Bombay High Court
Rallis India Limited vs The Union Of India on 16 December, 2008
Bench: D.K. Deshmukh, J.P. Devadhar
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.8435 OF 2006
Rallis India Limited, a
company incorporated within
the meaning of Companies Act,
1956 and having its registered
Office at Apeejay House,
7th Floor, 3 Dinshaw Vachha
Road, Churchgate,
Mumbai - 400 020 ..Petitioner
V/s.
1. The Union of India,
through the Secretary,
Ministry of Finance,
Department of Revenue,
2.
North Block, New Delhi - 1.
The Customs, Excise &
Service Tax Appellate Tribunal
(CESTAT) through its Registrar,
at Jai Centre, 3rd floor, 34,
P. D'Mello Road, Poona St.,
Mumbai - 400 001.
3. The Commissioner of Central
Excise, Salem Commissionerate,
Salem having his office at No.1
Foulks Road, Foulks Compound,
Annai Road, Salem - 636 001 ..Respondents
Mr.Sridharan with Mr.Prakash Shah i/by M/s.PDS Legal
for the petitioner.
Mr.P.S. Jetly with Mr.R.C. Master for the
respondent.
CORAM : D.K. DESHMUKH &
J.P. DEVADHAR, JJ.
DATED : 16TH DECEMBER, 2008.
ORAL JUDGMENT : (Per J.P. Devadhar, J.)
1. This writ petition is filed to challenge the
Larger Bench decision of the CESTAT dated 13-12-2006.
The Larger Bench was constituted because of the
conflicting decisions rendered by the Tribunal in the
case of Rama Industries Ltd. V/s. C.C.E. reported
in 2004 (178) E.L.T.720 (T) and in the case of Binani
Zinc Ltd. V/s. CCE reported in 2005 (187) ELT 390
(T).
(T)
2. The question referred to the Larger Bench
was:-
" Whether 8% of the amount as per erstwhile
Rule 57CC of Central Excise Rules, 1944 (now
Rule 6 of Cenvat Credit Rules, 2002) is
required to be discharged, before removal of
by products / subsidiary products when such
products are exempted from whole of duty
therein in light of the conflicting view in
the above decisions. "
The Larger Bench of the Tribunal concurred
with the views expressed by the Tribunal in the case
of Binani Zinc Ltd. (supra) and by the impugned
decision held that the petitioner who manufactured
both dutiable and exempted final products by
utilizing duty paid common inputs (Modvat credit of
which was taken) was liable to pay an amount equal to
8% of the value of the exempted final product under
Rule 57CC of Central Excise Rules, 1944 / Rule 6 of
Cenvat Credit Rules, 2002. The larger Bench has also
recorded a finding to the effect that HCL was not a
necessary input required in the manufacture of
gelatin.
3. Facts relevant to the present case are that
since 1971 the petitioner is engaged in the
manufacture of gelatin in its factory at Ootacamund,
Tamil Nadu. Gelatin is an excisable product and
falls under Chapter heading 35.03 of the Central
Excise Tariff Act, 1985.
4. According to the petitioner, animal bone is
the basic raw material required for the manufacture
of gelatin. Animal bones contain both organic
material
material
known
known
igas
as
protein
phosphorus.
as well
According
as inorganic
to the
petitioner, when the animal bones are treated with
HCL, organic and inorganic substances in the animal
bones get separated. Organic substances are
insoluble in water and are known as 'Ossein'.
Inorganic substances are water soluble and are known
as 'mother liquor' / 'spent liquor' / 'phosphoryl
liquor'.
5. The insoluble organic substances known as
'Ossein' was further processed to manufacture gelatin
which was cleared on payment of excise duty and the
inorganic substances known as mother liquor being as
waste liquid, was thrown away.
6. 'Mother liquor' being hazardous in nature,
the Pollution Control Board recommended to the
petitioner to process the mother liquor instead of
throwing it away. Accordingly, in the year 1981 the
petitioner set up a plant for processing the mother
liquor into phosphoryl A and Phosphoryl B which are
excisable under heading 23.02 of the Central Excise
Tariff but are wholly exempt from payment of excise
duty.
