Customs, Excise and Gold Tribunal - Delhi
Hi-Tech Carbon vs Commissioner Of Central Excise on 7 March, 2003
Equivalent citations: 2003(88)ECC92, 2003(161)ELT407(TRI-DEL)
JUDGMENT V.K. Agrawal, Member (T)
1. The issue involved in this Appeal filed by M/s. Hi-Tech Carbon is whether the MODVAT credit of the duty paid on the inputs namely Carbon Block Feed Stock (CBFS) is available to them under Rule 57 A of the Central Excise Rules, 1944.
2. Shri S. Madhavan, learned Chartered Accountant, submitted that the Appellants manufacture Carbon Black out of CBFS; that CBFS is subjected to process of thermal cracking which results in generation of Carbon Black in particle form and off gases or lean gases; that as off gases contains Carbon monoxide, it could not be flared up in the atmosphere being hazardous one and in terms of anti-pollution laws, they are required to burn Carbon monoxide content out of this mixture of gases which result in generation of hear; that the said heat is either used further in the manufacturing process or is utilized for generation of high pressure steam as a by-product in the factory; that the steam so generated is utilized in or in relation to the manufacture of Carbon black in the factory and part of the steam is sold to M/s. Hindalco Industries Ltd.; that the Commissioner under the impugned Order has confirmed the demand and imposed penalty holding that the generation of steam is indirectly the resultant of thermal cracking of CBFS and other inputs used in the manufacture of carbon black and it is not only "off gases" that are used in the manufacture of steam and accordingly the Appellants have been held not to be eligible for MODVAT credit on inputs used in the manufacture of steam as steam is exempted from payment of duty. The learned Chartered Accountant, further, submitted that the off gases are the by-products released during the process of manufacture of carbon black and consequently, the steam is also a by-product; that by-product is an additional or incidental or secondary product of manufacture which gets manufactured alongwith the manufacture of main product; that accordingly provisions of Rule 57C of Central Excise Rules, 1944 are not attracted; that moreover, Rule 57D(1) also provide that the MODVAT credit, contained in any waste or by-product arising during the manufacture of the final product, will not be denied even if the waste or by-product was exempted from duty or was chargeable to nil rate of duty; that the Appellants had taken the MODVAT credit of the duty paid on CBFS and other inputs for manufacture of Carbon black; that during the manufacture of process of manufacture of carbon black, off gases were generated which have been used for reason of anti-pollution laws for generation of heat and in turn steam; that as such steam is nothing but a by-product. He relied upon the decision of the Tribunal in the case of Gas Authority of India Ltd. v. Commissioner of Central Excise, 2001 (99) ECR 49 wherein it has been held that when a by-product is cleared at nil rate of duty, benefit of Rule 57 D is to be extended to the manufacturer; that reliance has also been placed on the decision in the case of Aarti Drugs Ltd. v. Commissioner of Central Excise, 2001 (45) RLT 213 (CEGAT). Learned Chartered Accountant contended that in view of these decisions proportionate MODVAT credit cannot be denied on the inputs used in the exempted waste arising in the manufacture of carbon black. Finally, learned Chartered Accountant submitted that the demand is time barred as the show cause notice was issued on 2.5.2001 for demanding the amount of MODVAT credit taken during the period April 1996 to August 1996; that there is no wilful mis-statement or suppression of any material fact on the part of the Appellants; that they had filed the process flow chart with the Department in 1988 clearly indicating that part of the steam was being sold to M/s. Hindalco; that they had also filed declaration under Rule 17313 of the Central Excise Rules indicating the steam as other product manufactured and intended to be cleared from the factory; that further, they had reversed the proportionate MODVAT credit on the inputs used exclusively in the manufacture of steam and periodically submitted the detailed calculations for the same before the jurisdictional authorities; that as such the Department was aware of the fact that a part of the steam is being sold to M/s. Hindalco and the Appellants were not reversing the proportionate credit taken in respect of the inputs like CBFS; that for the same reason no penalty is also imposable on the Appellants.
3. Countering the arguments Shri Rajeev Tondon, learned Senior Departmental Representative, submitted that off gases and the steam so generated during the process of manufacture of Carbon black cannot be termed as by-product; that the off gases are the intermediate products and are partly used in the preheating of the CBFS and mainly used as fuel in the boiler to convert the water into steam; that thus the steam in itself is a final product. He emphasized that the generation of steam is three steps away from cracking of Carbon Black Feed Stock and as such the steam cannot be treated as by-product at all; that generation of steam is a conscious activity undertaken by the Appellants; that according to SB Sarkar's Words and Phrases of Excise and Customs, 'By-Product' means a product formed in the process of making something else; that as in the present matter, the steam is generated consciously by using the heat generated by burning of off gases, it cannot be said that generation of a steam is an incidental to the process of manufacture of carbon black. The learned Senior Departmental Representative referred to the decision in the case of Western India Plywood v. Commissioner of Central Excise Cochin, 1998 (102) ELT 52 (Tribunal) wherein it has been observed that the steam would be considered as an intermediate product, once the generation of steam is held to be considered as an integral part of the notified finished product; that in the present matter before the Tribunal, steam cannot be said to be an integral part of the final product and as such benefit of Rule 57-D will not be available. The learned Senior Departmental Representative also mentioned that the mere fact that the steam is generated by using the by-product 'off gases' it does not make the steam also a by-product. He also relied upon the decision of the Tribunal in the case of Indian Iron and Steel Company Ltd. v. Commissioner of Central Excise, Bolpur, 2002 (141) ELT 695 (Tribunal) wherein it has been held that under Rule 57CC no distinction has been made between the intended final products or the by-product and the said Rules requires the assessee to pay amount equal to 8% of the price of the final products cleared at nil rate of duty, even when the inputs have been directly or indirectly used in the manufacture of said final products and even where they are not contained in the said final products.
