Custom, Excise & Service Tax Tribunal
Hindalco Industries Limited vs Vadodara-Ii on 2 November, 2023
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Zonal Bench At Ahmedabad
REGIONAL BENCH- COURT NO. 3
Excise APPEAL No. 10905 OF 2019
[Arising out of OIO-VAD-EXCUS-002-COM-012-18-19 dated 13.02.2019 passed by
Commissioner (Appeals) Commissioner of Central Excise, Customs and Service Tax-VADODARA-
II]
HINDALCO INDUSTRIES LTD ....Appellant
UNIT BIRLA COPPER
VILLAGE LAKHIGAM, PO DAHEJ
BHARUCH-GUJARAT
VERSUS
C.C.E. & S.T. VADODARA-II ....Respondent
1ST FLOOR... ROOM NO.101, NEW CENTRAL EXCISE BUILDING, VADODARA, GUJARAT-390023 WITH EXCISE CROSS APPEAL No. 10122 OF 2016 in Excise APPEAL No. 11161 OF 2018 [Arising out of OIA-VAD-EXCUS-002-APP-580-2017-18 dated 06.11.2017 passed by Commissioner (Appeals) Commissioner of Central Excise, Customs and Service Tax-VADODARA-
I]
HINDALCO INDUSTRIES LTD ....Appellant
(UNIT -BIRLA COPPER) VILL- LAKHIGAM,
PO., DAHEJ, BHARUCH-GUJARAT
VERSUS
C.C.E. & S.T. VADODARA-II ....Respondent
1ST FLOOR... ROOM NO.101,
NEW CENTRAL EXCISE BUILDING,
VADODARA, GUJARAT-390023
AND
Excise APPEAL No. 11792 OF 2016
[Arising out of OIO-BHR-EXCUS-000-COM-001-024-2016-17 dated 27.05.2016 passed by Commissioner of Central Excise, Customs and Service Tax-Bharuch] C.C.E. BHARUCH ....Appellant VADODARA-II, GST BHAVAN,SUBHANPURA,VADODARA VADODARA GUJARAT-390023 VERSUS HINDALCO INDUSTRIES LTD ....Respondent (UNIT -BIRLA COPPER) VILL- LAKHIGAM, PO., DAHEJ, BHARUCH-GUJARAT APPEARANCE:
Shri Anand Nainawati, Advocate for the appellant Shri P.K. Rameshwaram, Additional Commissioner (Authorized Representative) appeared for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. C.L. MAHAR Final Order No._12425-12427 /2023 DATE OF HEARING: 03.07.2023 DATE OF DECISION: 02.11.2023 RAMESH NAIR These appeals have been filed by the assessee and revenue against the following respective order as per the details given below. All these appeals are disposed of by a commonorder as the issue involved is the same and for different periods.
Sr. Appeal No. Name of the ORDER-IN-ORIGINAL Period Demand
No. Appellant No./ORDER-IN-
APPEAL& Date
1. E/11792/2016 Commissioner BHR-EXCUS-000-COM- March 2,01,51,034/-
of Central 001-024-16-17 dtd. 2015 to
Excise, 27.05.2016 July 2015
Bharuch
2. E/11161/2018 M/s Hindalco 125/ADJ/DEM/JC- August 1,65,99,029/-
Industries Ltd. VVP/16-17 dtd. 2015 to
29.12.2016 May 2016
3. E/10905/2019 M/s. Hindalco VAD-EXCUS-002-COM- June 2016 2,26,23,144/-
Industries Ltd. 012-18-19 dtd. to June
30.01.2019 2017
2. The relevant facts that arise for consideration are that M/s Hindalco Industries Ltd. (hereinafter referred to as Appellant) are engaged in the manufacture of final products such as Copper Cathode, Continuous Cast Copper Rods etc. It was alleged that Sulphuric Acid was manufactured by the appellant from the Sulphur Dioxide gases emanating during the smelting of the Copper Concentrate. Copper Concentrate was the common input used for manufacture of the goods cleared on payment of duty such as Copper Cathodes, Continuous Cast Copper Rods etc as well as in the manufacture of exempted goods. The appellant did not maintain separate account for receipts, consumption and inventory of inputs used in the manufacture of exempted goods viz., Sulphuric Acid i.e the goods cleared to units other than 100% EOU at NIL rate of duty under the cover of Annexure-I certificates and dutiable goods i.e. goods cleared on payment of central excise duty.