7. Thus, the manufacture of Gelatin involved the
process of treating the animal bones with HCL, when
ossein
and mother liquor were obtained.
further processed to obtain Gelatin which was cleared
Ossein was
on payment of duty. Mother liquor was further
processed to manufacture phosphoryl A & B, which
being exempt, was cleared without payment of duty.
8. With the introduction of the Modvat Scheme in
the year 1986, the petitioner became entitled to take
credit of duty paid on inputs used in the manufacture
of final products and utilize the same to pay the
excise duty payable on the final products. The
object of the Modvat Scheme was to avoid the
cascading effect of taxation on inputs used in or in
relation to the final products. Under Rule 57C of
the Modvat Scheme, credit of duty paid on inputs was
not allowable if the final products manufactured from
duty paid inputs were exempt. Rule 57D further
provided that the credit of duty paid on the inputs
used in the dutiable final product would not be
denied or varied, if part of the inputs were
contained in any waste, refuse or by product arising
in the manufacture of the dutiable final product and
it was immaterial as to whether excise duty was
payable or not on such waste, refuse or by-product.
In other words, as per Rule 57D, even if the waste
refuse or by-product arising in the manufacture of
dutiable final product are exempted from payment of
excise duty, the credit of duty paid on the inputs
used in
the manufacture of dutiable final
cannot be denied or varied.
products
9. In the present case, since 1986 the
petitioner availed the credit of duty paid on HCL
used as input in the manufacture of gelatin and the
waste mother liquor arising in the manufacture of
gelatin was used in the manufacture of phosphoryl 'A'
and 'B' and was cleared without payment of duty in
view of the exemption.
10. Rule 57CC was introduced into the Modvat
Scheme with effect from 1/9/1996 under which a
manufacturer who manufactures by using common inputs,
a final product which is chargeable to duty as well
as a final product which is wholly exempt or
chargeable to nil rate of duty was required to
maintain separate accounts regarding the inputs
received and used in the manufacture of exempted
goods, failing which the manufacturer was liable to
pay 8% of the price payable on the exempted final
products at the time of its clearance from the
factory.
11. At this stage, it would be appropriate to
quote Rule 57C, 57CC and 57D (to the extent relevant)
as they stood during the period 1998-99 :-
"Rule 57C. Credit of duty not to be allowed if final
exempt
products are exempt.- (1) No credit of the specified
duty shall be allowed on such quantity of inputs
which is used in the manufacture of final products
[which are exempt from the whole of the duty of
excise leviable thereon or are chargeable to nil rate
of duty] except when the final products are either, -
(i) ......
(ii) ......
(iii) ......
(iv) ......
(2) Where a manufacturer avails of the credit of
specified duty on any inputs and he is engaged in
the manufacture of any final product which is
chargeable to duty as well as in the manufacture of
any other [final product which is exempt from the
whole of the duty of excise leviable thereon or is
chargeable to nil rate of duty] in the same
factory, the provisions of sub-rule (1) shall be
deemed to be satisfied only [when the provisions of
sub-rule (1) or sub-rule (5) or sub-rule (9) of
rule 57CC are complied with, or where goods are
exported under bond in terms of the provisions of
rule 13.]
(3) ......
(4) ......
RULE 57CC. Adjustment of credit on inputs used in
exempted final products or maintenance of separate
inventory and accounts of inputs by the
manufacturer.- (1) 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 which is exempt from the whole of the duty
of excise leviable there on or is chargeable to nil
rate of duty] and the manufacturer takes credit of
the specified duty on any inputs (other than inputs
used as fuel) which is used or ordinarily used in
or in relation to the manufacture of both the
aforesaid categories of final products, whether
directly or indirectly and whether contained in the
said final products or not, the manufacturer shall,
unless the provisions of sub-rule (9) are complied
with, pay an amount equal to eight per cent of the
price (excluding sales tax and other taxes, if any,
payable on such goods) of the second category of
final products charged by the manufacturer for the
sale of such goods at the time of their clearance
from the factory.
