TaxTMI 
TaxTMI 
2022 (10) TMI 57
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....l and Sulphuric Acid which were used directly or indirectly, in or in relation to the manufacture of coal Gas falling under Chapter Sub- heading No. 2705.00 of the Schedule which is chargeable to 'nil' rate of duty, but did not debit an amount of RRs. 1,15,10,820/- being payable in terms of rule 57C(2) read with Rule 57CC of the Central Excise Rules, 1944 and/or Rule 57AD of the Central Excise Rules, 1944 and/or Rule 6(3)(b) of Cenvat Credit Rules, 2002 at the time of clearance of exempted final product i.e. coke oven gas/ 'Coal Gas' from the factory during the period from July 01, 1996 to September 30, 2003. (c) Whether the manufacture of Coke Oven Gas is said to be final and complete unless it is made usable and/or marketable. (d) Whether the view expressed in the impugned CESTAT Order bearing No. A-254/Kol/2008 dated February 21, 2008 that the inputs viz. Wash Oil and Sulphuric Acid have no role to pay in the production of coke oven gas and these are merely used in the production of the by- products and that the demand under the provisions of Rule 57C(2) read with Rule 57CC of the Central Excise Rules, 1944 and/or Rule 6(3)(b) of the Cenvat Credit Rules, 2002 c....
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....see had taken credit of duty on those inputs, utilized the inputs in the manufacture of dutiable as well as Nil duty final products without debiting an amount equal to 20% or 8% of the price of the final products at the time of their clearance during the period from 01.09.1996 to 31.03.2000 from the factory in terms of Rule 57CC(1) of the said Rule. The show-cause notice stated that the total amount which ought to have been paid by the assessee come to Rs. 67,32,348/-. After referring to Rule 57C(1),(5) and (9) it was stated that a reading of the rules would lead to the conclusion that a manufacturer engaged in the manufacture of both dutiable and exempted final products can neither avail of the credit of duty of inputs and pay the prescribed amount at the time of clearance of the exempted/ chargeable to Nil rate of duty final product or not both the credit of duty on inputs used in or in relation to the manufacture of exemptible/ chargeable to Nil rate of duty final produce. After referring to Rule 57CC of the said Rules it was stated that whether or not any of the said MODVAT Inputs contained in the final product, coal gas, an amount of 8% of the price of such fuel gas would be c....
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....using unfiltered water at the cooling stages. (ii) Recovery of Naphthalene from coke oven gas is done by passing the gas through wash oil spray. Wash oil absorbs Naphthalene which is subsequently separated from wash oil and cleared on payment of duty. (iii) Benzol products, such as Benzol, Benzene toluene are separated from coke oven gas by absorbing them in wash oil. These Benzol products are cleared on payment of duty. From the above, it is cleared that the wash oil is used for the manufacturing of excisable products not for coke oven gas. The Raw Coke oven gas can be used for the same purpose as purified coke oven gas, still the same is purified for two reasons: i) Prolonged use of raw coke oven gas may cause damage to the burners and other downstream equipments. ii) The by-products separated out during cooling and cleaning of coke oven gas has their own market value. 6. By referring to the above process, it was submitted that none of the inputs were/ are being used for the manufacture of product as mentioned in the show-cause notice. Further, it was stated that the assessee's object is to manufacture iron and steel and co....
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....nt of penalty was imposed under Rule 173Q read with Section 11AC of the Act. Aggrieved by such order, the assessee filed the appeal before the learned Tribunal, reiterating the stand taken before the adjudicating authority, the Tribunal by order dated 21.02.2008 allowed the appeal filed by the assessee. Learned Tribunal held that the assessee had explained before the authority as well as before the Tribunal, that the coke oven gas is produced in the coke oven while converting coal into coke and impugned inputs or not utilized in the production of such coke oven gas. 9. The Tribunal notes that the assessee clarified that before selling the coke oven gas partly and partly using the same as fuel, some by-products such as Benzene, Toluene etc. are derived from the coke oven gas and the impugned inputs are used merely for deriving such by-products. The Tribunal took note of the submission of the assessee that the inputs do not contribute to production of coke oven gas which comes into being at an earliest stage in the coke oven itself. After noting the technical process involved in the production of coke oven gas including subsequent segregation of by-products from it, the Tribunal w....
