TaxTMI 
TaxTMI 
2021 (12) TMI 903
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....w:- 4. We have carefully considered the submission made by both sides and perused the records. The issue under consideration before us is that whether in the facts and circumstances prevailing in the present case, the provision of Rule 6 (1) of Cenvat Credit Rules, 2004 which mandates that Cenvat Credit shall not be allowed on such quantity of input and input services used in or in relation to manufacture of exempted goods can be stood infringed whether in given facts and circumstances of the present case, the respondent is required to maintain separate account in terms of Rule 6 (2) and consequently whether the respondent is required to pay an amount in terms of Rule 6 (3) read with rule 6 (3A) of CCR,2004, in respect of input or input services attributed to the exempted product namely Liquefied Petroleum Gas (LPG). 4.1 The respondent is having petroleum refinery wherein from the crude petroleum oil they manufacture various products viz. Motor sprit (MS), High Speed Diesel Oil, aviation Turbine fuel (ATF), Naphtha, Fuel oil etc while undertaking the process of cracking crude oil at its Jamnagar Refinery. During the process of refining crude oil LPG namely propane and Butane al....
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....... From the reading of the above Rule 2 (k) & (l) of Cenvat Credit Rules, 2004, any input or input services used for manufacture of excisable goods are admissible input services. In the present case the input or input services for which the Cenvat Credit was availed by the respondents are indeed used in or in relation to excisable goods amongst other LPG therefore, no doubt that the input and input services on which the Cenvat Credit was availed are qualified as "input and input services" as defined in Rule 2(k) & (l). Rule 6(1) read as under:- 6. (1) The CENVAT credit shall not be allowed on such quantity of input used in or relation to the manufacture of exempted goods or for provision of exempted services, on input service used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services], except in the circumstances mentioned in sub-rule (2): 4.3 As per the above Rule 6 (1) Cenvat Credit shall not be allowed on such quantity of input or input services used in or in relation to manufacture of exempted goods however, the exception is provided in the circumstances mention in sub rule 6 (2). In t....
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....services till the completion of manufacture of LPG. Therefore, during that stage availment of Cenvat Credit is absolutely in conformation to Cenvat Credit Rules, 2004. In the process or refining crude oil to obtain value added finished goods namely motor sprit (MS), High Speed Diesel Oil, aviation Turbine fuel (ATF), Naphtha, Fuel oil etc. the LPG inevitably arises and tapped from the crude distillation unit, coker unit, fluid catalytic cracking unit (FCCU), platformer unit etc. in these process it is not as if respondent had set out to manufacture LPG. The same arises in the refining process and that the same could not have been limited or curtailed the production of LPG nor could have been manufactured other value added products using a less quantity of input of input services as whether the LPG then or otherwise. The quantum of input and input services will not get reduced even if LPG is not generated with main products. The same quantity of input and input services is required and indeed used for the manufacture of motor sprit (MS), High Speed Diesel Oil, aviation Turbine fuel (ATF), Naphtha, Fuel oil etc. Therefore, the input and input services of such dutiable product the Cen....
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....liberate attempt on the part of the manufacturer to manufacture the Mother Liquor which emerges as a by-product during the course of manufacture of Gelatin. Moreover, it is not as if a particular quantity of Hydrochloric acid is used for the manufacture of Gelatin and a particular quantity is used for the production of Mother Liquor (whether ascertainable or unascertainable), the entire quantity of Hydrochloric acid in respect of which cenvat credit is availed of is used by the respondent for the manufacture of Gelatin. Considering the process of manufacture adopted by the respondent, it is not possible to manufacture Gelatin without corresponding production of Mother Liquor. This Mother Liquor which otherwise is in the nature of a waste product, is used by the respondent assessee for the manufacture of Di-Calcium Phosphate. ........................ 8. Thus, on a plain reading sub-rule (1) of Rule 6, it is apparent that CENVAT credit is admissible in respect of the inputs used in the manufacture of dutiable goods and is inadmissible on such quantity of inputs which is used in the manufacture of exempted goods. Sub-rule (2) imposes an obligation on the manufacturer who manufactu....
