TaxTMI 
TaxTMI 
2004 (4) TMI 569
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.... Ltd., hereinafter referred to as '(SIIL or the assessee)' are registered with the Central Excise Department vide R.C. No. 12/TTN/CITY/95 and are engaged in the manufacture of Copper Anode falling under Chapter 7402 of the First Schedule to the Central Excise Tariff Act, 1985. They avail the benefit of Cenvat/Modvat credit. The principal raw material used for the manufacture of Copper Anode is Copper Concentrate which is imported from various countries. The copper anode so manufactured at their unit at Tuticorin is cleared on payment of Central Excise duty to their own unit situated at Silvasa, where the Copper anode is converted into Copper Cathode and other finished products such as Copper rods/wires and are sold. During the course of manufacture of Copper anode at the Tuticorin unit, two by-products namely Sulphur-di-oxide and granulated slag emerge. The manufacturing process does not come to an end at that stage and in the continuous and integrated process of manufacture, sulphur-di-oxide is further used in the manufacture of Sulphuric acid falling under Tariff Heading 2807 of the First Schedule to the CETA, 1985. A portion of the sulphuric acid is further used captively in the....
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.... by circulating sulphuric acid in the absorption towers and the product sulphuric acid is pumped to the storage tank. After the sulphur-di-oxide is received through the gas duct into the mixing chamber and later the drying tower, the inputs such as caustic soda flakes, ferric sulphate, ferric chloride, Indion, Magnafloc and other chemicals are added in the process for the sulphur-di-oxide to become sulphuric acid. This sulphuric acid is cleared from the factory to various buyers which include fertilizer unit. Appellants pay 16% duty on Sulphuric Acid for sale to independent buyers whereas when the same are cleared to fertilizer units for manufacture of fertilizers, these are removed without payment of duty under Chapter X Procedure read with Central Excise (Removal of Goods) at Concessional Rate of Duty for Manufacture of Excisable Goods Rules, 2001 read with Notification No. 3/2001, dated 1-3-2001 and No. 6/2002, dated 1-3-2002, respectively. A portion of sulphuric acid is captively consumed in the manufacture of phosphoric acid by reacting with rock phosphate. The process of manufacture consists of reacting rock phosphate and sulphuric acid in three reactors. The temperature of t....
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....ate" is primarily the input for manufacture of copper anode, during which sulphur-di-oxide emerges as by-products which in turn is used for manufacture of sulphuric acid and phosphoric acid in the integrated plants located within the factory premises. The credit availed for copper concentrate is utilised by the appellants to pay the duty of excise on all the final products. Therefore, copper concentrate is the basic input used in or in relation to the manufacture of sulphuric acid and phosphoric acid inasmuch as without the copper concentrate these two gases cannot be produced. The other inputs used in or in relation to the manufacture of final products are ferric sulphate, ferric chloride, Indion, Magnfloc, Caustic soda flakes. 3.3 The sulphuric acid is captively consumed in the manufacture of phosphoric acid which is partly cleared without payment of duty for manufacture of fertilizer products, under Chapter X Procedure, etc. as well as cleared at the factory gate on payment of duty. Therefore, the appellants should have maintained a separate inventory and accounts for the receipt and use of above-said inputs namely, Copper Concentrate, Ferric Sulphate, Ferric Chloride, Indion....
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....e was held to be not maintainable. 4. The department has preferred two appeals and has come in appeal against the orders of the Commissioner (Appeals) whereby the Commissioner has set aside the two separate orders of the original authority and allowed the appeal of the assessees relying on the decision of the Tribunal in the case of Aarthi Drugs Ltd v. CCE, reported in [2001 (133) E.L.T. 385 (Tri.) = 2001 (45) RLT 213]. The facts in the Revenue appeals are similar. The period involved in Appeal No. E/450/02 is 4/2000 to 8/2000 and in Appeal No. E/451/2002 is 1/2000 to 3/2000. 5. The matter was finally heard on 5-12-2003. After the hearing was over, learned Counsels Shri N. Venkataraman and Shri S. Muthu Venkataraman for the appellants submitted a written submission on 10-12-2003 which was taken on record. Shri V.T.K. Nayanar, Jt. CDR along with Smt. R. Bhaghya Devi, SDR also submitted Synopsis on 12-12-2003, of the oral submissions they had made, in the Court on 5-12-2003. This has also been taken on record. 6. Shri N. Venkataraman and Shri Muthu Venkataraman, learned Counsels appearing for the appellants on 5-12-2003 referred to the grounds of appeal and also to the writt....
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....various chemicals such as ferric sulphate, ferric chloride, indion, magnfloc, caustic soda flakes and other chemicals is processed into sulphuric acid and portion of this sulphuric acid is treated with rock phosphate to manufacture phosphoric acid. (f) No Modvat credit whatsoever has been availed on any of the inputs employed in the sulphuric acid plant and phosphoric acid plant while processing sulphur-di-oxide into sulphuric acid or while processing sulphuric acid into phoshporic acid. In other words, inputs required for sulphuric acid are waste gas in the form of Sulphur-di-oxide and duty paid inputs like ferric sulphate, ferric chloride, indion, magnfloc, caustic soda flakes and other chemicals against which no Cenvat credit has been taken. This aspect has been clearly verified and certified by Jurisdictional Supdt. of Central Excise of the appellants and certificate dated 19-9-2003 is enclosed. (g) The entire process activity is two fold : (i) Employment of duty paid copper concentrate in the smelter for the manufacture of dutiable copper anodes during which process sulphur-di-oxide em....
