrates (Zinc or Copper) are completely utilised for the production of zinc and copper and no part of the metal, zinc or copper forms part of the sulphuric acid which is cleared out. It was submitted that the extraction of zinc from the ore concentrate will inevitably result in the emergence of sulphur dioxide as a technological necessity. It is not as though the Respondents can use lesser quantity of zinc concentrate only to produce the metal and not produce sulphur dioxide. In other words, a given quantity of zinc concentrate will result in emergence of zinc sulphide and sulphur dioxide according to the chemical formula on which respondents have no control. 18.On these facts this court is inclined to accept the version of the respondents that the ore concentrate is completely consumed in the extraction of zinc and no part of the metal is forming part of sulphuric acid. 19.Once we proceed keeping in mind the aforesaid factual, technological and commercial position available on the records, it has to be accepted that the respondents have consumed the en....
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.... the other exempt, the provisions will apply. The question of intention of the assessee to manufacture the exempted product is not relevant. It may be intended or unintended but if what results in the course of a manufacturing process is a "final product" falling within the meaning of the said provisions, the provisions will apply in full with the attendant consequences. He also argued that Rule 57D uses the words 'waste and refuse' alongwith "by-products". The word 'by-product' will necessarily have to take its colour and meaning from the accompanying words "waste and refuse". "By-products" cannot, in any event, mean "final products". This Rule only means that Modvat Credit cannot be denied on the ground that in the course of manufacture, non excisable goods also arise. 22.Elaborating this contention, the learned Solicitor General submitted that the words "final products" in the context of Modvat and Cenvat Credit have to be understood giving the meaning as assigned to it in the Modvat/ Cenvat Rules. Rule 57A inter alia states that the provisions of this Section shall apply to such finalised excisable goods (referred to in that section as final products). Again,....
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.... already explained above and the reasons afforded by us, we express our inability to be persuaded by these submissions. We have already noticed above that in the case of Birla Copper (C.A. No. 2337 of 2011) the Tribunal has decided the matter following the judgment in the case of Swadeshi Limited (supra). In that case, Ethylene Glycol was reacted with DMT to produce polyester and ethanol. Methanol was not excisable while Polyester Fibre was liable to excise duty. Credit was taken of duty paid on ethylene glycol wholly for the payment of duty on polyester. The department took a position that Ethylene Glycol was used in the production of Methanol and proportionate credit taken on ethylene glycol was to be reversed. This Court ruled that the emergence of Methanol was a technological necessity and no part of ethylene glycol could be said to have been used in production of Methanol and indeed it was held that the total quantity of ethylene glycol was used for the production of polyester. The fact in all these three appeals appear to be identical to the facts and the law laid down in Swadeshi Polytex (supra). Therefore, this judgment is squarely applicable. 26.Furthermore, the prov....