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.... cleared outside without payment of duty, as it was chargeable to Nil rate of duty. Hence, it is submitted that the assessee has taken credit on inputs, utilized input in manufacture of final product which they have cleared as Nil duty product without debiting an amount equal to 20% or 8% of the price of the said final product during the period 1996 to 2006. 12. The learned Standing Counsel referred to Rule 57C, Rule 57AD of the Cenvat Credit Rules, 1944 and Rule 6(3)(b) of the Cenvat Credit Rules, 2002. It is submitted that the learned Tribunal has failed to consider the arguments placed by the revenue with regard to the manufacturing process and use of the inputs on which credit of Central Excise duty was evaded. It is further submitted that on a reading of the order passed by the learned Tribunal it is not clear as on what basis the learned Tribunal formed an opinion in support of the respondent assessee as no reason has been assigned by the learned Tribunal. Further, the learned Tribunal mechanically accepted the explanation given by the assessee in the reply to the show-cause notice without taking note of the relevant rules and the arguments which were placed before it by t....
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....which is exempted or to be cleared at Nil rate of duty and precisely for these reasons, Rules have been framed insisting upon maintaining separate accounts of receipt of input, their consumption in the factory and quantity of inputs used in the manufacture of an exempted final product. Therefore, the respondent assessee by not maintaining the register of inputs or inventory, have suppressed material facts from the department in order to evade the duty liability. In support of her contention the learned Counsel referred to the decision in Collector of Central Excise Versus East End Paper Industries Ltd. 1989 (43) ELT 201 (SC). 13. Mr. Rahul Tangri, learned Advocate appearing for the respondent reiterated the contentions which are placed before the adjudicating authority as well as the Tribunal. Learned Advocate has referred to the flow chart and also a write up submitted by the assessee on the manufacturing process and submitted that during the manufacture of metallurgical coke, crude coke oven gas emerges as an inevitable by-product and such coke oven gas is hazardous since it contains Ammonia and other products like coal tar, Naphthalene, Toluene, Benzene etc. and for extractio....
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....f the Central Excise Rule, 1944 and Rule 6 of the Cenvat Credit Rules, 2001/02 are not attracted in the case of generation of unavoidable by-products. In this regard, reliance was placed on the decisions in Union of India Versus Hindustan Zinc Ltd. (2014) 303 ELT 321 (SC), Rallis India Ltd. Verses Union of India (2009) 233 ELT 301 (Bom) and Commissioner of Central Excise and Customs, Vadodara-I Versus Sterling Gelatin 2011 (270) ELT 200 (Guj.) which was affirmed by the Hon'ble Supreme Court in Commissioner Versus Sterling Gelatin. 2015 (320) ELT A343 (SC). 14. The learned Advocate appearing for the respondent placed reliance upon the technical literature as published in the "The Making, Shaping and Treating of Steel", edited by Harold E. McGannon, 9th Edition. This literature was referred to explain the classification of fuels and what are by-products and wastes. Further, it is submitted that in the preamble portion of the show-cause notice dated 23.05.2001, the department themselves have referred to coke oven gas as exhaust gas. It is submitted that the learned Standing Counsel for the appellant placed reliance on the decision of the Tribunal in Binani Zinc Ltd. Versus Commissi....
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....en gas thus generated during coal carbonization contains lot of impurities like Coal Tar, Ammonia, Naphthalene etc. which are potential threat towards choking as well as corrosion to the entire gas distribution network. For this, purification of raw coke oven gas is a must and technological necessity for its use as a fuel. However in the process of cleaning, several by products like Coal Tar, Ammonium Sulphate, Naphthalene, Crude Benzol are generated. Coke oven gas generated during high temperature carbonization of coal charge leaves free space of ovens at 800- 850 Degree Celsius and passes through stand pipes to the hydraulic mains where it is sharply cooled to 80-82 Degree Celsius by spraying flushing liquor. Intensive cooling results in partial condensation of tar water vapours. About 70-75% of tar separates out in hydraulic mains. C.O. gas is then cooled to 30-35 Degree Celsius in Primary Gas Coolers by indirect cooling with water where about 20% of tar separates before it is sucked by Exhauster and transported through different by product recovery units. C.O. gas then enters Detarrers (electrostatic precipitators) where final traces of tar is removed by employing stro....
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....through Scrubber for the recovery of crude benzol present in gas wash oil is sprayed continuously from the top of the Scrubber at the rate of 1.8 to 2.5 lts./Nm3 of C.O gas. Benzol hydrocarbons are absorbed by wash oil. Benzol rich oil known as "Benzolised Oil" is then stripped in Benzol. Toluene Plant to recover crude benzol and the stripped oil is again fed back into the scrubbing system. The clean coke oven gas after the scrubber is used as fuel in coke oven under firing and steel making. Sd/- 11.07.08 A.G.M Steel Authority of India Limited SCO Steel Plant Burnpur Sd/- 11.07.08 (Superintendent) Central Excise Hirapur Range Burnpur-713328 18. A flow diagram of the coke ovens has also been placed before us and in our opinion, the said flow diagram would make the factual position clearer and therefore, we extract the same. FLOW DIAGRAM OF COKE OVENS A.G.M. (C.O. Oprn) Steel Authority of India Limited IISCO Steel Plant, Burnpur (Superintendent) Central Excise Hirapur Range Burnpur-713325 19. The undisputed facts are that the assessee is an integrated steel plant and in thei....