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.... to prevent methanol from arising for producing a certain quantum of polyester fibre. Thus the quantity of ethylene glycol required to produce a certain quantum of polyster fibre is determined by the chemical reaction. It may be mentioned herein that it is not as if the appellants have used excess ethylene glycol wontedly to produce the methanol. It is clear that the appellants are not engaged in the production of methanol but in the production of polyester fibre. The Tribunal erred when it held that appellants were not entitled to a part of the credit of the duty since ethylene glycol when it reacts with DMT also gives rise to Methanol. Scenario under the Modvat Regime between 1-3-86 to 2. 3-9-94 : Bearing the spirit of the decision of the Supreme Court in Swadeshi Polytex the lawmakers when they introduced Modvat Scheme, brought into force a specific provision in the form of Rule 57D (1) of the Central Excise Rules which reads as under: Credit of specified duty allowed in respect of any inputs 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, whethe....
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....f the Central Excise Rules and do not fall within the rigors of Rule 57C and attempts made by the Department to invoke Rule 57C fail. Scenario after 4-9-96 Introduction of Rule 57CC Rule 57C did not allow credit on inputs used in the manufacture of final products if the final product is exempt from the whole of duty of excise or chargeable to nil rate of duty. Occasions arose wherein a manufacturer could be engaged both in the manufacture of dutiable final products and exempted final products using duty paid common inputs. Since Rule 57C did not allow credit on inputs used in exempted final product, manufacturers had to reverse the corresponding input duty on such inputs used in the manufacture of exempted final products. This exercise was also approved by the Supreme Court in the case of Chandrapur Magnet Wires Private Ltd. v. Collector, 1996 (81) E.L.T. 3 (S.C.) wherein the Court was pleased to hold "The manufacturer may take credit of duty paid on all the inputs used in the manufacture of final product on which duty will have to be paid. This can be done only if the credit of the duty paid on the inputs used in the exempted products is debited in the credit account befo....
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....r, the purport of introducing Rule 57CC was to only cover such cases which were falling under erstwhile Rule 57C in the form of reversal of input credit as approved by the Supreme Court in the case of Chandrapur Magnet Wires Private Ltd. In other words, Rule 57CC was introduced to regulate the mechanism involving such manufacturers employing duty paid common inputs in the manufacture of dutiable final products and exempted final products. It in no way substituted or deleted or replaced or modified Rule 57D of the Central Excise Rules. This Rule continues to exist in the Statute book in the form of 57D till 31-3-2000. At the time of introduction of the Cenvat Regime, a provision similar to Rule 57D was not introduced. This gave rise to a lot of doubts. At this juncture, the Hon'ble Central Board of Excise and Customs was pleased to clarify that Cenvat rules and procedures are actually a simplified mechanism. It in no way would take away the right to retain the input credit contained in by-products, waste and refuse and this position was clarified by the Board vide its circular No. B-4/7/2000-TRU, dated 3-4-2000 (para 5). The purport of rule 57cc, rule 57ad and rule 6 of the cenva....
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....id common inputs used in the manufacturing streams of exempted and dutiable final products. A comparison was made between Rule 57CC vis-a-vis Rule 57D and Board Circular dated 3-4-2000 and submitted the following: In short, the contingencies conceived under Rule 57CC, Rule 57AD, Rule 6 of the Cenvat Rules and those conceived under Rule 57D and later by the Board circular dated 3-4-2000 under the Cenvat Regime are to meet different contingencies. There is no overlapping of the provisions. They are distinct and separate to serve different purposes. As referred above, Rule 57CC/57AD/Rule 6 of the Cenvat Rules can be invoked only in such cases where the inputs are separable and usable or capable of being used separately in two independent streams of manufacture namely dutiable and exempted final products per contra Rule 57D or Board Circular dated 3-4-2000 do not cover such contingencies. They cover only such cases where inputs are employed wholly and entirely in the manufacture of dutiable final products in the course of which by-product, waste or refuse may emerge and a portion of the inputs may get contained in the by-product, waste or refuse. To put it in other words, the mot....
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....hould either maintain separate accounts and restrict availment of credit on 30 kgs or avail credit on the entire 100 kgs and pay an amount equivalent to 8% on the clearance of B. Situation 2 - Availment of credit on 100 Kgs of inputs of copper concentrate. Entire 100 kgs are employed in the manufacture of dutiable final product namely copper anode. During which process sulphur-di-oxide as a non-excisable by-product emerge. In terms of the decision of the Supreme court in Swadeshi Polytex it is not possible to use lesser quantity of copper concentrate to manufacture the required quantity of copper anode. If this is so, the situation is covered only under the decision of Swadeshi Polytex, Rule 57D and later Board Circular dated 3-4-2000 and not Rule 57CC/57AD/Rule 6 of the Cenvat Credit Rules. 9. They also  submitted that there is no basic anomaly between the show cause proceedings and the order of the Commissioner of Central Excise. All the show cause notices issued by the Department emphatically state that sulphur-di-oxide gas is an intermediate product and is captively consumed in the manufacture of sulphuric acid and phosphoric acid, respectively, whereas the order of ....