(2) The amount mentioned in sub-rule (1) shall be
paid by the manufacturer by adjustment in the
credit account maintained under sub-rule (7) of
rule 57G or in the accounts maintained under rule 9
or sub-rule (1) of rule 173G and if such adjustment
is not possible for any reason, the amount shall be
paid in cash by the manufacturer availing of credit
under rule 57A.
(3) .......
(4) .......
(5) .......
(6) .......
(7) The provisions of sub-rule (1) shall apply even
if the inputs on which credit has been taken are
not actually used or contained in any particular
clearance of final products.
(8) If any goods are not sold by the manufacturer
at the factory gate but are sold from a depot or
from the premises of a consignment agent or from
any other premises, the price (excluding sales tax
and other taxes, if any, payable) at which such
goods are ordinarily sold by the manufacturer from
such depot or from the premises of a consignment
agent or from any other premises shall be deemed to
be the price for the purpose of sub-rule (1).
(9) In respect of inputs (other than inputs used as
fuel) which are used in or in relation to the
manufacture of any goods, which are exempt from the
whole of the duty of excise leviable thereon or
chargeable to nil rate of duty, the manufacturer
shall maintain separate inventory and accounts of
the receipt and use of inputs for the aforesaid
purpose and shall not take credit of the specified
duty paid on such inputs. "
RULE 57D. Credit of duty not to be denied or
varied in certain circumstances- (1) Credit of
specified duty shall not be denied or varied on the
ground that the part of the inputs is contained in
any waste, refuse, or by-product arising during the
manufacture of the final product, or that the
inputs have become waste during the course of
manufacture of the final product, whether or not
such waste or refuse or by-product is exempt from
the whole of the duty of excise leviable thereon or
chargeable to nil rate of duty or is not specified
as a final product under rule 57-A.
(2) Credit of specified duty shall also not be
denied or varied in case any intermediate products
have come into existence during the course of
manufacture of final products or the inputs are
used in the manufacture of capital goods as defined
in rule 57Q and such intermediate products or
capital goods are not chargeable to duty of excise.
Rule 6 of CENVAT credit Rules, 2002 is
similar to Rule 57CC of 1944 Rules.
12. It is not in dispute that during the period
from 1971 to 1981 the petitioner had cleared gelatin
on payment of excise duty and threw away the mother
liquor arising in the above process as waste. During
the period from 1981 to 1986, the petitioner
manufactured & cleared two final products, namely,
gelatin on payment of excise duty and 'phosphoryl 'A'
& 'B' without payment of duty as it was exempted.
During the period from 1986 to 1996, the petitioner
cleared gelatin on payment of duty after utilizing
the credit of duty paid on HCL and continued to clear
Phosphoryl 'A' & ' B' without payment of excise duty
as it was exempted. Even after the insertion of Rule
57CC in the year 1996, the petitioner continued to
clear gelatin on payment of excise duty by utilising
the credit of duty paid on HCL and clear exempted
phosphoryl 'A' & ' B' without payment of duty.
13. However, during the period from 4-4-1997 to
29-4-2004, the Excise authorities issued various
show-cause notices under section 11A of the Central
Excise Act, 1944 ('Excise Act' for short) calling
upon the petitioner to show cause as to why an amount
equal
products,
to 8%
namely
of the price of
Phosphoryl
the
'A' and
exempted
'B'
final
cleared
during the period from September, 1996 to December,
2003 should not be recovered in view of the failure
on part of the petitioner to maintain separate
accounts as contemplated under Rule 57CC of the
Central Excise Rules / Rule 6 of the CENVAT Credit
Rules, 2002. By the said show cause notices, the
petitioner was further called upon to show cause as
to why interest should not be demanded and penalty
should not be imposed under the provisions of the
Excise Act and the Rules made thereunder.
14. The petitioner in its reply contended that
the duty paid HCL was an input used in the
manufacture of gelatin. It was contended that the
mother liquor arising in the manufacture of gelatin
was a waste and, therefore, in terms of Rule 57D, the
petitioner was entitled to full credit of duty paid
on HCL used in the manufacture of dutiable gelatin.