The said clearances of goods made to units other than 100% EOU at NIL rate of duty do not fall within the scope of excluded category specified under sub-rule (6) to Rule 6 of the Cenvat Credit Rules 2004. During the disputed period appellant also sold such sulphuric acid on payment of excise duty and also sold without payment of excise duty under exemption of Sr. No 86 of the Notification No. 12/2012-CE dtd. 17.03.2012 for use in the manufacture of fertilizers. Accordingly the appellant was liable to either pay an amount equal to 5%/6%/8% /10% of the value of exempted goods viz. Sulphuric Acid under Sub-rule 3(i)of Rule 6 of CenvatCredit Rules (CCR) , 2004 or follow the option provided under the amended Rule 6 (3)(ii) of CCR, 2004 or follow the option provided under amended Rule 6(3)(iii) of CCR, 2004. In the aforesaid circumstances, the appellant were issued a total 21 show cause notices covering the period from Jul 2005 to 2015, proposing demand in terms of provisions of Rule 6 of Cenvat Credit Rules 2004 read with Rule 14 of the Cenvat Credit Rules 2004. The above 21 Show cause notice were adjudicated by the Ld. Commissioner vide ORDER-IN- ORIGINAL No, BHR-EXCUS-000-COM-001-024-16-17 dtd. 27.05.2016. The Ld. Commissioner dropped the proceedings pursuant to the Judgment dtd. 06.05.2014 of the Hon‟ble Supreme Court in Appellant‟s own case reported in Union of India Vs. Hindustan Zinc Ltd. - 2014(303)ELT 321(SC). The Ld. Commissioner also noted that the review petition filed by the department in this matter was also rejected by the Hon‟ble Supreme Court. Being aggrieved, the aforementioned Order-In-Original dtd. 27.05.2016 is partly challenged by the department vide appeal No. E/11792/2016-DB only to the extent the Order-In-Original drops the proceedings for the period after 01.03.2015.
3. Accordingly, the Appellant were issued periodical and identical show cause notice dtd. 09.09.2016 and 14.05.2018 for the period August 2015 to May 2016 and June 2016 to June 2017 respectively. Wherein it was alleged that after 01.03.2015, the appellant are liable to reverse an amount equal to 6% of the value of exempted sulphuric acid since the appellant have availed Cenvat credit on inputs used in the manufacture of dutiable product as well as exempted goods. The Show Cause notice dtd. 09.09.2016 was adjudicated by the Ld. Joint Commissioner vide ORDER-IN-ORIGINALdtd. 29.12.2016 wherein he confirmed the demand of Rs. 1,65,99,029 being 6% of the value of exempted Sulphuric Acid cleared during August 2015 to May 2016 alongwith interest and penalty. Aggrieved by the ORDER-IN-ORIGINAL appellant filed an appeal before the Commissioner (Appeals) who vide impugned ORDER-IN-APPEALdtd. 06.11.2017 dismissed the appeal of the Appellant. Aggrieved by the impugned order-in-appeal dtd. 06.11.2017 the appellant has filed the present Appeal No. E/11161/2018 before this Tribunal.
4. Similarly, the show cause notice dtd. 14.05.2018 was adjudicated by the Ld. Commissioner vide ORDER-IN-ORIGINALdtd. 30.01.2019 wherein he confirmed the demand for reversal of an amount of Rs. 2,26,23,144/- being 6% of the value of exempted sulphuric Acid cleared during June 2016 to June 2017 alongwith interest and penalty. Aggrieved by the impugned order the appellant have filed Appeal No. E/10905/2019.
5. Shri AnandNainawati, Learned Advocate appearing on behalf of the Appellant submits that the issue is no longer res intergra. The insertion of Explanation 1 to Rule 6(1) of the Cenvat Credit Rules, 2004 is not applicable to the present case. The circular dtd. 25.04.2016 also stands rescinded by the Board by circular dtd. 07.07.2022. The fact that Sulphuric Acid is a by-product in manufacture of copper cathodes is established in the Appellant‟s own case, by the Hon‟ble Supreme Court in Judgment reported as Union of India Vs. Hindustan Zinc Ltd. - 2014(303)ELT 321 (SC). The same is not in dispute by the department and stands accepted by the Ld. Commissioner in impugned order as well. This is also evident from the fact that in the Department‟s Appeal, the department has not challenged the portion of the Order dtd. 27.05.2016 where demand for the period prior to 01.03.2015 is dropped after observing that sulphuric acid is a by-product. In fact, the same view has also been followed by Tribunal in Appellant‟s own case in Final Order No. A/11215-11218/2023 dtd. 08.06.2023.