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....d later Board Circular dated 3-4-2000 is "inputs contained in any waste, refuse or by-products". Rule 57D nowhere employs the expression "used in the manufacture" or "used in or in relation to manufacture". The expression "contained" has so much significance. When inputs are used in or in relation to manufacture of final products, waste, by-product or refuse may emerge and these waste, by-product or refuse may contain duty paid inputs. Nobody manufactures by-product, waste or refuse. They occur naturally in the process systems in the course of manufacture of respective final products and therefore it is self evident that whenever final products are to be produced, Central Government has employed the expression "used in the manufacture" or "used in or in relation to manufacture". And whenever it does involve any manufacturing process but a natural occurrence Central Government has employed the expression "inputs contained in waste, refuse or by-product". 10. Relating  the legal position to the facts of the case they submitted that it is clear that copper concentrate besides copper contains several impurities including sulphur. When copper concentrate is treated with oxygen i....
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....osphoric acid by stopping the production of copper anode by employing copper concentrate. To the contrary, appellants can very well employ copper concentrate and allow the waste sulphur-di-oxide in the air if permitted and need not produce sulphuric acid or phosphoric acid. Also for this reason, it can be submitted that copper concentrate is not an input for sulphuric acid or phosphoric acid. 12. Appellants  placed reliance on the following case laws in addition to the submissions made above in support of their contention: (i) Swadeshi Polytex Limited v. Commissioner of Central Excise - 1989 (44) E.L.T. 794 (S.C.) This was a decision rendered under the proforma regime (set off duty on inputs) wherein provision similar to Rule 57D which permits retention of Modvat credit on inputs even if the same is used in the manufacture of dutiable final products and emergence of by-products, waste or refuse is not to be denied. (Para 20) "It is clear that the Tribunal should have held that even though a part of ethylene glycol was contained in the by-product methanol, yet the credit of duty cou....
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....ailed were employed only in the manufacture of sugar and not in the manufacture of pressmud which emerges as a natural non-excisable by-product * These chemicals cannot be stated to be used in the emergence of pressmud * In the circumstances, Rule 57CC is inapplicable and 8% amount cannot be demanded on biomanure. Applying the facts and ratio of the present case * Duty paid copper concentrate is employed only in the manufacture of copper anode and sulphur-di-oxide as a non-excisable by-product emerge the similarity being sugar and pressmud. * This sulphur-di-oxide is further processed with various other chemicals on which no credit is availed into sulphuric acid and phosphoric acid the similarity being pressmud and effluent water being further processed into biomanure. * Sulphuric acid and phosphoric acid cleared to fertiliser units are not liable to Central Excise duty the similarity being biomanure falling under 3105 is chargeable to nil rate of duty. * ....
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....no definite finding entered by the Commissioner in this case as to whether burnt dolomite, coal tar and ammonium sulphate are by-products in the manufacturing process undertaken by the appellants". Appellants submit neither the referring order reported in 2002 (141) E.L.T. 695 nor the Larger Bench decision of the referring order reported in 2002 (143) E.L.T. 442 applies to the facts of the case. The reason being : * The Larger Bench has observed that the Commissioner has not given a definite finding as to whether the items under question are by-products whereas the Commissioner in the present case has clearly held that sulphur-di-oxide is a by-product. The same is the position in the case of Aarti Drugs. * When the finding of facts are not clear, question of differing or referring to Larger Bench would not arise. * In any view, Larger Bench has not spelt any view on the matter referred and has remanded it as sought for by the appellants claiming some other benefit through a separate Board Circular. * &....
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....ded by this Tribunal in the matter of EID Parry Limited - 2004 (176) E.L.T. 734 (T) and are totally distinct to GTC India. Furthermore, in the case of GTC appellants did not comply with the procedure contemplated under Rule 57 F18 of the Central Excise Rules. It is a settled law under Modvat that if duty paid inputs are used in the manufacture of finished goods, during which process waste or scrap emerge such waste and scrap should be cleared on payment of duty. This is a simple balancing act for having availed credit. GTC India did not pay duty on dust and winnowings in terms of Rule 57F18 for having used duty paid inputs and cleared the same under 2401.10 claiming nil rate. To put it more precisely, * Credit was availed on cut tobacco * It was used in the manufacture of Cigarettes and dust and winnowings. * Dust and winnowings as scrap should be cleared on payment of duty under Rule 57F18 which GTC did not do so. * They claimed nil rate of duty benefit under 2401.10. * Under such circumst....
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....002 appellants have not taken any input credit on any of the inputs such as' water treatment chemicals, magnafloc, ferric chloride, ferric sulphate, caustic soda flakes, deformer, sodium silicate, hydrogen hydrade, active silica, spak and maxtreat. The certificate confirms having verified the same with RG23A Part II register. No credit has been availed on any of these inputs except maxtreat but this input has been used only in the smelter and not in the sulphuric acid/phosphoric acid plants. In other words, certificate confirms that no credit has been taken on any of the inputs employed in the sulphuric acid/phosphoric acid plants. Finally, appellants made submissions as to how the Commissioner's findings are factually incorrect and legally not sustainable. 16. All the  show cause notices have proceeded on the footing that sulphur-di-oxide is a intermediate product used in the manufacture of sulphuric acid and phosphoric acid. However, the Commissioner of Central Excise concedes in various places of his order that sulphur-di-oxide is only a by-product. Having said so, learned authority ought to have dropped the proceedings on that score alone but still proceeded to confirm ....