In such a case, it was contended that Rule 57CC was
not applicable.
15. By an order in original dated 23-12-2004, the
adjudicating authority rejected the contention of the
petitioner and held that Rule 57CC was applicable to
the present case and accordingly, confirmed the
demand with interest and also imposed penalty upon
the petitioner.
16. The petitioner filed an appeal against the
aforesaid adjudication order and the Tribunal in view
of the conflicting decisions, referred the matter to
a larger Bench of CESTAT. The larger Bench after
hearing the parties, by its decision which is
impugned in the present petition, held that :-
(a) HCL is not a necessary input required in the
manufacture of gelatin and the same can be
obtained without the use of HCL. HCL is used
for extracting the inorganic part of the bones,
which are further processed to manufacture
phosphoryl A & B. Thus, HCL is used in the
manufacture of phosphoryl A & B irrespective of
emergence of mother liquor in between. In this
connection, the Larger Bench relied upon the
decision of the Apex Court in the petitioner's
own case reported in 1999(114) E.L.T. 5 (S.C.)
[Rallies India Ltd. V/s. State of Tamil
Nadu].
(b) Relying upon a decision of the Apex Court in
the case of Commissioner of Sales Tax V/s.
Bharat Petroleum Corporation Ltd. reported in
1995 (77) E.L.T. 790 (S.C.),
(S.C.) it was held that
phosphoryl A & B was consciously manufactured
by
inputs
the
petitioner by using duty paid
and since phosphoryl 'A' & 'B'
HCL as
are
exempt from payment of excise duty, Rule 57CC
was squarely applicable.
(c) Rule 57CC applies where dutiable final product
as well as exempted final product are
manufactured from a common input and the rule
does not make any distinction between an
intended final product or unintended emergence
of by-product. Therefore, even if mother
liquor arises as an unintended by-product, the
same is further used in the manufacture of
phosphoryl A & B which attracts nil rate of
duty and, therefore, the provisions of Rule
57CC would be applicable.
(d) the expression 'by product' in Rule 57D has to
be interpreted in the context of the words
'waste' or 'refuse' used in Rule 57D. For
example floor sweepings arise in the
manufacture of biscuits. Such floor sweepings
which arise in the manufacture of biscuits
being waste, no excise duty is payable on floor
sweepings and excise duty is payable only on
biscuits. In such a case, as per Rule 57D, the
entire credit of duty paid on inputs can be
used in discharging the duty payable on
biscuits.
as a
waste
Similarly, iron & steel scrap arises
during the manufacture of iron
products. If iron & steel scrap are excisable,
then duty has to be paid while clearing the
iron & steel scrap and if exempted, Rule 57CC
would apply. Therefore, Rule 57D refers to
waste, scrap and by product which are not
excisable at all. In the present case since
two final products emerge out of a common input
and duty is payable on one final product and
the other final product is exempt, Rule 57CC is
applicable to the facts of the present case.
The question referred to the larger Bench was
answered accordingly.
17. We have heard Mr.Sridharan, learned Advocate
for the petitioner and Mr.Jetly, learned Advocate for
the respondents. On careful consideration of the
rival submissions, we find it difficult to sustain
the decision of the larger Bench for the reasons
enumerated hereinafter.
18. At the outset it must be held that the Larger
Bench committed a fundamental error in holding that
HCL was not an input required in the manufacture of
gelatin, because, firstly that was not the question
referred to it for its decision. Secondly, the
specific
show-cause
case
ig of the revenue set
notice was that HCL was the common
out in the
input
used in the manufacture of two final products namely,
gelatin & phosphoryl 'A' and 'B' and since duty on
phosphoryl 'A' and 'B' is exempted, Rule 57CC is
applicable. Therefore, the finding given by the
larger Bench that HCL was not an input required in
the manufacture of Gelatin is beyond the scope of
reference and contrary to the facts of the case on
record.
