Gujarat High Court
The Principal Commissioner, ... vs M/S. Reliance Industries Ltd on 5 May, 2022
Bench: J.B.Pardiwala
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 219 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE J.B.PARDIWALA
and
HONOURABLE MS. JUSTICE NISHA M. THAKORE
==========================================================
1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
==========================================================
THE PRINCIPAL COMMISSIONER, CENTRAL GST AND CENTRAL
EXCISE
Versus
M/S. RELIANCE INDUSTRIES LTD.
==========================================================
MR NIKUNT K RAVAL(5558) for the Appellant(s) No. 1
MR MIHIR JOSHI, MR NISARNG DESAI, MR VIPIN JAIN, MS. SHILPA
BELANI, MR. RAMNATH PRABHU, MS. DIMPLE GOHIL FOR GANDHI
GANDHI LAW ASSOCIATES(12275) for the Opponent(s) No. 1
==========================================================
CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALA
and
HONOURABLE MS. JUSTICE NISHA M. THAKORE
Date : 05/05/2022
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA)
1. This Tax Appeal under Section 35G of the Central Excise
Act, 1944, is at the instance of the Revenue and is directed against
the order passed by the Customs Excise and Service Tax
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
Appellate Tribunal, West Zonal Bench at Ahmedabasd dated
11.10.2021 in Excise Appeals Nos.12204 of 2019 and 12205 of
2019 respectively. The Revenue has proposed the following
questions of law for the consideration of this Court:
"(i) "Whether the order passed by the Hon'ble Tribunal,
wherein, the Hon'ble Tribunal has granted relief by
exempting application of Rule 6 of the CENVAT Rules to
clearance of LPG, which was produced as joint
petroleum product with other dutiable petroleum product
by chemical reaction/fraction of common blend of raw
material is proper?"
(ii) "Whether the Hon'ble Tribunal was right in holding that
the Respondents are not required to pay any amount
under Rule 6(3) of Cenvat Credit Rules, 2004 in respect
of LPG cleared under exemption under PDSP?"
(iii) "Whether the Hon'ble Tribunal was right in allowing
additional new grounds filed by the Respondents that
Liquefied Petroleum Gas is a Byproduct and therefore
Rule 6 has no application in the case of Liquefied
Petroleum Gas?"
(v) "Whether the Hon'ble Tribunal was right in holding
Liquefied Petroleum Gases as a byproduct of petroleum
refinery and not as a joint product with other petroleum
products that emerge by chemical reaction/fraction of
common blend of raw material?"
2. It appears from the materials on record that a notice dated
26.10.2016 was issued to the respondent calling upon to show
cause as to why the refund claim towards the Excise duty of
Rs.8,31,32,211/- filed dated 28.07.2016 should not be rejected.
The claim towards refund by the respondent was on the following
grounds:
"i) The provisions of Rule 6(1) of the Cenvat Credit Rules,
2004 are not applicable to product LPG which is leviable
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
to excise duty @ 8% LPG is not exempted goods. Rule
6(1) prohibits for allowing Cenvat Credit on input or input
service which are used in the manufacture of exempted
goods.
i) Whenever Ready LPG is removed to PSU Oil companies
under Domestic LPG Subsidy Scheme, End Use
exemption of duty is claimed. There is no prohibition in
Cenvat Credit Rules restricting availment of credit on
input and input services when exemption is claimed
under End Use Notification at the time of removal of
goods. The prohibition is only for availment of credit both
for input and input services for manufacture of exempted
goods.
ii) When input and input services credit are availed for
excisable goods which is the case of LPG, there is no
restriction in the Cenvat Credit Rules, 2004 for utilizing
the credit thus availed.
iii) In view of the above, they are not required to reverse the
input and input services credit under Rule 6(3) of the
Cenvat Credit Rules, 2004, for removing LPG under End
Use exemption Notification to PSU Oil companies under
Domestic LPG subsidy Scheme."
3. The respondent is engaged in the manufacture of excisable
goods like Motor Spirit, High Speed Diesel, LPG etc. It is the case
of the appellant that the respondent has been availing credit of
duty paid on the input and capital goods and input service in terms
of the provisions of the CENVAT Credit Rules, 2004. The refund
claim was made in respect of the CENVAT Credit Reversed / Paid
under Rule 6(3) of the CENVAT Credit Rules, 2004 for the period
between April, 2015 and March, 2016 on removal of the LPG
under the Domestic Subsidy Scheme as under:
i) The amount reversed / paid on inputs attributable to LPG
in terms of Rule 6(3A)(c)(i) Rs.2,20,32,262/-.