6. He further submit that only contention of the department is that in view of Explanation 1 inserted to Rule 6 (1) of the Cenvat Credit Rules, 2004 w.e.f. 01.03.2015 read with Board Circular dtd. 25.04.2016, Sulphuric Acid arising as a by-product is also required to be considered as „exempted goods‟ for the purpose of Rule 6 of the Cenvat Credit Rules, 2004. The Explanation inserted w.e.f. 01.03.2015 is not applicable or relevant to the facts of the present case since sulphuric acid is not a „non-excisable‟ goods. The explanation inserted w.e.f. 01.03.2015 seeks to include "non-excisable goods cleared for a consideration" within the ambit of "exempted goods" for the purpose of Rule 6. However, the exempted goods in question is sulphuric acid, which is specified in the Central Excise Tariff and even subjected to excise duty when not cleared to fertilizer manufacturer. Therefore, the same cannot be called „non-excisable goods‟. The Explanation to Rule 6 relied upon by the department is irrelevant in the present cases. He placed reliance on the following judgments.
(i) Union of India Vs. Nandi Printers Pvt. Ltd. - 2001(127)ELT 645 (SC)
(ii) Shree Mahvir Metal Works Vs. Union of India - 1998(98)ELT 580(SC)
(iii) VeeKayan Industries Vs. CCE, Chandigarh -1996(83)ELT 262(SC)
7. He also submits that reliance placed by the department on Explanation to Rule 6 inserted w.e.f. 01.03.2015 and the circular dtd.
25.04.2016 have been rejected by the Hon‟ble courts on multiple occasions and pursuant to the same, the Board has also rescinded the Board Circular dtd. 25.04.2016 by issuing a fresh Circular No. 1084/05/2022-CX dtd. 07.07.2022. He placed reliance on following judgments.
(i)Union of India Vs. DSCL Sugar Ltd. -2015(322)ELT 769(SC)
(ii) Shamnur Sugars Ltd. Vs. CCE -2023(6)TMI 459
(iii) BalrampurChini Mills Vs. Union of India -2019(5)TMI 972
(iv) WaranaAjaraSakharUdyog Vs. CCE- 2021(9)TMI 75 CESTAT Mumbai
(v) APL Apollo Tubes Ltd. Vs. CGST - 2022(11)TMI 919 CESTAT Chennai
(vi) APL Apollo Tubes Ltd. Vs. CGST - 2019(7)TMI 733 CESTAT Chennai
8. He argued that once it is settled law that sulphuric acid is a by-
product and no quantity of inputs or input services can be said to have been used in the manufacture of such by-product, the same cannot be an exempted product for which dutiable inputs or taxable input services have been used by the appellant in terms of Rule 6 (1) of the Cenvat Credit Rules, 2004. Thus non reversal of 6% of the value of sulphuric acid is liable to be made in the present case under Rule 6(3)(i), irrespective of the period concerned. He placed reliance on the following judgments.
(i) SwadeshiPolytex Ltd. Vs. CCE- 1989(44)ELT 794(SC)
(ii) Union of India Vs. Indian Aluminium Co. Ltd. -1995(77)ELT 268(SC)
9. Shri P.K. Rameshwaram, Ld. Additional Commissioner appearing for the Revenue, as regard the appellant appeals, reiterates the findings of the impugned orders and for department‟s appeal he reiterates the grounds of appeal of department.
10. Shri Rameshwaram further submits that in view of the Explanation -I, inserted w.e.f. 01.03.2015, provided under Rule 6(1) of the Cenvat Credit Rules, 2004, and clarification by the board vide its Circular dtd. 25.04.2016 (Supra), any by-products or waste, which are non-excisable goods but are cleared for a consideration from the factory, need to be treated like exempted goods for the purpose of reversal of credit on input and input services, in terms of Rule 6 of the Cenvat Credit Rules, 2004. In the present case, the Sulphuric Acid, emerging during the process of emanating Sulphur Dioxide gases during the smelting of the Copper Concentrate and cleared by the assessee for a consideration, is to be treated as the „exempted product‟ as the same is very much covered under the meaning provided under the Explanation -I of Rule 6(1) of the Cenvat Credit Rules, 2004.