4. In reply, the learned Advocate relied upon the decision in the case of Western India Ply Wood (supra) wherein the Tribunal allowed the MODVAT credit in respect of fuel oil used for generation of steam observing that the Legislature did not restrict the MODVAT credit in respect of fuel unless it could be shown that the notified product as such was cleared without payment of duty. He also relied upon the decision in the case of Oriental Carbon and Chemical Ltd. v. Commissioner of Central Excise, Meerut, 1998 (62) ECC 261 (T) : 1998 (102) ELT 321 and Sudarshan Chemicals Industries v. Commissioner of Central Excise, Mumbai, 1998 (103) ELT 406. Finally, he referred to Board's Circular No. 11/92 dated 18.5.92 wherein the Board has clarified that the MODVAT credit could be taken on the full quantity of Sulphuric Acid used in the manufacture of Detergents powder and the credit is not restricted in respect of quantity actually consumed in the manufacture of detergent powder. The learned Senior Departmental Representative on the other hand, relied upon the following decisions:
(i) Commissioner of Central Excise Lucknow v. Kesar Enterprises Ltd., 2001 (130) ELT 93
(ii) In Re HEG Ltd. 2001 (137) ELT 992 [Commissioner (Appeals)], and
(iii) Mayur Colours Ltd. v. Commissioner of Central Excise, Mumbai III, 2001 (136) ELT 1011.
5. Learned Senior Departmental Representative, also mentioned that the Larger period of limitation is invocable as in the declaration filed under Rule 173B it is nowhere mentioned that Carbon Black Feed Stock will be used in the manufacture of steam and as such the fact of using the inputs, in respect of which MODVAT credit had been availed of, had been used in the manufacture of exempted product was never disclosed to the Department.
6. We have considered the submissions of both the sides. It has not been disputed by the Revenue that off gases are generated as a result of cracking of CBFS and these gases are burnt. The Final product of the appellant is Carbon Black for manufacture of which inputs namely Carbon Block Feed Stock is brought into the factory and the MODVAT credit is availed of. The generation of "off gases" is nothing but a by-product in the process of manufacture of carbon black. The definition of the by-product as referred to by the learned Senior Departmental Representative supports the view that the off gases are nothing but by-product as the same has been generated incidentally in the production of something else that is carbon black. Rule 57D(1) of the Central Excise Rules at the relevant time provided that credit of specified duty "shall not be denied or varied on the ground that part of inputs is contained in any waste, refuse, or by-product arising during the manufacture of final product, or that the inputs have become waste in or in relation to the manufacture of the final product, whether or not such waste, refuse or by-product is exempted from whole of the duty of excise leviable thereon or chargeable to nil rate-duty or is not specified as a final product under Rule 57A". It is thus apparent from the provisions of Rule 57D(1) that the credit shall not be denied on the ground that part of the inputs is contained in a by-product. It is also not in dispute that by-product in the present matter namely, 'off gases' are burnt out which generate heat which in turn is used in the boiler to generate steam. No doubt the steam has been generated by the appellants as a conscious act but it cannot be claimed by the Revenue that any part of the inputs, that is CBFS or any other inputs which has gone into the manufacture of Carbon Black has been used in the manufacture of steam. For the purpose of applying the provisions of Rule 57(C) or Rule 57CC, it is the pre-requisite that the inputs are used in the manufacture of products which are exempted from the whole of the duty of excise or is chargeable to nil rate of duty. The mere fact of using the off gases in the generation of steam will not tantamount to using the modvatable inputs in the manufacture of exempted product that is steam. The Appellant Tribunal in the case of Aarti Drugs Ltd. v. Commissioner of Central Excise, Mumbai III, 2001 (45) RLT 213 had held that provisions of Rule 57CC would not apply in the case of by-product. It has also been observed by the Tribunal that "by insertion of Rule 57CC, there was no intention to eliminate the benefit available under Rule 57D 1 to a by-product........The marketability or otherwise of by-product is not really an issue." The Tribunal again in the case of Gas Authority of India Ltd. (supra) observed that "when a manufacturer sets out to create a product out of certain raw materials, he not only creates the product but also creates other goods which are refuse, waste or by-product. The classification of goods into final products, by-products, waste and refuse is mainly on commercial consideration and the Plan of manufacture." The Tribunal in Gas Authority of India Ltd. case, after referring to definition of by-product as given in Chamber's Dictionary and Webster's Compressed Dictionary has held that the lean gas obtained by processing natural gas to remove propane and butane is nothing but a by-product and the provisions of Rule 57CC were not applicable to lean gas and the benefit of Rule 57D was extended.
7. Following the ratio of these decisions, we are also of the view that provisions of Rule 57CC would not be applicable to the steam in the present matter. Thus we set aside the impugned Order and allow the Appeal.