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....ular after pointing out the anomalies. No orders have been passed till date. Further more, it is a settled legal principle that circulars of Board cannot be relied upon or not maintainable if the same are contrary to judicial decisions and precedence. In this connection, reference is drawn to the decision of the Hon'ble Madras Court in the case of Pioneer Miyagi Chemicals v. CBEC, 2000 (116) E.L.T. 441 (Mad). Circulars issued by the Board which runs counter to judicial pronouncements are not valid and sustainable. Reference is also drawn to the decision of the Delhi High Court in the case of Kissan Chemicals v. Union of India, 1996 (88) E.L.T. 648 and the ruling of the Hon'ble Tribunal in the case of CCE v. Bata India Limited, 2001 (138) E.L.T. 335 (Tri.-Kol.) wherein the Hon'ble Tribunal was pleased to hold that quasi judicial authorities are to decide matters independently and are statutorily protected from such instructions and can follow judgments of appellate forum instead of following such instructions. In view of the above, learned Commissioner erred in placing reliance on the Board Circular. Reliance by the learned authority on Board Circular No. 654/45/2002-CX, dated 19-8-....
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....ess of manufacture, within the same factory of manufacture. While part of the sulphuric acid is cleared on payment of duty another part is cleared without payment of duty under the Chapter X Procedure. Further, one more portion of sulphuric acid is captively used for the manufacture of phosphoric acid within the same factory premises. Part of the Phosphoric acid is cleared on payment of duty and part as exempted product. He has also referred to Rule 57AD in terms of which Cenvat credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned under sub-rule (2) thereof and in terms of Sub-rule (2) of Rule 57AD which came into effect from 1-4-2000, where a manufacturer avails of Cenvat credit in respect of any inputs, the manufacturer shall maintain separate accounts for receipt consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take Cenvat credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. The manufacturer opting not to maintai....
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....ls reported in 1995 (77) E.L.T. 42 (S.C.). (8) CCE v. Mangalore Refinery & Petrochemicals Ltd. reported in 2002 (147) E.L.T. 788. 19. Shri N.  Venkataraman filed in the Court, a further written submission on 10-12-2003, and after the matter was reserved on 5-12-2003, which are as under : The above batch of appeals were heard by the Hon'ble Tribunal on 5-12-2003 and orders reserved. During the course of argument, it was submitted that the sulphur-di-oxide gas emits as a non-excisable by-product in the course of manufacture of copper anodes out of copper concentrate. The show cause notice issued by the Revenue also concedes that "copper concentrate is melted in the ISA smelt furnace, to obtain blister copper and during the course of smelting, sulphur-di-oxide gas is obtained. Therefore, sulphur-di-oxide gas is not producd independently. It emits as a non-excisable by-product. The Joint Chief Department Representative during his arguments submitted the following : That there is a specific tariff entry for sulphur-di-oxide gas and therefore is liable to Central Excise duty. Reliance was placed on the decision of the Tribunal in the case of CC....
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....its constituents is carbon-di-oxide. The kiln gas is neither liquefied nor solidified so as to be termed as carbon-di-oxide. Even it cannot be called as compressed carbon-di-oxide as in the trade the compressed carbon-di-oxide is understood as carbon-di-oxide compressed in cylinders with pressure ranging from 1000 to 1800 lbs per square inch. The mere fact that at one stage or the other kiln gas is pressed to 40 to 45 lbs per square inch by a pump or otherwise cannot mean that it is compressed carbon-di-oxide." Reliance is also placed on the decision of the (d) Supreme Court in the case of Union of India v. Delhi Cloth and General Mills Co. Ltd. - 1997 (92) E.L.T. 315 wherein the Supreme Court was pleased to hold "Learned counsel for the appellant submitted that Tariff Entry 14AA(1) was attracted, whatever might be the further process that the calcium carbine manufactured by the respondent might have to undergo by way of purification or packaging for that would not be tantamount to further manufacture. We are unable to agree for the simple reason that the commodity which is sought to be made liable to excise duty must be a commodity that is marketable as it is and not a com....
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.... by the Environment Protection Rules as off-gases and not marketable commodities. When a statutory rule identifies the item as an emission of oxide in the form of off-gases the argument of the revenue that it is marketable sulphur-di-oxide as mentioned in the tariff is without basis and evidence and therefore liable to be dismissed. Reliance by the revenue in the case of (h) Ballarpur Industries is again out of place. The Supreme Court in the case of Ballarpur has only held that an input chemical need not be present physically in the final product and nevertheless it would still quality as an input. The issue on hand is not as to whether a particular item is an input or in the manufacturing process. The question for consideration is whether the emission of oxides of sulphur is a non-excisable by-product. In this connection, appellants reiterate and rely on the decision of the Supreme Court (para 20) which reads as under : In the premises, it is clear that the Tribunal should have held even though a part of the ethylene glycol was contained in the by-product methanol yet the credit of duty could not be reduced to the extent of the ethylene glycol contained in the methanol....
