Customs, Excise and Gold Tribunal - Mumbai
Aarti Drugs Ltd. vs Commissioner Of Central Exicse, Mumbai ... on 1 March, 2001
Equivalent citations: 2001(76)ECC472, 2001(133)ELT385(TRI-MUMBAI)
ORDER
Gowri Shankar, Member (Technical)
1. Aarti Drugs Ltd has its factory at Tarapore. It manufactures in this factory methyl nitro imidazole (MNI for short), which it cleared on payment of duty. The manufacturer took Modvat credit of the duty paid on the inputs used in the manufacture of these goods for the purpose of paying duty on the MNI. As a result of the various processes involved in the manufacture of this commodity, mother liquor consisting of a solution of ammonium sulphate in water, containing traces of nitric acid (one of the chemicals used in manufacture) emerges as a by product. The manufacturer obtains ammonium sulphate (still containing traces of nitric acid) by removal of water from the solution. The appellant cleared this ammonium sulphate without payment of duty under notification 8/96 which unconditionally exempted it from duty.
2. A notice issued on 31.3.1997 alleged that since the manufacturer clears ammonium sulphate, one of its final products, without payment of duty, the provisions of Rule 57CC would apply, and therefore proposed to recover from it 8% of the sale price of ammonium sulphate, by applying sub rule (1) of this rule. In its reply to the notice, the manufacturer contended that ammonium sulphate was a by-product and the provisions of Rule 57CC would not apply to a by-product. Sub rule (2) of Rule 57D permitted credit taken on the inputs contained in by-product, refuse or waste even if the final product were exempted. The Assistant Commissioner accepted this contention and dropped the proceedings.
3. The department appealed this decision to the Commissioner (Appeals). The appeal reiterated essentially what was in the notice. The Commissioner (Appeals) accepted the grounds in the appeal, allowed it, and set aside the Asst. Commissioner's order. Hence this appeal.
4. The reason advanced by the Commissioner (Apprealso for his conclusion is as follows:
"I have carefully gone through the case records and the proceedings of the personal hearing. The issue involved in the present appeal is whether assessee is required to pay an amount of 8% adv. as per the provisions of Rule 57CC of Central Excise Rules, 1944 on the value of ammonium sulphate arising as a by product in the manufacture of MNI and is chargeable to nil rate of duty under Notification No 8/96 dated 23.7.1966. From the case records, it is seen that the ammonium sulphate, which arises as a by product is sold as a fertilizer at a contracted price of Rs 3.15 per Kg and is a marketable goods hence the provisions as stipulated under Rule 57CC are applicable. Rule 57D is not relevant in this case as Modvat credit of inputs is not denied to the assessee on the ground that the said by product ammonium sulphate is leviable to nil rate of duty."
5. The essence of the scheme of modvat, as contained in Section AA of Chapter of the Central Excise Rule, is that duty paid on goods which are used further for the manufacture of other excisable goods can be used towards the duty payable on such other goods. Rule 57A defines inputs as "goods used in or in relation to the manufacture of final product," which it in turn defines as "finished excisable goods." Going by this definition, any goods emerging from a manufacturing process, whether the final product that the manufacturer set out to produce, or incidental or unavoidable by product, waste, refuse would all be final product so long as they are excisable. Rule 57C specifically provides that no credit can be taken on inputs used in the manufacture of final products which are exempted from duty or subjected to nil rate of duty. An exception is made in the case of by product, waste and refuse. Sub rule (1) of Rule 57D provides that "Credit of specified duty shall not be denied or varied on the ground that 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 57A.".
