TaxTMI 
TaxTMI 
2008 (11) TMI 75
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....horous and calcium. The animal bones are subjected to 'acidulation' with hydrochloric acid (5% concentration) to remove the minerals namely calcium and phosphorous. The process of acidulation which is basically a process of 'demineralisation' lasts for several days and results in emergence of two products namely 'ossein' and 'mother liquor'. The product 'ossein' is further processed to produce gelatine. The other product 'mother liquor' is also known as spent liquor or phosphoryl liquor and the same consists of mono calcium phosphate and spent acid (about 0.5% concentration). It is hazardous in nature in this form. It was being thrown away as waste till 1981. Because of Pollution Control requirements, they were required to treat this hazardous material. Accordingly, the mother liquor is treated with milk of lime (calcium hydro-oxide) resulting in animal feed namely Di-Calcium Phosphate (DCP) which on further purification and enrichment results in production of animal feed supplement known as EDCP. (c) The product gelatine is cleared on payment of duty and the products DCP and EDCP are cleared without payment of duty as the same are exempted. (d) Six show cause notices coverin....
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....ly gelatine. 4.5 He relies on the decision in the case of Swadeshi Polytex Ltd. v. CCE reported in 1989 (44) E.L.T. 794 (S.C.) wherein it has been held that the entire inputs, ethylene glycol, has been held to have been used in the manufacture of polyester fiber even though non-dutiable methanol emerged as a by-product. The said decision was interpreting the applicability of Notification No. 201/79-C.E., dated 4-6-79 prior to amendment of the said notification from 11-4-81. The Hon'ble Supreme Court has held that even prior to the amendment the only situation where the credit of duty paid on the inputs to be denied was only where the final products were wholly exempt from the duty of excise were chargeable to Nil rate of duty. 4.6 He also submits that the DCP and EDCP have to be considered only as a by-products and hence Rule 57AD and Rule 6 are not applicable. He also submits that for the period upto March 2000 the demands were dropped by the Commissioner (Appeals) and the Department has not filed any appeal against the said order. The Department cannot take divergent views for different period when the issue has attained finality. 4.7 He also relies on Board's instructio....
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....acidulation, the bones were converted into Ossein, an intermediate product, which was then used for the manufacture of Gelatine, their final product. During acidulation process, besides Ossein, one more product namely Mono-Calcium Phosphate (MCP) was also obtained in the form of spent acid/mother liquor. Ossein is organic in nature which after further processing gives rise to gelatine whereas MCP is inorganic in nature which by further processing gives rise to DCP. Hydrochloric acid was used by the assessee to remove calcium and phosphorus present in bones in the form of MCP. Thus, the use of hydrochloric acid in the manufacture of MCP is confirmed. MCP, the mother liquor obtained during acidulation could not be drained out as such being a pollution hazard. It was, therefore, neutralised by adding lime water (Milk of Lime). By treatment of MCP with lime water, Di-Calcium Phosphate (DCP) was obtained. During conversion of MCP to DCP, Hydrochloric acid was not used at any stage. The another product Enriched Di Calcium Phosphate (EDCP) was manufactured from DCP by further enriching it with various other ingredients like lime stone powder, Magnesium Sulphate, Cobalt, Potassium Iodide e....
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....so been used in relation to manufacture of both the exempted products. However, no hydrochloric acid is added as input while processing the mother liquor. No part of the hydrochloric acid or any of its elements is part of the exempted by-products. 7.4 Separation of quantity of HCL meant for exempted products and dutiable products is not possible inasmuch as the entire quantity has been used at the earlier stage which is a common stage for both the products to finally emerge. When segregation is not possible, the question of maintaining separate accounts for such segregated quantities does not arise. It cannot be denied that the appellant has not used the entire hydrochloric acid in relation to manufacture of final dutiable products. 7.5 It is contended by the Department that by some other process gelatine could be manufactured without use of hydrochloric acid. May be, it is possible. In respect of such manufacturing process, hydrochloric acid will not be an input. The excise law does not envisage that a manufacturer has to choose a particular manufacturing process. In the manufacturing process adopted by the appellant, use of hydrochloric acid as an input cannot be disputed a....