19. It is evident that the Larger Bench arrived
at the aforesaid conclusion by erroneously following
the decision of the Apex Court in the assessee's own
case reported in 114 ELT 5 (S.C.). That decision is
distinguishable on facts. The question before the
Apex Court in that case, related to the
classification of gelatin manufactured by the
petitioner under the provisions of Tamil Nadu General
Sales Tax Act, 1959 and not relating to the duty
liability under the provisions of the Central Excise
Act and the Rules made thereunder. Moreover, whether
HCL was an input required in the manufacture of
gelatin or not was not an issue directly or
indirectly considered by the Apex Court in the
aforesaid case. Therefore, when there was no dispute
regarding user of HCL as an input in the manufacture
of gelatin and even the case of the revenue was that
HCL was
gelatin,
an
the
input required in
Larger Bench was
the
not
manufacture
justified
of
in
relying upon a decision of the Apex Court rendered in
the context of the Sale tax law and holding that HCL
was not an input required in the manufacture of
gelatin for the purposes of duty liability under the
Excise law.
20. If the findings of the Larger Bench that HCL
is not an input required in the manufacture of
gelatin is accepted, then it would mean that in the
present case, HCL is exclusively used in the
manufacture of Phosphoryl 'A' and 'B' which is
exempted from payment of excise duty. If the final
product is exempted from payment of duty then the
credit of duty paid on the inputs used in the
manufacture of exempted final products is not
available. In such a case, whatever input credit
taken has to be reversed and there would be no
question of demanding the presumptive amount under
Rule 57CC. Rule 57CC would apply only in cases where
the manufacturer is unable to reverse exact amount of
credit availed on inputs used in the manufacture of
exempted final product on account of not maintaining
separate account. If the finding of the larger Bench
that HCL is exclusively used in the manufacture of
phosphoryl 'A' and 'B' is accepted, then it would be
simply a case of reversing the entire credit and not
a case
57CC.
of demanding presumptive amount under Rule
21. Thus, in the facts of the present case, the
specific case of the revenue is that HCL is a common
input used in the manufacture of excisable gelatin
and exempted phosphoryl 'A' & 'B'. The question,
therefore, to be considered in the present case is,
whether the petitioner is liable to reverse the
credit to the extent the input is used in the
manufacture of exempted phosphoryl 'A' and 'B' by
maintaining separate account or alternatively pay the
presumptive amount under Rule 57CC ?
22. Animal bones are the basic raw material
required to manufacture gelatin. When animal bones
are treated with HCL, organic and inorganic
substances in the animal bones get separated.
Organic substances ('ossein') which are in the
insoluble form are separated from the soluble
inorganic substances known as 'mother liquor'.
Ossein is further processed to manufacture gelatin.
It is not in dispute that the mother liquor is a
waste arising in the manufacture of gelatin.
23. Under Rule 57C and 57D of the Central Excise
Rules, 1944, credit of duty paid on HCL which is used
as an input in the manufacture of gelatin cannot be
denied
or varied merely because HCL is contained
the waste mother liquor arising in the manufacture of
in
gelatin and that no excise duty is payable on the
mother liquor. Rule 57D specifically provides that
even if no excise duty is payable on the waste
arising in the manufacture of dutiable final product,
the credit of duty paid on the input used in the
manufacture of dutiable final product cannot be
denied or varied. In the present case, excise duty
is payable on the final product namely gelatin and as
per Rule 57D, even though no excise duty is payable
on the waste mother liquor arising in the manufacture
of gelatin, the petitioner is entitled to avail the
entire credit of duty paid on HCL which is used as
input.
24. It is, however, contended by the revenue that
on the introduction of Rule 57CC, the petitioner was
liable to maintain separate account so as to
ascertain the quantity of HCL used in the manufacture
of exempted phosphoryl 'A' and 'B', and since no such
account was maintained the petitioner was liable to
pay amount at 8% of the value of the phosphoryl 'A'
and 'B' under Rule 57CC.