6. Prior to 1.9.1996. the provision of Rule 57C were given effect by the practice (authorised by the Board in instructions contained in its circular F.No. 334/14/95TRU dated 22.7.1996) of taking credit upon the entire quantity of inputs which were received and reversing the credit taken on the quantity of the inputs used in the manufacture of the goods cleared without payment of duty. Thee were apparently some difficulties experienced in implementing this procedure and therefore rule 57CC was enacted, coming into force on 1.9.1996. The instructions contained in F.No 334/14/95TRU dated 22.7.1996 of the Ministry of Finance with regard to the Budget of 1996, in which Rule 57CC was introduced (reproduced in 1996 RLT (15) M-107-111) to attribute the necessity for the rule of the complicated nature of the procedure being followed to the reversal of the credit subsequent to it being taken, and the difficulty in determining whether the credit has been correctly reversed to the required extent or not.
7. Sub rule (I) of Rule 57CC, with which we are concerned, provides, inter alia, that no credit shall be allowed on such quantity of inputs which are used in the manufacture of final products on which no duty is payable, except when the final products are cleared to a unit in a Free Trade Zone, a hundred per cent export-oriented undertaking, a unit in a Electronic Hardware technology Park or Software technology Park, or supplied to the United Nations or an international organisation for their official use or supplied to projects funded by them, to which exemption under notification 108/95 is available. The rule requires the manufacturer in such cases to pay 8% of the sale price of the goods.
8. The notice issued to the appellant alleged that "the mother liquor, the solution of ammonium sulphate in water was an intermediate by product", out of which ammonium sulphate was manufactured. It thus alleged that the ammonium sulphate manufactured by the appellant was a final product. This was being cleared without payment of duty under the exemption. Hence the provisions of Rule 57CC were attracted. The Assistant Commissioner had held ammonium sulphate to be a by-product generated during the process of manufacture of MNI, to which the benefit of Rule 57D was available. This was questioned in the department's appeal.
9. The Commissioner (Appeals) does not question the finding of fact that ammonium sulphate is a by-product. He however says that it is "clearly recognised marketable product sold by the assessee." Elsewhere he says, "It is clear that once marketability of an article is established, the item attracts duty liability."
10. We have already reproduced above the Commissioner (Appeals)' order. We agree that once an item is found to be marketable, it attracts duty. Nevertheless, such attraction to duty is conditional upon its not being an exemption to the product. If an excisable product is exempted from duty, no duty is required to be paid. In any event, that duty is a duty payable in terms of Section 3 of the Act. The amount required to be deposited in terms of Rule 57CC (I) has nothing to do with that duty. It has no relation to the value under Section 4 of goods or for the credit taken on them. It is in fact not duty at all, as held by the Board in its circular B-42-1-96 dated 27.9.1996 reproduced in 1996 (17) RLT M-17. There is therefore absolutely no basis in the appeal and for the Commissioner (Appeals) order. This alone should be enough to dispose of the appeal. However, even on the assumption (which appears, although not very clearly, in the department's appeal) that even in the case of by product, Rule 57CC would apply, we are still unable to accept the department's stand.
11. As we have explained above, the position prior to enactment of Rule 57CC was clear. Notwithstanding that a by product was exempted from duty, a manufacturer could take credit of the duty paid on the inputs which exemption in that product, as the rule itself says "contained in the by product." We have also seen the object of the enactment of Rule 57CC to introduce a clear, viable procedure in the place of one then prevailed earlier. By insertion of Rule 57CC, there was no intention to eliminate the benefit available under Rule 57D (1) to a by product. As a matter of fact, Rule 57D continues unamended even now. The marketability or otherwise of a by-product is not really an issue. It is only a component which is excisable that is marketable can therefore be exempted from duty. The fact that the exempted by product referred to Rule 57D therefore is marketable is not significant.
12. The departmental representative's objection was on the ground that ammonium sulphate is not a by- product because it is obtained by further processing the mother liquor cannot be accepted for the reason that this point had already been decided by the Assistant Commissioner and his decision in this regard was not questioned in the appeal before the Commissioner (Appeals). The Commissioner (Appeals) also agrees that ammonium sulphate is a by-product.
13. There was therefore no basis for invoking the provision of Rule 57CC.
14. The appeal is accordingly allowed. Impugned order set aside.