Total: Rs.8,31,32,211/-
ii) Amount reversed / paid on input services as per formula
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
prescribed under rule 6(3A)(c) (iii) after final adjustment of
credit in terms of rule 6(3A) (f) Rs.6,10,99,949/-.
4. The Deputy Commissioner, CGST & Central Excise, Division
- 1, Jamnagar vide order dated 22.02.2018 rejected the refund
claim. The operative part of the order passed by the Deputy
Commissioner reads thus:
"ORDER::
The refund claim of Rs.8,31,32,211/- filed by the
Noticee i.e. M/s. Reliance Industries Ltd. Jamnagar, vide
their reference No.RIL/JMN/Refinery/LPG Refund/2015-
16/686 dated 28.07.2016 is rejected.
The Show Cause Notice
No.LTU/MUM/G:LT-3/RIL/Refund/JMN/185/2016-17 dated
26.10.2016 issued by the Assistant Commissioner, Central
Excise & Service Tax, (GLT-3) L.T.U., Mumbai is disposed
off in above terms.
(Manjunatha T.)
Deputy Commissioner
CGST & Central Excise Division-1,
Jamnagar"
5. The respondent went in Appeal before the Commissioner.
The Appeal came to be allowed. The pivotal issue before the
Commissioner was whether the respondent was entitled for the
refund of the CENVAT Credit Reversed / Paid for the inputs
attributable to the LPG in terms of Rule 6(3A) of the Rules, 2004.
While allowing the Appeal, the Commissioner held as under:
"7.4 I find that the lower adjudicating authority has relied on
decision of the Hon'ble CESTAT, Ahmedabad in the case of
Essar Oil Limited reported as 2017 (345) ELT 645 (Tri. -
Ahmd.) wherein it is held that the judgment of the Hon'ble
Rajasthan High Court in the case of Hindustan Zinc Limited
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
relied upon by Essar Oil Limited is not applicable since the
factual matrix of the reported upon case was different.
However, I find that the case of Essar Oil Limited is similar to
the case of DCW Limited, which had cleared final products
without payment of central excise duty under an exemption
the assessee was not required to pay amount under Rule
57CC of Central Excise Rules, 1944. The appeal filed by the
department before the Hon'ble CESTAT, Chennai has been
dismissed vide order dated 24.6.2018 reported as 2009
(234) ELT 163 (Tri. - Chennai) upheld by the Hon'ble Madras
High Court vide judgment dated 21.10.2008 reported as
2011 (274) ELT 183 (Mad.) and affirmed by the Hon'ble
Supreme Court reported as 2014 (303) ELT 321 (SC).
Hence, I find that the decision of the Hon'ble CESTAT,
Ahmedabad in the case of Essar Oil Limited is per incuriam
and TESTEDerefore, cannot be applied in the present case.
7.5 My above views are supported by the judgment of the
Hon'ble Gujarat High Court in the case of Haiderbeg,
Rahimbeg Mirza reported as 2016 (340) ELT 282 (Guj.)
wherein it has been correctly held as under:
"13. After considering and discussing various case
laws, the ApexCourt found that in case a Bench
considering the question of law has either ignored a
Constitution Bench judgment or a judgment of the
Larger Bench either of the Apex Court or the High
Court, the decision rendered by a Bench has to be
held per incuriam.