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....whole of the duty of excise leviable thereon or is chargeable to Nil rate of duty. Rule 57C(2) of the Rules permits the manufacturer engaged in the manufacture of dutiable as well as exempted final products to avail credit of duty paid on inputs in the manufacture of dutiable as well as exempted final products subject to absorbance of the procedure under Rule 57CC(1) or (5) or (9) of the said Rules. In terms of Rule 57CC (1), the manufacturer can avail credit of duty paid on inputs used in the manufacture of dutiable as well as exempt final products if he pays an amount equal to 8% or 20% (for 1996-97) of the price of the exempted final product at the time of clearance from the factory. Rule 57CC(9) provides that the manufacturer shall maintain separate inventory and accounts of the receipt and use of inputs for the purpose of manufacture of such exempted final products and shall not take credit on the specified duty on such inputs. The further allegation against the assessee is that they have not maintained separate inventory and accounts as required under Rule 57CC(9) of the Act of the Rules. The rigour of Rule 57CC(1) of the Rules is dispensable if the inputs used for the manufa....
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....rried out such as process of cooling, cleaning or purifying does not give rise to anything different from coke oven gas. In the preceding paragraph, we have noted the steps taken for purifying coke oven gas. The respondent assessee has been able to explained through note on the manufacture process and the flow chart that wash oil use for manufacturing of excisable product not for coke oven gas. This factual aspect has not been shown to be wrong by the department nor there is any finding to the said effect in the adjudication order or that MODVAT inputs are used for manufacture of coke oven gas. The question would be whether the allegations made in the show cause notice against the assessee was justified. From the note on the manufacturing process, it is evident that during the process of manufacture of metallurgical crude coke oven gas emerges as by product and it is inevitable by-product. The assessee's case has not been disputed by the revenue that coke oven gas contains lot and hazardous substances. The crude coke oven gas which emerges as an inevitable by-product has taken to another plant called as the by-product recovery plant which is a separate and independent process. This....
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.... is coke oven gas. In the article there is an elaborate discussion of by-product gaseous fuel. It is stated two major products gaseous fuel are blast furnace and coke oven gas. It is stated that the steel industry which uses 90% of the total coke oven gas generated in United States, generally classified coke oven gas, as by-product of coke manufactured. This is untimely due to the former waste of coke oven gas and other coal products for so many years in the beehive coke process. It is further stated that coke oven gas is produced during the carbonisation or destructive distillation of bituminous coal in the absence of air. The combustion of coke oven gas varies in accordance with grade and density of coal and operating practices. Coke oven gas contains hydrogen sulphide. The above literature clearly demonstrates that coke oven gas is classified as a by-product. If such is the technical position, the department are not justified in holding that such is a by-product which is inevitable by-product as being manufactured by use of MODVAT inputs. 23. In the given fact situation, we are to consider as to whether the allegations made by the department is justified. To answer these ques....
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....ction of zinc from the ore concentrate will inevitably result in the emergence of sulphuric acid as technological necessity and it is not that the respondent therein can use lesser quantity of zinc concentrate only to produce the metal and not produce sulphuric acid; in other words a given quantity of zinc concentrate will result in emergence of zinc sulphide and sulphur dioxide according to the chemical formula on which the assessee therein have no control. Thus, the Hon'ble Supreme Court accepted the contention of the respondent therein that ore concentrate is completely consumed in the production of zinc and no part of the metal is formed part of the sulphuric acid. The next aspect examined by the Hon'ble Supreme Court is with regard to the position contained in Rule 57CC of the rules and noting of the facts stated therein and held as follows: Let us now examine the position contained in Rule 57CC on the touchstone of the aforesaid position. No doubt, Rule 57CC requires and assessee to maintain separate records for inputs which are used in the manufacture of two or more final manufacturer manufactures different kinds of tyres, one or more of which were exempt like tyre ....
