TaxTMI 
TaxTMI 
2021 (12) TMI 903
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....he revenue. The said order is reproduced below:- 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 pro....
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.... (ii) used by a manufacturer, whether directly or indirectly , in or in relation to the manufacture of final products and clearance of final products upto the place of removal, ................................. 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....
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....ine fuel (ATF), Naphtha, Fuel oil etc. 4.5 The LPG generated during the course of manufacture of motor sprit (MS), High Speed Diesel Oil, aviation Turbine fuel (ATF), Naphtha, Fuel oil etc. is dutiable right from the stage of receipt of input and input 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. ....
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....ted to the washing section and thereafter processed further to manufacture Gelatin. The above manufacturing process shows that while soaking the bone chips in Hydrochloric Acid a waste product, viz., Mother Liquor ipso facto comes into existence. It is not as if there is a deliberate 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 ....
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.... relation to manufacture of Mother Liquor, the identical quantity of the same goods has simultaneously been used in the manufacture of Gelatin. The emergence of Mother Liquor during the course of manufacture of Gelatin, therefore, by itself is not a ground to invoke the provisions of Rule 6 of the Rules. ......................... 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 wou....
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....as been considered by Hon'ble Supreme Court in the case of National Organic Chemical Industries Limited-2008 (232) ELT 193 (S.C), in that case exemption under notification No. 217/86-CE dated 02.04.1986 was available to ethylene and propylene (falling under chapter 29) when captively used in the process cracking raw naphtha for the manufacture 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 a....
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....l. The appeal being devoid of any merit is accordingly dismissed. However, in view of the facts & circumstances of the case, the parties are directed to bear their own costs." The ratio of the aforesaid judgment is equally applicable to the respondent's case in as much as it had not used any incremental input and input services for manufacture exempted quantity of LPG and 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)....
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....onsumed in polyester waste used for recovery of DMT on the ground that this polyester waste was chargeable to nil rate of duty. Similarly, duty paid on ethylene glycol which was used for recovery of DMT was held not to be allowable while paying duty on polyester fibre. ..................................... 20..................... It is clear, therefore, that the Tribunal failed to interpret the words of the exemption notification 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 ....
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....s para materia with Rule 56A." From the above judgments it is settled that any particular process of manufacture of dutiable goods any exempted goods which are inevitable emerges it cannot be said that out of the total input and input services use in the manufacture is with lesser quantity attributed to the dutiable product. In other words the entire quantity of input and input services are used for dutiable goods, if so, which is undisputed there is no 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 m....
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....sely, the exemption or nil rate must be related to the end product of the manufacturer. It does not speak of the nil rate or exemption from payment of duty on user of the commodity produced by the subsequent manufacturer using the same as his raw material or inputs. Obviously where the nil rate of duty is on the user of the commodity by the third person or used in manufacture of the another commodity, it is not the exemption or rate which exists as on the date any inputs are received 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 pe....
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.... Gujarat High Court reported at 2019 (29) GSTL 625.In that case the facts was service provider constructed residential building and availed the cenvat credit in respect of various input services at the time of commencement of construction of building as per the Finance Act, 1994. The building of residential complex is liable to service tax however; the service tax is chargeable only if the flats in the building are sold before receipt of completion certificate. However, part of the flat sold before the receipt of the completion certificate are chargeable to service tax 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 d....
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....s no use of input and input services particularly for manufacturer of LPG whereas the Input ad Input services primarily used for manufacture of dutiable products it is impossible to maintain separate account in terms of Rule 6(2) of Cenvat Credit Rules, 2004. 4.14 The respondents without prejudice also submitted that the provision of Rule 6(2) applies only where the manufacturer manufactures final product which is chargeable to duty and another which is exempted from the payment of duty. In the instant case LPG is dutiable, except when cleared to PSU oil marketing companies for distribution 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 payme....
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.... case law, the issue of exemption notification which is end use based exemption ws dealt with, therefore, ratio of the decisions relied upon by the learned AR are not applicable. As per my above discussion, impugned order is set aside, and appeal is allowed with consequential relied, if any, in accordance with law." 4.16 In the present case the LPG which emerges during the refining process is not per se the exempted product. The respondent cleared LPG by charging duty and also cleared the same by exemption notification therefore in the absence of two different product being manufactured and cleared, one being chargeable to 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....
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....been a by-product when crude oil is refined. From the above detail of website energypedia.info it is clear that LPG is a by-product generated during the refining of crude oil. The appellant in their written submission gave a chart of various products including the LPG whereby it is reveals that generation of LPG in the course of manufacture comes to 0.64% in 2015-16 and 0.38% in 2016-17 of total assessable value of all the products. This percentage shows that the miniscule part of the entire manufacturing is LPG. This also supports that the LPG is a by-product arising unavoidably during the course of manufacture of other dutiable goods. 4.15 As per 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 a....
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....hat the term "Equal Economic Importance" has not been defined. The plain meaning of the same is that when more than one product emerge during the common manufacturing process, two or more those can be considered to have "Equal Economic Importance" if they give equal economic return or monetary benefit to the producer. In such situation these products can be considered as joint/co-products. As per Dictionary of Accounting by Jonathan Law - 2010 (Oxford University Press) a main product is a product of a process that has the greatest economic significance. Other products of secondary economic importance are regarded as by-products. However, if all products have equal importance they are regarded 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....
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.... and thus cannot be treated as joint product. As such, we find that treating chlorine as a by-product in the analysis and to arrive at a finding by the DA is justified. As such, the appeals filed challenging the finding of the DA and consequent Notifications are dismissed." 5.2 In view of the above judgment one of the aspect to be considered after holding the product as byproduct is principle of Equal economic Importance. in the present case as discussed above the value of LPG cleared under Exemption during 2015-2016 and 2016-2017 the meager part i.e. 0.64% and 0.38% respectively of cumulative value of all the final products cleared from the its refinery therefore, applying the equal economic importance 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 admi....
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....ed to reverse cenvat credit in terms of Rule 6 of CCR on this ground. 5.5 As regard the various judgment relied upon by the Learned AR we are of the view that in all these judgments facts are different as compared to the facts of the present case. As regard the reliance of Learned AR in the case of Essar oil Limited (Supra) we find that very important argument that the LPG emerges in its refinery and there is no deliberate attempt to manufacture it and the reliance placed on Swadeshi Polytex Ltd and Strerling Gelatin was not advanced and the facts may not be similar in that case. It is settled law that decision is a authority only on the prepositions that it decides and not urged or considered there from. As regard the reliance made in the case of Chemito Technologies (Supra) it cannot be held that authority, as the same was rendered ex-parte without the assistance to the court in the said case being ex-parte, the judgment 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 t....