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....g sections through the main gas duct. In this section the remaining fine dust is removed and gas is cooled to 35 degree centigrade for conversion into sulphuric acid. The cleaned gas is dried by means of circulating sulphuric acid in the drying tower and the sulphur-di-oxide is converted to sulphur-tri-oxide in the catalytic converter over four beds of vanadium pentoxide catalyst. The sulphur-tri-oxide gas is absorbed by circulating sulphuric acid in the absorption towers and the product, sulphuric acid is pumped to storage tanks, a portion of which in turn is captively consumed in the manufacture of phosphoric acid by reacting with rock phosphate in the phosphoric acid plant. Sulphur-di-oxide gas and granulated slag emerges as by-products from the smelt furnaces. Sulphur-di-oxide emerging during the course of smelting of copper concentrate as an intermediate product is captively consumed in the manufacture of sulphuric acid by availing the duty exemption under notification No. 67/95, dated 16-3-95. Flow chart of the manufacturing processes submitted as Annexure-I. Inputs Used 3. The copper concentrate is the primary input for the manufacture of copper anodes durin....
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....t also contains other elements such as Gold, Silver Arsenic, Bismuth, Carbon, Lead, Zinc etc. in traces. The Latin American variety contains, Cu 32- 46 %, Fe 13-23 %, and Sulphur 33-35%. The chemical composition would indicate that copper concentrate is an ore of copper containing around 35% of sulphur and other elements such as Iron, Silver etc. in varying proportions. The most important ores of copper are Sulphide Ores such as Chalcocate (Cu2S) and Chalcopyrite (CuFeS2), from which copper is usually extracted. Sulphur-di-oxide gas is commercially prepared by roasting sulphide ores (extracts from General Chemistry - by Henry F. Holtzclaw, Jr. and William R. Robinson) [Annexure-II]. Since the assessee has cleared sulphuric acid and 5. phosphoric acid partly on payment of duty and partly as exempted products, they should have maintained separate inventory and accounts for the receipt and use of various inputs referred above. Since they have not done so and since common inputs have been used for the manufacture of dutiable as well as exempted final products, the department issued various show cause notices under the provisions of Rule 57AD (2) of the Central Excise Rules, 194....
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....cluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory". Rule 6 of the Cenvat Credit Rules, 2001, is 8. identically worded and both Rule 57AD and Rule 6 are more or less on the same lines as the erstwhile Rule 57 CC. Definitions - Rule 2 of Cenvat Credit Rules, 9. 2001. (d) "final products" means excisable goods manufactured or produced from inputs, except matches;" (f) "input" means all goods, except high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not, and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used for manufacture of final products or for any other purpose, within the factory of production". A plain reading of Rule 57AD or ....
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....input for the manufacture of copper anodes, sulphuric acid and phosphoric acid. In this regard the decision of Hon. Supreme Court in 12. the case of Collector of Central Excise v. Ballarpur Industries Ltd., may kindly be referred to. The gist of the case is reproduced below : 1989 (43) E.L.T. 804 (SC) - Collector of Central Excise v. Ballarpur Industries Ltd. The issue involved is whether set-off of duty is admissible on sodium sulphate used for chemical reaction at pulp stage by treating the same as raw material used in the manufacture of paper even if sodium sulphate is burnt up and does not retain its identity in the end product. It was held by the Apex Court that set-off of duty is available, since sodium sulphate is a essential ingredient in the chemistry of paper technology and it is to be treated as raw material irrespective of the fact that in the course of chemical reaction this ingredient is used and burnt up and does not retain its identity in the end product. The contention that sodium sulphate is used at a stage of preparation of pulp which is a stage anterior to the actual manufacture of paper was not accepted by the court since the manufacture of pulp i....
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....ing apparatus". As observed by the Hon. Apex Court in the above 13. cited judgment, the only relevant test to be applied here is not the presence of copper concentrate in the end product, but how essential it is for the production of the end products, namely sulphuric acid and phosphoric acid. It may be appreciated that the copper concentrate goes into the making of the end products, viz. sulphuric acid and phosphoric acid in the sense that in the absence of copper concentrate, the presence of the end product is rendered impossible. The argument that sulphuric acid has not been manufactured directly from copper concentrate, but from sulphur-di-oxide and, therefore, copper concentrate is not the input for sulphuric acid is absurd and contrary to facts. Even if copper concentrate is used a second time in the sulphuric acid plant, the manufacture of sulphuric acid takes place only through the same route, namely by the formation of sulphur-di-oxide at the first instance upon roasting of the copper concentrate. This would imply that copper concentrate is the only raw material for the manufacture of sulphur-di-oxide and sulphuric acid. The decision of the Hon. Supreme Court in....
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....erved that the expression "raw material" is not a defined term. The meaning to be given to it is the ordinary well accepted connotation in the common parlance of those who deal with the matter. Denim fabric cannot be produced without the use of dye and therefore dye is an essential raw material for the production of denim fabric since in its absence the presence of the end product is impossible. The appellants in their Appeal Memorandum has 17. elaborately dealt with the provisions of Rules 57C, 57CC and 57D along with their legislative history. However, none of these Rules is applicable to the issue in hand, since Rules 57C and 57CC have since been merged together to become Rule 57AD and Rule 6 of the Cenvat Credit Rules. In the amended Cenvat Credit Rules, there is no provision parallel to the erstwhile Rule 57D. The appellants contented that under Rule 57D, they should have been permitted to retain the credit in respect of by-products, viz. sulphur-di-oxide. They are harping upon the words "inputs contained in the by-products", appearing in Rule 57D and has pleaded that credit on the inputs contained in sulphur-di-oxide cannot be denied. All these arguments do not have a....