(Emphasis supplied)
7.6 The appellant has further contended that for applicability
of Rule 6(2) and Rule 6(3) of CCR, 2004, there should be
two different final products in which common inputs are
used. I find that the Hon'ble Madras High Court in the case
of DCW Ltd. reported as 2011 (274) ELT 183 (Mad.) has
held that for the provisions of Rule 57CC(1) to apply, there
should be one final product which is dutiable and another
final product which is exempted from payment of duty or
chargeable to "Nil" rate of duty. I further find that the appeal
filed by the department against the said judgment of the
Hon'ble Madras High Court in the case of DCW Limited has
been dismissed by the Hon'ble Supreme Court in a common
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
judgment in the case of Hindustan Zine Limited reported as
2014 (303) ELT 321 (SC). I find that the factual matrix of the
case on hand is similar to that of case of DCW Limited. In
the present the appellant has used common inputs and
common input services for manufacture of only one final
product i.e. LPG, part of which were cleared on payment of
central excise duty and part of which were cleared under
exemption subject to clearance of LPG to household
domestic consumers at subsidized price under LPG Subsidy
Scheme, 2002. I also find that the Hon'ble CESTAT in the
case of Tanfac Industries Limited reported as 2010 TIOL-
1299-CESTAT-MAD has held that when the goods
manufactured by the assessee are excisable and the same
are cleared to certain categories of customers under
exemption Notification, provisions of Rule 6 are not attracted
as the rule requires manufacture of two categories of
products, one excisable and the other exempted. Similarly,
the Hon'ble CESTAT in the case of Goyal Proteins Limited
reported as 2015 (325) ELT 165 (Tri. - Del.) has held that
when compliance of a provision is impossible, an assessee
cannot be penalized for his failure to comply with the same. I
further find that under erstwhile Rule 57CC of Central Excise
Rules, 1944, a singular expression i.e. 'any final product'
was used at the first place and therefore, there was a need
to specifically use another singular expression i.e. 'any other
final product' at the second place, however, in Rule 6(2) of
CCR, 2004, the expressions have been used in plural i.e.
'final products' meaning thereby there must be at least two
products. In view of above, I am of the considered 2 view
that to apply provisions of Rule 6(2) and Rule 6(3) of CCR,
2004, there should be two different final products, one which
is cleared on payment of central excise duty and another is
cleared without payment of central excise and common input
services for manufacture of only one final product i.e. LPG
and quantum of LPG cleared without payment of central
excise duty is known to the appellant at the time of clearance
only.
8. In view of above, I hold that the appellant is not required
to reverse cenvat credit under Rule 6(3) of CCR, 2004 in
respect of inputs and input services used in the manufacture
of LPG by the appellant since, provisions of Rule 6(1) and
Rule 6(2) are not applicable because the exemption to LPG
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
was limited to the clearances made to house hold domestic
consumers under LPG subsidy scheme. Hence, the
appellant is entitled for refund claims of Cenvat credit
reversed under Rule 6(3A) of CCR, 2004 and the impugned
orders rejecting refund claims are not correct, legal & proper
and hence liable to be set aside.
9. In view of above, I set aside the impugned orders and
allow the appeals filed by the appellant.
9.1 The appeals filed by the appellant are disposed off as
above.
Sd/-
(KUMAR SANTOSH)
PRINCIPAL COMMISSIONER (APPEALS)
By RPAD
To,
M/s. Reliance Industries Limited, Village
Meghpar, Padana, Gagva, District Jamnagar-361140"
6. The Revenue being dissatisfied with the order passed by the
Commissioner went in Appeal before the Tribunal. The Tribunal
dismissed the Appeals holding as under:
"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
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
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.
Therefore, the input and input services of such dutiable
product the Cenvat Credit on such input and input services
cannot be curtailed or reduced by applying rule 6 (1), 6 (2)
and 6 (3A) of Cenvat Credit Rules, 2004. In this undisputed
facts when the entire quantity of input and input services
was required for manufacture of dutiable finished goods and
when LPG emerged inevitably without any deliberate
attempt to manufacture it, the provision of Rule 6 (1) was
not violated in any manner.
4.6 The identical issue has been considered by the jurisdic-
tional Hon'ble Gujarat High Court in the case of Sterling
Gelatin reported in 2011 (270) ELT200 (Guj.) wherein in the
issue before the Hon'ble Court was that whether the as-
sessee was required to pay an amount of 8%/10% of the
value of exempted goods under Rule 6 (3) (b) of the CCR.
as one of the inputs namely Hydrochloric acid was used in
the manufacture of dutiable goods Gelatin) as well as for
manufacture of exempted goods Dicalcium Phosphate and
the assessee was not maintaining separate account under
rule 6(2) of CCR 2004. The Hon'ble Gujarat High Court after
examining the provision of Cenvat scheme and the argu-
ment that the assessee therein could not have manufac-
tured Gelatin using a lesser quantity of Hydrochloric acid
held that rule 6 (1) of the CCR itself would not come into
play. The relevant observation of Hon'ble High Court is re-
produced below:
"6. The undisputed facts of the care are that the purpose
of manufacture of Gelatin, cleared bone chips are
charged to acidulation vats with the help of conveyors.