11. We have carefully considered the submissions made by both the sides and perused the records. We find that in the present disputed matter department has relied upon Explanation (1) introduced w.e.f.
01.03.2015 and Board circular dtd. 25.04.2016 to demand the amount in terms of Rule 6(3) of Cenvat Credit Rules, 2004. Whereas the main argument of the appellant with regard to the challenge of the Circular dated 25-4-2016 is that despite the insertion of Explanation 1 with effect from 1-3-2015, the Legislature has not removed the basis on which the judgment of the Hon‟ble Supreme Court was pronounced, and therefore despite the amendment treating certain non-excisable goods as exempted goods or final products, Sulphuric Acid would not be treated to be an exempted goods for the purpose of reversal of credit of input/input services in terms of Rule 6 of the Cenvat Credit Rules, 2004 and still the condition of "manufacture" of the exempted goods would be required. We noticed that the Rule 6 of the Cenvat Credit Rules, 2004, as it existed prior to 28-2-2015, provide as follows :-
"RULE 6. Obligation of a manufacturer or producer of final products and a provider of output service. --
(1) The Cenvat credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for exempted services, except in the circumstances mentioned in sub- clause (2).
(2) Where a manufacturer or provider of output service avails of Cenvat credit in respect of any inputs or input services, and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and invertory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of exempted goods or services and take Cenvat credit only on that quantity of input or input service which is intended for use in the manufacture of dutiable goods or in providing output service on which service tax is payable.
(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the following options as applicable to him, namely :-
(i) the manufacturer of the goods shall pay an amount equivalent to five per cent of the value of the exempted goods and the provider of output service shall pay an amount equal to six per cent of the value of the exempted services; or
(ii) ............."
12. The Union of India amended Cenvat Credit Rules, 2004 with effect from 1-3-2015 by inserting [Explanations 1 and 2 in Rule 6(1), which reads as under :-
"Explanation 1. - For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shall include non-excisable goods cleared for a consideration from the factory. Explanation 2. - Value of non-excisable goods for the purposes of this rule, shall be the invoice value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder."
13. A perusal of Rule 6(1) clearly shows that the manufacturer has to manufacture dutiable goods as well as exempted goods. It has to be seen that though the said explanation puts forward a deeming provision that non-excisable goods cleared on payment of consideration are also to be considered as exempted goods, there is no corresponding amendment made in sub-rule (1) of Rule 6 so that the goods that emerged out of process of manufacture falling in clause (1) are also to be considered as exempted goods. As per the settled decisions,the disputed goods which are not consciously manufactured by the appellant and which emerged unavoidably in the process of manufacture of other goods cannot be considered as goods manufactured by the appellant. Since disputed goods is not manufactured goods but the by-product which emerges/comes into existence in the process of manufacture of copper products, and therefore the production of Sulphuric Acid cannot be held to be manufacture of exempted goods. The judgment relied upon by the Ld. Advocate in the present matter squarely applicable and following the same we are also view that the demand cannot sustain.
14. We also find that the stand of the assessee is squarely covered by per para 3.7 of Chapter 5 of CBEC‟s manual which is reproduced below :-
"3.7 CENVAT Credit is also admissible in respect of the amount of inputs contained in any of the waste, refuse or by-product. Similarly, Cenvat is not to be denied if the inputs are used in any intermediate of the final product even if such intermediate is exempt from payment of duty. The basic idea is that Cenvat credit is admissible so long as the inputs are used in or in relation to the manufacture of final products, and whether directly or indirectly."
From the above para, it is clear that any input/input services contained in any by-product/waste/refuse, Cenvat Credit cannot be varied or denied. With this statutory clarification demand under Rule6 in respect of by-product is not applicable. This issue has been considered in various judgments as cited by Learned Counsel. Once it is established that the product in question is by-product then it is settled that in respect of by-product demand under Rule6 will not sustain. Accordingly, in the present case also, Sulphuric Acid being a by-product, no demand under Rule6 shall sustain.
15. In view of above, we dismiss the revenue‟s appeal and allow the appeals of assessee. Cross-objection also stand disposed of.
(Pronounced in the open court on 02.11.2023) (RAMESH NAIR) MEMBER (JUDICIAL) (C. L. MAHAR) MEMBER (TECHNICAL) NEHA