25. There is no merit in the above contention of
the revenue. Under the Modvat Scheme, credit of duty
paid on inputs can be availed only if such inputs are
used
Where
in
a
the manufacture of dutiable final
manufacturer uses common
product.
inputs to
manufacture both dutiable final product as well as
exempted final product, then such manufacturer is
required to reverse the credit to the extent the
input is used in the manufacture of the exempted
final product. Where separate account was not
maintained or could not be maintained so as to
ascertain the quantity of inputs used in the
manufacture of exempted final product, there used to
be difficulty in reversing the credit of duty taken
on inputs used in the manufacture of exempted final
product. To obviate this difficulty Rule 57CC was
introduced. As per Rule 57CC, where a manufacturer
manufacturing both dutiable final product as well as
exempted final product fails to maintain separate
account of inputs used in the manufacture, then, he
is required to pay 8% of the value of the exempted
final product at the time of its clearance from the
factory.
26. In the present case, the mother liquor
arising in the manufacture of gelatin is admittedly a
waste on which no excise duty is payable. In spite
of the fact that no excise duty is payable on the
clearance of waste mother liquor, in view of Rule
57D, the petitioner is entitled to avail entire
credit of duty paid on HCL which is used as input in
the
present case,
manufacture of gelatin.
the
In other words, in
petitioner is not required
the
to
reverse the credit of duty on HCL at the time of
clearance of the waste mother liquor and consequently
there would not be any obligation to pay presumptive
amount under Rule 57CC for not maintaining separate
account.
27. The fact that the waste mother liquor arising
in the manufacture of gelatin was further processed
to manufacture exempted phosphoryl 'A' and 'B' would
not attract Rule 57CC, because, if Rule 57CC was not
applicable at the time of clearance of the waste
mother liquor arising in the manufacture of dutiable
gelatin, then the said rule cannot be applied merely
because mother liquor was further processed to
manufacture exempted final product, namely,
phosphoryl 'A' and 'B'. In other words, liability to
pay the presumptive amount under Rule 57CC would
arise only if the waste mother liquor is held to be a
final product. It is not even the case of the
revenue that the waste mother liquor arising in the
manufacture of gelatin is a final product.
Therefore, in the facts of the present case, if Rule
57CC was not applicable at the time of clearance of
waste mother liquor, then Rule 57CC would not apply
at the time of clearance of the exempt phosphoryl 'A'
and 'B' manufactured out of waste mother liquor.
28. The
Apex Court in the case of CCE V/s. Gas
Authority of India Ltd. reported in 2008 (88) RLT
123 (SC),
(SC) has considered the scope of Rule 57CC. In
that case duty paid natural gas was used as an input
in the manufacture of dutiable liquid petroleum Gas
(LPG) and in that manufacturing process 'lean gas'
emerged as a by product which was cleared without
payment of duty. The revenue claimed 8% of the price
charged on the sale of lean gas as per Rule 57CC. In
that context, the Apex Court held thus :-
"5. Therefore, the short question
which arises for determination before
this Court is whether Lean Gas was a
by-product or a final product. If it is
a by-product, then the assessee would be
entitled to the benefit of Rule 57D. On
the other hand, if Lean Gas is a final
product, then the assessee would not be
entitled to the benefit of Rule 57D in
view of the provisions of Rule 57CC as it
refers to set off / adjustment of duty
payable."
In the present case, it is not in dispute
that the mother liquor arising in the manufacture of
gelatin is a waste and not a final product and hence
Rule 57CC is not applicable while clearing the mother
liquor. Therefore, the fact that the mother liquor
is subsequently used in the manufacture of phosphoryl
'A' and 'B' would make no difference and to such a
case Rule 57CC would not apply.
29.
decision of
Strong reliance was placed by Mr.Jetly on the
the Apex Court in the case of C.C.E.
V/s. Ballarpur Industries Limited reported in 2007
(215) E.L.T. 489 (S.C.). That decision in our
opinion is distinguishable on facts. In that case,
the dispute was whether stock transfer of exempted
pulp manufactured by the assessee therein and
transferred to its sister concern on payment of 8% of
the cost price of pulp constituted sale, so as to
claim duty on the transferred pulp instead of the
presumptive amount under Rule 57CC. The Apex Court
held that there was no sale and that the presumptive
price at 8% cost price of the pulp alone was payable
under Rule 57CC. In the present case, the facts are
altogether different. In the present case, the
question is whether the waste mother liquor arising
in the manufacture of gelatin is a by-product or a
final product. Therefore, reliance placed by the
counsel for the revenue on the decision of the Apex
Court in the case of Ballarpur Industries Limited
(supra) is totally misplaced.