Each vat is filled with pre-determined quantity of bine
chips and then soaked with Hydrochloric Acid. The
bones contain mineral matter like Phosphate Salts. The
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
Hydrochloric Acid leaches out the phosphates forming
Mono Calcium Phosphate. The phosphate solution com-
monly known as Mother Liquor is pumped out of the
acidulation vats into precipitation tanks where lime solu-
tion is added which reacts with Mono Calcium Phos-
phate converting it into Di-Calcium Phosphate Insofar as
manufacture of Gelatin is concerned, after removal of
Mother Liquor the demineralised bones are hydraulically
transported to the washing section and thereafter pro-
cessed further to manufacture Gelatin. The above man-
ufacturing 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 manufac-
turer 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 unascertain-
able), the entire quantity of Hydrochloric acid in respect
of which Cenvat credit is availed of is used by the re-
spondent for the manufacture of Gelatin. Considering
the process of manufacture adopted by the respondent,
it is not possible to manufacture Gelatin without corre-
sponding production of Mother Liquor This Mother
Liquor which otherwise is in the nature of a waste prod-
uct, is used by the respondent assessed for the manu-
facture 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
manufactures final products and exempted goods from
the common input to maintain separate accounts for
receipt, consumption and inventory of inputs. Examining
the applicability of the aforesaid rules to the facts of the
present case, as noted hereinabove, it is not as if more
quantity of Hydrochloric Acid is used than that required
for manufacturing Gelatin or that by using a smaller
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
amount of Hydrochloric Acid, the production of Mother
Liquor could be averted. In the manufacturing process
adopted by the assessee, it is not possible to
manufacture Gelatin without Mother Liquor coming into
existence. Thus, when the entire quantity of input viz.
Hydrochloric Acid is used in the manufacture of the final
product being Gelatin which is a dutiable product, the
mere fact that a by-product emerges during the process
would not bring the by-product within the ambit of Rule 6
of the Rules so as to call for maintaining separate
accounts in respect of the same. When the entire
quantity of input is used in the manufacture of Gelatin,
the question of maintaining separate accounts or of
paying on percentage of the total price of the exempted
goods would not arise. In the peculiar facts of the
present case, sub-rule (1) of Rule 6, itself would not
come into play inasmuch the manufacturer does 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.
10. In the facts of the present case, it is not as if by
using a smaller quantity of input Hydrochloric Acid, the
respondent could have averted the emergence of
Mother Liquor. In other words, in the technology utilized
by the respondent for the manufacture of Gelatin, the
emergence of Mother Liquor was inevitable. Hence,
while it is no doubt correct to say that Hydrochloric Acid
has been used in or in 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
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
6(2) of the Cervat Credit Rules, 2002, the respondent
was required to maintain separate accounts for receipt;
consumption and 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 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 applica-
bility to the facts of the present case inasmuch as in the
facts of the said case, common input had been con-
sciously used in the manufacture of two final products,
whereas in the facts of the present case, the input Hy-
drochloric Acid is used for the manufacture of Gelatin
alone, however during the course of manufacturing
process a by-product viz. Mother liquor also emerges.
14. In the light of the view taken by the Court, it is imma-
terial as to whether or not the new applicable rules, viz.,
Cenvat Credit Rules, 2002/2004 contain any provisions
akin to Rule 57CC and Rule 57D of the erstwhile Central
Excise Rules, 1944"
Applying the ratio the above judgment which directly
applicable to the facts of the present case for the reason that
in the aforesaid judgment the appellant intended to
manufacture gelatin as the main product and exempted
goods i.e. Dicalcium Phosphate generated unavoidably in the
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
course of manufacture of gelatin same quantum of input and
input services used for manufacture of gelatin. In the present
case the entire quantity of input and input services was used
for manufacture of dutiable products namely motor sprit (MS),
High Speed Diesel Oil, aviation Turbine fuel (ATF),Naphtha,
Fuel oil etc. only because of generation of LPG the quantum
of input and input services used for manufacture of motor
sprit (MS), High Speed Diesel Oil, aviation Turbine fuel
(ATF), Naphtha, Fuel oil etc. does not get reduced that same
entire quantity of input and input services has been used in
manufacture of dutiable goods even though the LPG is
generated in the stream of entire manufacture process. The
Cenvat credit of only such quantity of input and input services
to be denied which is not used in the manufacture dutiable
goods but in the present case there is no dispute that the
entire quantity of input and input services has been used for
manufacture of dutiable goods therefore even though the
LPG arising in the course of manufacture only because of
that it cannot be said that there is reduction in the quantity of
input and input services used in the manufacture dutiable
goods."