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..... ......................... 12. On behalf of the appellant it has been submitted that common input Hydrochloric Acid was used in the manufacture of both Gelatin as well as Di-Calcium Phosphate hence, in the light of the provisions of Rule 6(2) of the Cenvat Credit Rules, 2002, the respondent was required to maintain separate accounts for receipt, consumption and inventory of input meant for use in the manufacture of dutiable final products and the quantity of input meant for use in the manufacture of exempted products and take cenvat credit only on that quantity of input which was intended for use in the manufacture of dutiable goods. In the present case, the assessee has taken cenvat credit only on that quantity of input, which was intended for use in the manufacture of dutiable goods, therefore, also the question of invoking sub-rule (2) of Rule 6 of the Rules would not arise. 13. Insofar as reliance placed upon the decision of the Bombay High Court in the case of Commissioner of Central Excise, Thane-1 v. Nicholas Piramal (India) Ltd. (supra) is concerned, the same would have no applicability to the facts of the present case inasmuch as in the facts of the said case, commo....
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....of ethylene and propylene. In the process cracking methane and ethane falling under chapter 27 also manufactured. As per the said notification such exemption was not available to ethylene and propylene used in the manufacture of goods falling under chapter 27 namely methane and ethane. In other words excise duty was to be paid for such quantity of ethylene and propylene inputs which captively consumed and used in the manufacture of product falling under chapter 27 namely methane and ethane. The Hon'ble Supreme Court held that the emergence of ethane and methane in the process of manufacturing ethylene and propylene was inevitable therefore no ground for denying the exemption. It was held that the assessee could not have manufactured ethylene and propylene without manufacturing ethane and methane and in any technology the emergence of ethane and methane was inevitable. It was also held that since the identical quantity of ethylene and propylene was used in the manufacture of ethane and methane, it cannot be said that benefit of exemption was not available the relevant observation of Hon'ble Supreme Court in this regard is as follows. "19. The respondent assessee submitted that the....
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....nd that the entire quantum of inputs and inputs services was required for manufacture of dutiable finished goods. 4.8 In the case of Swadeshi Polytex Limited reported in 1989 (44) ELT 794 (SC) also the same view was expressed wherein it was held that whether the intended product that arises as the by-product or otherwise is inconsequential. What is important is that the dutiable finished goods could not have been manufactured using the lesser quantity of inputs. In this backdrop it was held that the exemption claimed by the assessee therein could not be denied even if the exempted product arose in the manufacturing process. The relevant observation of Apex Court is extracted below: 2. The appellant was at all relevant times engaged in the manufacture, inter alia, of polysterfibre (man-made) falling under Tariff Item 18 of the erstwhile Central Excise Tariff. In the manufacture of the aforesaid, the appellant was using, amongst other inputs, ethylene glycol and DMT (Dimethyl Tetraphthalate) - duty paid ethylene glycol falling under Tariff Item No. 68 of the erstwhile Central Excise Tariff received by the appellant and used in the manufacture. 3. The Notification No.201/79 date....
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....ication No. 201/79 properly and fully. The said notification exempted all excisable goods on which the duty of excise was leviable and in the manufacture of which any goods falling under Tariff Item 68 (i.e. inputs) had been used from so much of the duty of excise leviable thereon as was equivalent to the duty of excise already paid on the inputs. It is clear, however, that ethylene glycol was used in the manufacture of polyester fibre. It appears that methanol arises as a part and parcel of the chemical reaction during the process of manufacture when ethylene glycol interacts with DMT to produce polyester fibre. It is not possible to use a lesser quantum of the ethylene glycol to prevent methanol from arising for producing a certain quantity of polyester fibre. Thus, the quantity of ethylene glycol required to produce a certain quantum of polyester 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 wantedly 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. That position is undisputed. Therefore, it....
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....o question of reducing Cenvat credit only because in the present case LPG is arising during the course of manufacture. 4.9 The revenue's contention is that the respondent since manufacturing dutiable and exempted goods i.e. LPG they were required to maintain separate account in terms of Rule 6(2) of CCR, 2004. The said rule mandates maintenance of separate account for receipt, consumption and inventory for Input and Input Services in relation to manufacture of final products as well as the exempted goods. 4.10 As discussed above since the respondent would not have manufactured the dutiable goods by using lesser quantity of Input and input services the entire cenvatable Input and Input service were used for manufacture of dutiable finished goods therefore, the requirement of Rule 6 (2) stood satisfied as the entire credit was attributed to the manufacturer of the finished dutiable goods only. We also find that the eligibility of the cenvat credit has to be decided on the date of receipt of Input /Input Services and availment of Cenvat Credit. In the present case on date of availing credit on input and input services, there was no basis for presuming that any part of the same wil....