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.... case of either the department or the appellants that they are manufacturing sulphuric acid out of environmental compulsions in view of pollution control norms. Whatever may be the requirements under any other law, production of sulphur-di-oxide from copper concentrate upon roasting is a technological necessity. This sulphur-di-oxide is commercially prepared from sulphide ores as stated earlier. Therefore, what they are precisely doing is commercially utilising the sulphur-di-oxide produced in the extraction of copper metal for the manufacture of sulphuric acid for which they have integrated manufacturing facilities in the same factory premises. This itself indicates that the sulphur-di-oxide so produced is not a waste gas, but a commercially useful commodity. Their argument in page 20 that it is not possible to 21. use lesser quantum of copper concentrate to manufacture a desired quantity of copper anode etc. is devoid of merit since as already stated copper concentrate is an ore of copper containing 30-35 % of sulphur and evolution of sulphur-di-oxide on roasting of the ore is a technological necessity and we have no control over it. Depending upon the percentage of coppe....
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.... starch is an impure mixture of gases and is not known in the market as sulphur-di-oxide and hence not excisable. In the peculiar facts and circumstances of the case and also considering the degree of purity of sulphur-di-oxide needed for washing the maize, probably the Tribunal must have come to that finding. There are, however, many more decisions on this aspect which will be discussed subsequently, which will also cover the concept of marketability. Sulphur-di-oxide is specifically covered in Chapter 23. 28.11 of the Central Excise Tariff. Heading 2811.21 - sulphur-di-oxide consumed in the manufacture of sulphuric acid within the factory of production - duty Nil. Heading 2811.29 - Other categories of sulphur-di-oxide - duty 16%. It may, therefore, be seen that sulphur-di-oxide is an excisable commodity specifically covered as a tariff item attracting levy of duty if sold and no levy of duty if consumed captively. Since the excise duty is on manufacture and not on sale, strict ISI or any other quality standards are not to be applied to determine the excisability of the product in question. Chapter Note 28(a) of Chapter 28, clearly states that the said chapter applies to s....
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.... para 10 of the judgment, held as follows: "......Marketability is an essential ingredient in order to be dutiable under the Schedule to the Act... The 'marketability' is thus essentially a question of fact to be decided in the facts of each case. There can be no generalization. The fact that the goods are not in fact marketed is of no relevance. So long as the goods were marketable, they are goods for the purposes of Section 3. It is not also necessary that the goods in question should be generally available in the market. Even if the goods are available from only one source or from a specified market, it makes no difference so long as they are available for purchasers... The marketability of articles does not depend upon the number of purchasers nor is the market confined to the territorial limits of this country". This has again been reiterated by the Hon. Supreme Court in the case of Indian Cable Co. Ltd. v. Collector of Central Excise, Calcutta, reported in 1994 (74) E.L.T. 22 (S.C.). 1995 (77) E.L.T. 42 (S.C.) - 27. Collector of Central Excise, Bombay v. Kohinoor Mills. The Hon. Apex Court in para 6 of th....
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....way in doubt. As observed by the Hon. Supreme Court in the case laws cited by the appellants the duty of excise is on manufacture and not on sale and therefore the mere fact that a product is not actually sold will not make any difference in determining the excisability of the product. In the instant case, the sulphur-di-oxide has not been sold, but consumed captively for the manufacture of sulphuric acid. This clearly indicates that sulphur-di-oxide is a marketable commodity. (Also please refer to para - 24) The appellants have also placed reliance on the 31. Final Order No. 1040/2003, dated 4-12-2003, in the case of M/s. EID Parry India Ltd. v. Commissioner of Central Excise, Trichy, 2004 (176) E.L.T. 734 (T) for their arguments, wherein the Hon'ble Tribunal, South Regional Bench has allowed the party's appeal with the following observations : "We find both these orders passed by the Commissioners (Appeals) are correct orders as they have not used the chemicals for the manufacture of Bio-compost, but the said chemicals were used in the manufacture of Sugar and Sugar being the final product and as the duty is paid on sugar and therefore, noted that the inputs are not us....
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....aste products to make bio-compost (organic manure). Since the process was carried out outside registered premises it was not incorporated as a final product in the registration certificate also. The department issued a show cause notice invoking Rule 57CC, demanding an amount equivalent to 8 per cent on the price of the bio manure on the ground that EID Parry has availed Modvat credit on various chemicals used in the manufacture of sugar and pressmud. It can be seen that the bio compost processing takes 35. place outside the factory premises and bio compost manufacturing plant is separately registered under the Factories Act. The appellants have not treated it as part of the registered premises. Since bio-compost is not a excisable commodity, they have not taken any Central Excise registration. The duty paid raw materials are not required for the 36. manufacture of bio compost, whereas they are used in the process for the manufacture of sugar only. The duty paid chemicals do not enhance the manure value of the waste product, pressmud. That they were manufacturing sugar in the factory 37. for years together prior to the start of the organic manure manufacture....