7. In such circumstances referred to above, the Revenue is
here before this Court with the present Tax Appeal.
8. We have heard Mr. Nikunt Raval, the learned senior standing
counsel appearing for the Revenue and Mr. Mihir Joshi, the
learned senior counsel appearing for the respondent.
9. The contentions of the Respondent which found acceptance
with the Tribunal are the following -
a. That LPG is not an exempted product as it attracts
duty when cleared from the factory, save an except
when it is cleared for supply under the PDS through
Oil Marketing Companies. Rule 6 therefore does not
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
apply to the Respondent as the same can be invoked
only where two different final products, one dutiable
and other exempt, as held by Madras High Court in
the case of CCE vs DCW - 2011 (274) E.L.T. 183.
b. The object behind Rule 6 is to determine the quantity
of input and input services that have gone in the
manufacture of exempted goods. In this case inputs
and input services required for manufacturing value
added final products such as Motor Spirit, High Speed
Diesel, Aviation Turbine Fuel, Naptha, etc are
common with those for the manufacture of LPG and
therefore applying the judgment in the case of CCE
vs. Sterling Gelatin reported in 2011 (270) E.L.T.
200 (Guj.) no part of the cenvat credit needs to be
reversed as the entire quantity of inputs and input
services are required and actually consumed for the
manufacture of dutiable final product. No incremental
quantity of input and input services are required for
producing the exempt final product.
c. That Rule 6 is otherwise incapable of application as
the point of time the inputs and inputs services are
received it is impossible for any manufacturer to
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
decide the exact quantity of input and input services
that will get consumed in the manufacture of
exempted goods vis-à-vis the quantity of input and
input services that would be used for the manufacture
of dutiable final products, as held by the Rajasthan
High Court has, in the case of Hindustan Zinc
reported in 2008 (223) ELT 149, which has been
affirmed by the Apex Court in 2014 (303) ELT 321.
The requirement of maintain separate accounts
regarding receipt and consumption in these
circumstances is an impossible condition to fulfill and
consequently deemed to be per se satisfied.
d. LPG inevitably emerges in the process of refining of
crude oil and is therefore a by-product. Even by
applying the principle of Equal Economic Importance
laid down by the Larger Bench of the Tribunal in the
case of Alkali Manufacturer Association of India v
DGAD reported in 2016 (342) ELT 465, LPG is a by-
product, as the value of its clearances under
exemption was a meagre 0.64 and 0.38 of the total
value of clearances for FY 2015-16 and 2016-17. It is
settled law that the requirement of reversal under
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Rule 6 of CCR does not apply to by-products.
10. The Revenue has, in the present appeal, primarily contended
that the Tribunal has erred in holding that LPG emerges as a by-
product and hence the provisions of Rule 6 of CCR have no
application. It has also contended that the judgment in the case of
Sterling Gelatin is not applicable to the facts of the present case.
11. It is submitted that the Tribunal has rightly held that LPG is a
by-product, as it arises inevitably in the process of manufacture of
Motor Spirit, High Speed Diesel, Aviation Turbine Fuel etc., as well
as by virtue of the fact that it does not have Equal Economic
Importance vis-à-vis the value added final products. However,
assuming for the sake of argument that LPG is not a by-product,
even then, there being no dispute in the present appeal on the
other findings arrived at by the Tribunal, the appeal filed by the
Revenue thus deserves to be dismissed.
12. Insofar as the challenge in the Revenue's appeal to the
inapplicability of the judgment in the case of Sterling Gelatin is
concerned, it is submitted that there is nothing in the appeal to
disprove the findings of fact arrived at by the Tribunal, that -
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
a. the assessee could not have manufactured its value
added products such as Motor Spirit, High Speed
Diesel, Aviation Turbine Fuel, Naptha, etc., using a
lesser quantity of inputs or input services; and,
b. LPG inevitably arises in the manufacture of the
aforementioned value added products and that no
incremental inputs or input services are used for the
same.
It is also relevant to note here that this Court has in the case
of Sterling Gelatin held that the provisions of Rule 6 of CCR are
inapplicable if the dutiable final product could not have been
manufactured using a lesser quantity of inputs and input services.