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....ed by the manufacturer of sulphuric acid, nor it is amenable to such exemption or duty at nil rate when the manufacturer of sulphuric acid takes place. The manufacturer becomes eligible to avail Modvat credit on receipt of inputs in his factory for manufacture of goods which are not exempted from excise duty or which are exempted from excise duty or which are subject to nil rate of Duty. He cannot say that he is exempted from the payment of duty on his end product or that his end product is liable to nil rate of duty even at the time when sulphuric acid is manufactured. However, on clearance of end product at nil rate is due to the contingency arising as per specified condition coming into existence as per any exemption notification for the benefit of its end use by the buyer which was not in the hand of manufacturer. Like Rule 57E and 57F the provisions would have been differently worded to withdraw the Modvat credit already availed at the time when it became due as per condition of Rule. 32. Apparently the existence of condition of exemption of end product from duty or its liability to nil rate of duty must also exist on the date inputs became available for availing Modvat cred....
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....but in the same construction part of flats sold after receipt of completion certificate which are not chargeable to service tax. The case of the department was since part of the residential flats sold without payment of service tax the same shall be liable to payment of an amount in terms of rules 6 in respect of input services attributed to the residential flats on which service tax was not paid. This tribunal taken a view that when on the date of receipt of input service ,output service being wholly taxable whole credit is available to the assessee and the assessee is not required to reverse cenvat credit availed during the period when the output services were wholly taxable even though the part of output service subsequently became non chargeable to service tax for the reason that the residential flats were sold after obtaining the completion certificate. Applying the ratio of the above judgment in the present case also the facts remains that at the time of taking cenvat credit the product LPG is very much dutiable and the same became exempted subsequently only at the time of clearance of the goods. Therefore in this peculiar fact of the present case, once the cenvat credit wa....
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....on under PDS. This being the case , the requirement of Rule 6(2) of there being a final product which is dutiable and another which is exempted is not satisfied. 4.15 We find that the respondents case gets support from the decision of this tribunal in the case of DCW Ltd affirmed by the Hon'ble madras high court wherein it was held that the provision of Rule 57CC(1) of the Central Excise Rule (i.e. pari-materia with Rule 6 of the CCR) do not apply in a situation where a certain quantity of dutiable finished goods is cleared under exemption , while the remainder is cleared on payment of duty, as the final product in this situation is only one and not another final product. The relevant extract of the judgment is reproduced below: "2. After considering the submissions, we have found valid reason to sustain the impugned order. Though, in their cross-objections, the party has pleaded that none of the inputs specified in the SCN and the Order-in-Original can be considered to be a common input for purposes of Rule 57CC, we think, it is not necessary to address this question inasmuch as this case can be disposed of with reference to final products. Caustic Soda Flakes and Trichloroeth....
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.... duty and another being exempted the provision of rule 6 (2) does not apply. In view of the above judgments, reversal of Cenvat Credit under rule 6 (3) of CCR is not warranted, as the same applies only in a case when the manufacturer opts not to maintain a separate account. The respondent's submission made without prejudice has force relying on the judgment of Sobha Developers Ltd -2012 (276) ELT 214 (T.) which was affirmed by Hon'ble Karnataka High Court. The Hon'ble Tribunal in that case referring to several other judgments held that demand /restriction under rule 6 of CCR not applicable when services are provided availing the conditional exemption under notification 4/2004-ST dated 31.03.2004 read with rule 25 of SEZ Act, 2005. Similar view was expressed by Hon'ble Rajasthan High Court in Hindustan Zinc Limited-(Supra) wherein it was held that condition regarding reversal of Cenvat credit under rule 57 CC of Central Excise Rules. (pari- materia to rule 6 of CCR) does not apply unless exemption from payment of duty was to the goods per se. 4.17 Without prejudice to our above independent finding, we find that the respondent have also made alternative submission that the LPG emer....