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....he same quantity of gelatine; the product DCP, EDCP which arise out of treatment of mother liquor as per the Pollution Control Regulations has to be treated as by-products; no amount of hydrochloric acid has been exclusively used in the manufacture of exempted products; the exempted by-products do not contain any part of hydrochloric acid as an input; hydrochloric acid as an input was eligible for credit; and that maintenance of separate account is neither feasible nor warranted. The ratio of Swadeshi Polytex Ltd., is squarely applicable to the facts of the present case. 10. The appeal is allowed with consequential relief. 11. [Order per: D.N. Panda, Member (J)]. - While concurring with my learned brother on the decision and result of the Appeal, in view of certain material facts borne by record, evolution of law relating of Cenvat credit on inputs used in an integrated and inseparable process of manufacture of dutiable and exempt final products having undergone change from time to time and instructions issued by C.B.E. & C. on the subject, it has become necessary to throw light on the same by this part of the order since all these aspects have also contributed to the aforesa....
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.... cause notices dated 2-12-1998, 20-12-1999, 1-3-2000, 28-3-2001 (sic) and 24-3-2001, by order dated 30-9-2004 applied the ratio laid down by the learned Commissioner (Appeals) as aforesaid and dropped the proceeding against the Appellant. In the above order dropping the proceeding learned adjudicating Authority in Para-13 at page of the order (available at page 99 of the paper book) held as under : "The role of Hydrochloric acid was complete with the treatment of crushed bones with it during acidulation and the Hydrochloric acid was exhausted during treatment of crushed bones" (emphasis supplied). In Para 16 of the above order it was also held that in the process of conversion of Mono Calcium Phosphate (MCP) to DCP/EDCP no inputs were used by the assessee on which Modvat Credit was availed by them. Use of Hydrochloric Acid (HCl) in the manufacture of Gelatin only as final product was asserted by Revenue. 15. It was all well known to the Authorities below that the Appellant was not maintaining separate accounts for manufacture of dutiable goods and exempted goods. This fact was nothing new for Revenue even for the impugned order. While the matter stood thus, all along plea ....
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....tured contains HCl (Hydrochloric Acid). Such essential fact suggests that Revenue was not curious to know whether Modvatable/ Cenvatable input was contained in the MCP which at a subsequent stage gives rise to DCP and EDCP and those are exempted final products. Nor also the Department had witnessed any trial production to ascertain by technical study or by any objective analysis whether modvatable input was in composition with MCP. In absence of clear proof, no adverse inference is possible to be drawn against the Appellant, but benefit of doubt goes in favour of Assessee since Revenue failed to discharge its burden of proof when a charge is levied by it. The Appellant is also entitled to benefit of doubt for the reason that entire process of manufacture was well-known to the Department long ago and when position of law was that Modvatable input was not deniable in terms of provisions contained in Rule 57D(1) of Central Excise Rules, 1944 when waste, refuse or by-product emerges in the process and maintenance of stage-wise accounts was impracticable and that remains unchanged even with the change of law due to enactment of Cenvat Credit Rules, 2002. Revenue did not make any effort ....
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....s) at the time of clearance from the factory. The levy of 8% is in respect of exempted final products but not on anything else that emerge while manufacturing dutiable goods using cenvatable input in the process of such integrated manufacture. 19. The term "final product" is defined by Rule 2(e) of Cenvat Credit Rules, 2002. That states that "final products" means excisable goods manufactured or produced from inputs, except matches. The term "exempted goods" is defined by Rule 2(d) which states that "exempted goods" means goods which are exempt from the whole of the duty of excise leviable thereon, and includes goods which are chargeable to "NIL" rate of duty. The term "input" is defined by Rule 2(g) of Cenvat Credit Rules, 2002. It 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, grease, 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....