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....fferent view was taken. The facts in the 44. EID Parry case and in the present case are clearly distinct and distinguishable in view of the following grounds: (i) In the Sterlite Industries case copper anodes, sulphuric acid and phosphoric acid, which are the final products, are manufactured in an integrated chemical plant, in an uninterrupted and continuous chemical process, starting from the basic input, copper concentrate. In the EID Parry case, there is no integrated manufacturing operations involved. Bio-compost unit is located outside the factory premises and the bio-compost manufacturing plant is separately registered under the Factories Act. The appellants have not treated it as part of the registered premises. (ii) In the Sterlite Industries case, sulphur-di-oxide gas is produced when the basic input, copper concentrate, is subjected to smelting process. The sulphur content in the copper concentrate gets oxidized to sulphur-di-oxide in presence of air upon heating. Therefore, there is a clear nexus between copper concentrate and sulphur-di-oxide. In the EID Parry case, Pressmud emerges as a waste product in the ....
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....ed in the absence of pressmud. (vii) In the Sterlite Industries case, the final products are copper anodes, sulphuric acid and phosphoric acid. All these are excisable goods and as per the definition contained in Cenvat Credit Rules, "final products means excisable goods manufactured or produced from inputs, except matches". It is, therefore, mandatory that the final product should be manufactured out of 'inputs'. "Inputs" as per definition means all goods used in or in relation to the manufacture of final products, whether directly or indirectly. As already stated there is a clear nexus between copper concentrate and the final products. In contrast, in the EID Parry case, bio-compost is not the final product and sugar is the final product as held by the Hon'ble Tribunal, South Regional Bench. Bio-compost, being non-excisable, cannot become the final product. Therefore, sugar is the only final product which has been cleared on payment of duty, as against three final products in the Sterlite case. Rule 57CC and Rule 6 of the Cenvat Credit Rules, apply only to dutiable and exempted final products. In the EID Parry case, since there is no final product exempted from payment o....
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....es, 2001 (hereinafter referred as CERGCMEGR) read with Notification No. 6/2002, dated 1-3-2002. The imported goods viz. copper concentrate were cleared for home consumption on payment of applicable Basic Customs Duty including countervailing duty. Modvat/Cenvat credit is availed by the appellants on the countervailing duty paid on the copper concentrate, which is the input for manufacture of Copper Anode falling under Chapter 7402. 22. The copper concentrate is smelted in the ISA Smelt furnace to obtain blister copper which is further processed into copper anodes as finished product which is cleared on payment of Central Excise duty. In the course of obtaining blister copper through the process of smelting, Sulphur-di-oxide in gaseous form emerges. Being a hazardous gas, the same cannot be let out in open air. It is an environmental compulsion that this cannot be allowed to be vented to air. Consequently, sulphur-di-oxide gas is taken through pipes from the ISA smelter and conveyed to the mixing chamber and then this gas (1,40,000 M3/HR) at 350° centigrade enters the gas cleaning and cooling section through the main gas duct. The remaining fine dust is removed and the gas is....
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....e product formed in the reaction and it is sent to concentration section for recovery of 54% of phosphoric acid. The phosphoric acid is sold to various independent buyers after payment of 16% duty and in the case of fertilizer units for use in the manufacture of fertilizers and these are again cleared under Chapter X Procedure read with the Central Excise (Removal of Goods) at Concessional Rate of Duty for Manufacture of Excisable Goods, Rules, 2001 read with Notification No. 3/2001, dated 1-3-2001 and No. 6/2002, dated 1-3-2002 respectively. Duty paid imported copper concentrate is smelted to the furnace and after processing, the same results in copper anode as finished excisable goods which is cleared on payment of appropriate duty. 23. In the course of manufacture of copper anode, Sulphur-di-oxide (SO2) emerges during the course of smelting Copper Concentrate as an intermediate product and is captively consumed in the manufacture of Sulphuric acid, within the factory of production by availing the benefit of duty exemption under Notification No. 67/95, dated 16-3-1995. The basic raw material used, namely copper concentrate for producing the SO2, SO3 and Sulphuric Acid is invar....
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....department is summed up as under : But for the use of copper concentrate, as basic input, the emergence of sulphur-di-oxide would not have been possible and without sulphur-di-oxide, sulphuric acid and phosphoric acid could not have been manufactured. Therefore, the manufacture of sulphuric acid, phosphoric acid and copper anodes are linked to the basic input, copper concentrate, in an integrated continuous and uninterrupted process". Inasmuch as the assessee has not maintained separate accounts of inputs, which have gone into manufacture of both dutiable and exempted products, they are required to pay an amount of 8% of the sale value under Rule 57CC of the Central Excise Rules, 1944. 26. Before we proceed to examine the rival contentions, it is necessary to appreciate the relevant rules : Rule 2 of Cenvat Rules, 2001 which reads as under : "final products" (c) means excisable goods manufactured or produced "input" means all (f) goods, except high speed diesel oil and relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not, and includes lubricating oils, greases, cutting oils, coo....