13. In the case of Sterling Gelatin (Supra), the assessee therein
had availed credit on hydrochloric acid, which was used in the
manufacture of dutiable final product viz. gelatin as well as in the
manufacture of exempted goods viz. Di-Calcium Phosphate. The
issue before the Court was whether the assessee was required to
pay an amount of 8%/10% of the value of exempted goods under
Rule 6(3)(b) of the CCR. This Court, held that since the assessee
could not have manufactured gelatin (dutiable final product) using
a lesser quantity of hydrochloric acid, Rules 6(1) and 6(2) of the
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
CCR would not come into play. The relevant observations of this
Court are extracted herein below for ease of reference:
"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 manufactures final products
and exempted goods from the common input to
maintain separate accounts for receipt,
consumption and inventory of inputs. Examining
the applicability of the aforesaid rules to the
facts of the present case, as noted
hereinabove, it is not as if more quantity of
Hydrochloric Acid is used than that required
for manufacturing Gelatin or that by using a
smaller amount of Hydrochloric Acid, the
production of Mother Liquor could be
averted. In the manufacturing process
adopted by the assessee, it is not possible to
manufacture Gelatin without Mother Liquor
coming into existence. .................... When
the entire quantity of input is used in the
manufacture of Gelatin, the question of
maintaining separate accounts or of paying a
percentage of the total price of the exempted
goods would not arise. In the peculiar facts of the
present case, sub-rule (1) of Rule 6, itself would
not come into play inasmuch the manufacturer
does 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.
.....................
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10. In the facts of the present case, it is not
as if by using a smaller quantity of input
Hydrochloric Acid, the respondent could
have averted the emergence of Mother
Liquor. In other words, in the technology
utilized by the respondent for the
manufacture of Gelatin, the emergence of
Mother Liquor was inevitable. .....................
...................
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."
14. It can be seen from the aforesaid extract that this Court did
not rule out the applicability of Rules 6(1) and 6(2) of the CCR on
the ground that the exempt product was a by-product, but has
done so by observing that the assessee could not have used a
lesser quantity of inputs and inputs for manufacture of its dutiable
final product.
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
15. It is further submitted that the Apex Court has, in the case of
in the case of CCE vs. National Organic Chemical Industries
Limited, 2008 (232) ELT 193 (SC) held that if the dutiable final
product could not have been manufactured using a lesser quantity
of inputs, then the entire input must be attributed to having been
used in the manufacture of the said dutiable final product, even if
some other exempt final product emerges, inevitably. This is also
the ratio of the judgment of the Apex Court in the case of
Swadeshi Polytex Ltd. vs. CCE reported in 1989 (44) ELT 794
(SC). The relevant observations of the Apex Court are reproduced
herein below for ease of reference -
"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
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
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 appears that the
Tribunal erred when it held that the
appellants were not entitled to a part of the
credit of duty since ethylene glycol when it
interacts with DMT also gives rise to
methanol. This construction would frustrate
the object of exemption if something which
evidently arises out of the interaction. Even
prior to amendment to notification No. 201/79
with effect from 11-4-87, the only situation
where the credit of the duty paid on the
inputs could be denied was only where the
final products were wholly exempt from the
duty of excise or chargeable to nil rate of
duty. In the present case, the excisable
goods, namely, polyester fibre were not
wholly exempt from duty nor chargeable to
nil rate of duty. It cannot be read in the
notification that the notification would not be
available in case non-excisable goods arise
during the course of manufacture. In fact, the
Tribunal seems to have erred in not bearing
in mind that exemption notification was
pressed in service in respect of polyester
fibre which is excisable goods and not in
respect of methanol which arises as a by-
product as a part and parcel of chemical
reaction. It appears further on a comparison
of the Rule 56A and the Notifn. No. 201/79
that these deal with the identical situation
22. In our opinion , the same analogy
C/TAXAP/219/2022 CAV JUDGMENT DATED: 05/05/2022
and reasoning would apply when the
methanol arises as a result of chemical
reaction and not as a result of any by-
product. In the instant case, the methanol
was non-excisable. Just because
methanol arises as a part and parcel of
the chemical reaction during the process
of manufacture, it cannot be said that
methanol was not used in the
manufacture of polyester fibre. The
intention of the Government is evident
furthermore, from the trade notice of Pune
Collectorate No. 31/81. The Tribunal,
therefore, should have taken into
consideration the trade notice for
interpretation of exemption Notifn. No.
201/79, which was para materia with Rule
56A."
Thus, the issue whether the LPG is byproduct or otherwise
has become academic and need not required to be decide.
In the result this Appeal fails and is hereby dismissed.
(J. B. PARDIWALA, J)
(NISHA M. THAKORE,J)
Y.N. VYAS