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.... the Cambridge Dictionary, "by product means something that is produced as a result of making something else, or something that unexpected that happens as a result of something else". In the present case LPG is produced as a result of making refined oil namely MS, HSD, ATF etc. it is also a fact that LPG is generated unexpectedly only as a result of manufacturing of refined oil. Therefore, in our view of the LPG is a byproduct. The contention of the revenue is that the LPG is a product which is one of all other product as Ms, HSD, ATF etc. There is no dispute that by product can be an excisable goods at par with the main excisable goods but whether the product is byproduct or product is determined only on the basis of the process of manufacturing and if in the process of manufacturing any byproduct is generated during the process of manufacture of other product due to this generating in the process itself even though the same is excisable goods as per Central excise Tariff but due to its nature of arising in the process the same is called by product. Therefore even though the LPG is excisable goods but emerging unavoidably in the course of manufacturing of other main product i.e. M....
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....as joint products. Keeping this in mind we examine the various submissions made by parties as above. Chlorine and caustic soda are two of the most important inorganic chemicals having industrial use. They are together normally referred to as chlor-alkali. Chorine is largely used in the synthesis of chlorinated organic compound. It is difficult to store and transport economically and hence, it is generally produced near the consumer industry. We note that the DI has not evolved a level of total integration for downstream usage of chlorine for manufacturing value added derivatives in the vinyl line or otherwise. The economic importance of chlorine for the DI cannot be considered equal to caustic soda. In other words, even if chlorine has fluctuating price, showing upward trend during certain times, cannot economically realise that much benefit to the producer in India as equal to caustic soda. Admittedly, chlorine is of economic importance and the producers do realise significant benefit by sale or partly by captive consumption in making derivatives chemicals. However, it is clear, based on the evidence placed before us that the integrated downstream manufacture resulting in economic....
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....tance also the LPG is a byproduct. 5.3 The CBEC's Manual at Para 3.7 of Chapter 5 is relevant in this matter which is reproduced below: "3.7 CENVAT Credit is also admissible in respect of the amount of inputs contained in any of the waste, refuse or by-product. Similarly, Cenvat is not to be denied if the inputs are used in any intermediate of the final product even if such intermediate is exempt from payment of duty. The basic idea is that Cenvat credit is admissible so long as the inputs are used in or in relation to the manufacture of final products, and whether directly or indirectly." As per the above Para of CBEC's Manual since cenvat credit is admissible on the input contained in byproduct the same cannot be denied on by applying Rule 6 of Cenvat Credit Rules, 2004. In the case of byproduct, non applicability of Rule 6 has been decided in catena of judgments some of those judgments are as follows: * Hitech Carbon- 2018 (17) GSTL 398 (ALL.) * Nestle India Ltd - 2017 (349) ELT 171 * Garware Polyester Ltd - 2017 (6) GSTL 488 (Tri. Mum) * Sterling Biotech Ltd - Final Order No1189-1193/2009 dated 07.09.2009 * Balrampur Chini Mills Ltd - 2019 (368) ELT 276 (All) ....
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....udgment of the tribunal in the case of DCW were not cited before the Tribunal in deciding the said case. Therefore, the same is not good in law. The judgment of Nicholas Piramal (India) Ltd is not applicable to the facts of the present case as in the said case the input was used in manufacturing of two products viz. Vitamin A falling under Chapter heading 29.36 which is dutiable and animal food supplement falling under chapter heading 23.02 of the Schedule to the CETA 1985, which was exempted and which is not applicable to the facts of the present case. 5.6 As regard in the judgment of Sulochana Cotton Spinning Mills (Supra) neither the provisions of Rule 6(2) of CCR nor the argument that there have to be two different finished products for Rule 6(2) to apply was either canvassed or considered. Therefore, the ratio of the said judgment is not applicable to the facts of the present case. In the case of Kesar Enterprise Ltd (Supra) there were two different products viz IMFL which was non excisable and Rectified Spirits which was excisable but cleared at nil rate of duty which are not similar to the facts of the present case. 5.7 After going through all the judgments relied upon b....