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....acturer of dutiable and exempted goods - (1) Cenvat credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in sub-rule (2). (2) Where a manufacturer avails of Cenvat credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures of such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take Cenvat credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. The manufacturer, opting not to maintain separate accounts shall follow either of the following conditions, as applicable to him, namely..... The definition of Oxides of Sulphur namely Sulphur-di-oxide, Sulphur- tri-oxide as appeared in the Book titled "General Chemistry" Eighth Edition by Henry F. Holtzclaw, Jr. University of Bebraska- Lincon and William R. Robinson, copy of which was produced by ....
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....sp; Whether copper concentrate could be called as a common input for the manufacture of dutiable copper anodes and the by-products, such as sulphuric acid and phosphoric acid? (5) Whether provisions of Rule 57D applies to the facts of the present case? (6) Whether provisions of Rule 57D became inapplicable with the introduction of Rule 57AD and Rule 57CC? 29. Now we proceed to decide the above issues. (1) As regards the first issue it is an undisputed fact that the final product manufactured with the imported copper concentrate was copper anode and this item was cleared on payment of duty. (2) As regards the second issue, the Department itself in the grounds of appeal in Appeal Nos. E/450 & E/451 has clearly stated that the main input for the manufacture of copper anode is copper concentrate and the sulphuric acid emerged during the process is only a by-product. (3) As regards the third issue, when the department itself has repeatedly admitted and has taken the ground that the sulphuric acid and phosphoric acid are by-products, ....
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....dered opinion that the right to avail of the benefit under Rule 57D has not been taken away with the introduction of Rule 57 AD/Rule 57CC. 30. As noted  above, in the present case, the final product manufactured by the assessee is copper anode which is cleared on payment of duty only and no part of copper anode is exempted. Sulphuric acid is a by-product manufactured out of the waste emerging during manufacture of the final product viz. copper anode. Phosphoric acid is manufactured by using sulphuric acid and even these by-products are also cleared on payment of duty except a small portion which is cleared as exempted by observing the conditions in Chapter X Procedure, etc. We have already held above that Rule 57D is applicable to the present case. We also note that even in accordance with Rule 57CC the manufacturer is required to maintain separate account only in a case 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 (emphasis supplied by us) which is not chargeable to duty and in case he does not do so, he is required to pay an amount equal to 8% of the price payable on the goods. In....
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.... to emergence of a by-product. It was also held therein that since credit of duty on sulphuric acid was lawfully available and taken by the respondents, the question of denial of credit or recovery of the amount utilised out of this credit is not sustainable simply because spent sulphuric acid is generated as a by-product in the process of manufacture of acid. This case laws is applicable to the present case going by the ratio that Modvat credit cannot be denied because of emergence of by-product or waste. In the case of Chandrapur Magnet Wires Pvt. Ltd. v. CC, reported in 1996 (81) E.L.T. 3 (S.C.), it was also noted by the Hon'ble Apex Court that same inputs were utilised for the manufacture of dutiable and duty-free goods and it was noted that admittedly the Modvat credit taken on the inputs were used in the manufacture of duty free goods and the assessee neither maintained a separate account nor segregated the inputs utilised for the manufacture of dutiable goods and duty-free goods as should have been done. It was held that "our attention was drawn to a Circular according to which in a case where the manufacturer produces dutiable final products, as also final products which ar....
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.... Court of Delhi in the case of Kissan Chemicals v. Union of India, 1996 (88) E.L.T. 648 has held that Circular under Section 327B cannot be issued contrary to the decision of the Tribunal. The Tribunal in the case of CCE v. Bata India Limited, 2001 (138) E.L.T. 335 (Tri.-Kolkata) have held that quasi judicial authorities are to decide matters independently and are statutorily protected from such instructions and can follow judgments of appellate forum instead of following such instructions. 32. The appellants have also placed reliance on the Final Order No. 1040/2003 dated 4-12-2003, in the case of M/s. EID Parry India Ltd. v. Commissioner of Central Excise, Trichy, [2004 (176) E.L.T. 734 (T)] for their arguments, wherein the Hon'ble Tribunal, South Regional Bench has allowed the party's appeal holding that the orders passed by the Commissioners (Appeals) are correct orders as they have not used the chemicals for the manufacture of Bio-compost, but the said chemicals were used in the manufacture of Sugar and Sugar being the final product and as the duty is paid on sugar and therefore, noted that the inputs are not used in the non-duty paying product. This view is acceptable and ....
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.... term "component parts" and "raw materials". The ratio laid down in this case law is not applicable to the present case inasmuch as in the present case the end product was copper anode and not only the dominant character of the input copper concentrate has been lost with the manufacturer of the final product "copper anode" but also its identity itself has been lost at that stage. (3) Indian Iron & Steel Co. Ltd. v. CCE, Bolpur reported in 2002 (141) E.L.T. 695. In Terms of this judgment, the question whether the provisions of Rule 57CC are applicable to the by-products emerging during the course of the manufacture of intended final products and cleared at nil rate of duty or not has been referred to Larger Bench. Further, in the instant case, it is not the case of the department that the by-products emerging during manufacture of final products are cleared at nil rate of duty. In the instant case only a small portion of the by-products are cleared as exempted goods under Chapter X Procedure, while major portion are cleared on payment of duty @ 16%. Therefore, this case law has no application to the facts of the present case. (4) ....