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....ct emerged as a technological necessity. Accepting the argument of the appellant would amount to equating by-product and final product thereby obliterating the difference though recognized by the legislating itself. Significantly this interpretation by the Tribunal in Sterility (supra) was not appealed against by the department. 26. The above decision in our considered opinion would apply with full force to the case on hand for which all that we need to do is to substitute the product sulphuric acid with crude coke oven gas and the resultant position would be a by-product which is inevitable by-product which emerges as technological necessity has been shown to emerge without utilizing either sulphuric acid or wash oil which are MODVAT inputs in such process. The flow chart clearly demonstrates as to the stage in which the crude coke oven gas emerges and the only product which goes into the manufacture at that stage is coal. The decision in Reliance India Private Limited was affirmed by the Hon'ble Supreme Court in Hindustan Zinc Limited. It would be beneficial to refer to the one paragraph of the said decision which would match the factual position in the case on hand which is q....
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....d the steam generated were then used, part to pre-heat CBFS the remaining quantity of steam we sold. The tribunal in the said case held for reversal of input credit utilization to Rule 57C or Rule 57CC of the rules it was pre-requisite that the input on which the input credit has arisen should have been used to manufacture of exempted product along with dutiable product. The Tribunal further held that by insertion of Rule 57CC, there was no intention to deprive the assessee of the benefit available under rules 57D(1) of the rules to a by-product, waste, or refuse. Thus, it was held that no part of input credit availed was to be disallowed. The order passed by the tribunal was challenged by the revenue before the High Court at Allahabad and the questions were answered against the revenue in the following terms:- • In the first instance 'off gases'/lean gases appear to be a 'waste' or 'refuse'. However, in the present case, the Tribunal has found them to be a 'by-product'. In any case being hazardous to the environment (on account of high content of Carbon Monoxide), they could not be freely released into the atmosphere. The assessee burnt the Carbon Monoxide present in ....
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.... 'off gases' / 'lean gases'. The process to manufacture Carbon Black was complete before the 'off gases' / 'lean gases' were burnt. The second process involving burning of 'off gases' / 'lean gases' was therefore, totally separate and disconnected with the first, as emerges from the order of the Tribunal. • Then in the second process, 'off gases' / 'lean gases' were burnt to generate heat and it was heat that was used to manufacture 'steam', 'off gases' / 'lean gases' did not contain 'steam' and they could not product steam on their own. They had to be burnt to produce the heat that in turn was used to generate 'steam' from water. • Therefore, it would be too far fetched and fanciful to reason that 'steam' was generated by using CBFS as in input when (i) no part of CBFS was burnt to generate 'steam' (ii) the entire quantity of CBFS was subjected to thermal cracking to product Carbon Black only, (iii) the process of thermal cracking of CBFS did not result in generation of steam but only in the manufacture of Carbon Black as the final product and 'off gases' / 'lean gases' as a 'by-product' (iv) 'off gases' / 'lean gases' ....
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....not deliberately use any quantity of the inputs, viz. Hydrochloric Acid for manufacturing Mother Liquor, the entire Hydrochloric Acid is used in the manufacture of Gelatin. Thus, when no input is specifically used for the purpose of manufacturing Di- Calcium Phosphate, there would be no question of maintaining separate accounts for receipt, consumption and inventory of input. At this stage, it may be germane to refer to the decision of the Supreme Court in the case of Commissioner of Central Excise, Mumbai Versus National Organic Chemical Industries Limited, (2008) 16 SCC 490 = 2008 (232) ELT 193 (S.C) wherein the question before the Supreme Court was as to whether emergence of methane and ethane during the course of manufacture of ethylene and propylene would be a ground for denial of benefit of exemption in respect of ethylene and propylene which was exempt from excise duty. It was contended on behalf of the respondent assessee that there was no way by which the respondent could have manufactured ethylene and propylene for producing ethane and methane. The Court held that it was not as if by using a smaller quantity of raw materials or other goods involved in the process the ....
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....ssee. The appeal filed before the Collector was also rejected. On further appeal to the tribunal, the order of the Collector was set aside and challenging the same appeal was preferred to the Hon'ble Supreme Court. While dismissing, the Hon'ble Supreme Court held that to be able to be marketed or to be marketable, (considering the facts of the said case) that wrapping in paper was an essential requirement and anything required to make goods marketable must form part of the manufacture and any raw materials or any materials used for the same would be component part for the end product. The said decision is wholly distinguishable on facts and can never assist the case of the revenue. More so, when it remains an undisputed that position MODVAT inputs are used much after emergence of coke oven gas and therefore the question of reversal of credit by treating them as inputs used in the manufacture of coke oven gas does not arise. Thus, the learned tribunal was right in granting relief to the assessee. 31. The appellant department while issuing the show-cause notice dated 2.05.2001 for the period from 01.07.1996 to 31.03.1997 and 01.04.1997 to 30.03.2003 had invoked the extended period....