30. Reliance was also placed by the counsel for
the revenue on the decision of the Apex Court in the
case of Commissioner of Sales Tax V/s. Bharat
Petroleum Corporation Limited reported in (1995) 77
E.L.T. 790 (S.C.). In our opinion that decision has
no bearing to the facts of the present case. That
and
decision was rendered in the context of sales tax law
not in the context of excise law. Moreover, the
dispute in that case related to availing set off
under the Sales tax law on sale of by-product arising
in the manufacture of the main product. That
decision does not deal with the provisions relating
to the Modvat credit. Therefore, reliance placed on
the decision of the Apex Court in the case of Bharat
Petroleum Corporation Limited (supra) is also
misplaced.
31. The larger Bench of the CESTAT has held that
Rule 57D referred to waste, scrap and by-products
which are not excisable at all. In this connection,
the larger Bench has referred to the instances of
floor sweepings arising in the manufacture of
biscuits, waste and scrap arising in the manufacture
of iron products and hydrogen arising as a by-product
in the manufacture of oxygen by the process of
electrolysis of water. We find it difficult to
accept the above finding. What Rule 57D provides is
that where modvated input is used in the manufacture
of dutiable final product and waste, refuse or
by-product arise in that process, then, even if the
modvated inputs are contained in the waste, refuse or
by-product and whether or not excise duty is payable
on such waste, refuse or by-product, the manufacturer
would not be denied full credit of duty paid on
inputs
product.
used
in
Rule
the manufacture of
57CC applies only if
dutiable
the
final
modvated
inputs are used in the manufacture of both dutiable
final product and exempted final product and the
manufacturer has not maintained separate accounts so
as to ascertain the quantum of inputs used in the
manufacture of exempted final products. Therefore,
the floor sweepings / waste and scrap / hydrogen
arising in the manufacture of biscuits / iron
products / oxygen, respectively would be governed by
Rule 57CC if they are exempted final products and
would be governed by Rule 57D if they are merely
waste, refuse or by-product arising in the
manufacture of dutiable final product. In the
present case, mother liquor arising in the
manufacture of dutiable gelatin, is not an exempted
final product and, therefore, the petitioner was not
liable to reverse any credit of duty availed on
inputs or alternatively pay the presumptive amount
under Rule 57CC.
32. The argument of the revenue that by demanding
presumptive amount at 8% of the price of phosphoryl
'A' and 'B' at the time of its clearance from the
factory, the input credit is neither denied nor
varied cannot be accepted because, the liability to
pay presumptive amount under Rule 57CC arises only in
credit
cases where the manufacturer is unable to reverse the
on input used in the manufacture of exempted
final product. In the present case, mother liquor
arising in the manufacture of dutiable gelatin is a
waste and not an exempted final product. Therefore,
in the light of Rule 57D the petitioner was entitled
to the entire credit availed and there was no
obligation to reverse credit or pay presumptive
amount under Rule 57CC. If Rule 57CC was not
applicable at the time of clearance of the waste
mother liquor arising in the manufacture of gelatin,
then the said Rule cannot be made applicable merely
because the said waster mother liquor was utilised in
the manufacture of exempted final product, viz.
Phosphoryl 'A' & 'B'.
33. For all the aforesaid reasons, we find it
difficult to sustain the decision of the Tribunal in
the case of Binani Zinc Limited (supra) which is
approved by the larger Bench.
34. In the result, the petition succeeds. Rule
is made absolute in terms of prayer (a) by setting
aside the decision of the larger Bench dated
13-12-2006 and also the order in original dated
23-12-2004. However, there will be no order as to
costs.
ig (D.K. Deshmukh, J.)
(J.P. Devadhar, J.)
