Gujarat High Court
The Principal Commissioner, ... vs M/S. Reliance Industries Ltd on 23 August, 2023
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/216/2023 ORDER DATED: 23/08/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 216 of 2023
With
R/TAX APPEAL NO. 218 of 2023
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THE PRINCIPAL COMMISSIONER, CENTRAL GST AND CENTRAL
EXCISE COMMISSIONERATE
Versus
M/S. RELIANCE INDUSTRIES LTD.
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Appearance:
MR NIKUNT K RAVAL(5558) for the Appellant(s) No. 1
GANDHI LAW ASSOCIATES(12275) for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 23/08/2023
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV)
1. Heard learned advocate Mr. Hirak Shah for
the appellant and learned advocates
Mr. Nisarg Desai and Ms. Pravalikha
Batthini for Gandhi Law Associates for the
opponent.
2. The Co-ordinate Bench of this Court in Tax
Appeal No. 196 of 2023 vide order dated
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31.03.2013 assigned the following reasons
while dismissing the Tax Appeal:
"5. Noticeably, substantial questions
of law which were subject matter in
Tax Appeal No. 219 of 2022 and those
framed in the present appeal, are same
and nearly identical. In the Tax
Appeal No. 219 of 2022 , the Division
Bench of this court held that the
question whether the LPG is by-product
or not, has come an academic issue in
view of the decisions of the supreme
court in CCE vs. National Organic
Chemical Industries Limited [2008
(232) ELT 193 (SC)] and Swadeshi
Polytex Ltd. vs. CCE [1989 (44) ELT
794 (SC)]. 5.1 It would be relevant to
extract the relevant discussion from
judgment dated 5.5.2022 in Tax Appeal
No. 219 of 2022,
"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
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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
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
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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.
9. ...
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.
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11. ...
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
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assessee could not have used a
lesser quantity of inputs and
inputs for manufacture of its
dutiable final product.
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
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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
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
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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
byproduct 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 and reasoning would apply
when the methanol arises as a
result of chemical reaction and not
as a result of any byproduct. In
the instant case, the methanol was
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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."
5.2 Incidentally, it may be noted that
the aforesaid judgment dated 5.5.2022
of the Division Bench of this court
was relied on by the Central Excise
and Service Tax Appellate Tribunal,
Mumbai in respect of similar claim of
refund by the very company in relation
to the period from April, 2010 to
March, 2011, to set aside the Order-
in-Original which rejected the refund
request.
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6. Learned advocate for the appellant
when confronted with the decision of
the Division Bench of this court of
the said Tax Appeal No. 219 of 2022
involving the same issue and
questions, was entirely at his
receiving end and was not in a
position to dispute the position of
law emerging from the said decision,
which holds the field.
6.1 In view of the above reasons and
discussion, no question of law much
less any substantial question of law
can be said to be arising. The
proposed substantial questions of law
are already considered, decided and
answered. No other question arises.
7. The present appeal stands
meritless. The challenge to the order
of Central Excise and Service Tax
Tribunal fails. The appeal is
summarily dismissed."
3. In view of the reasons reproduced here in
above, Tax Appeal stands dismissed.
(BIREN VAISHNAV, J)
(BHARGAV D. KARIA, J)
JYOTI V. JANI
