Custom, Excise & Service Tax Tribunal
Hindalco Industries Limited vs Bharuch on 15 July, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST ZONAL BENCH : AHMEDABAD
REGIONAL BENCH - COURT NO. 3
EXCISE Appeal No. 11123 of 2017-DB
[Arising out of Order-in-Original/Appeal No BHR-EXCUS-000-COM-100-101-16-17 dated
29.12.2016 passed by Commissioner of Central Excise, Customs and Service Tax-Bharuch]
Hindalco Industries Limited .... Appellant
(unit Birla Copper) Village- Lakhigam, PO-
Dahej, BHARUCH, GUJARAT -392130
VERSUS
Commissioner of Central Excise & ST, Bharuch .... Respondent
Vadodara-II,GST Bhavan, Subhanpura, Vadodara Vadodara, Gujarat -390023 AND EXCISE Appeal No. 10907 of 2019-DB [Arising out of Order-in-Original/Appeal No VAD-EXCUS-002-COM-014-18-19 dated 13.02.2019 passed by Commissioner ( Appeals ) Commissioner of Central Excise, Customs and Service Tax-VADODARA-II] Hindalco Industries Limited .... Appellant (Unit Birla Copper) Village- Lakhigam, PO-
Dahej, BHARUCH, GUJARAT -392130 VERSUS Commissioner of Central Excise & ST, Vadodara-ii .... Respondent 1st Floor, Room No.101, New Central Excise Building, Vadodara, Gujarat -390023 APPEARANCE :
Shri Anand Nainawati, Advocate for the Appellant Shri Tara Prakash, Deputy Commissioner (AR) for the Respondent CORAM: HON'BLE MR. RAMESH NAIR, MEMBER (JUDICIAL) HON'BLE MR. C.L. MAHAR, MEMBER (TECHNICAL) DATE OF HEARING : 23.02.2024 DATE OF DECISION: 15.07.2024 FINAL ORDER NO. 11557-11558/2024 C.L. MAHAR :
The brief facts of the matter are that the appellant are engaged in the manufacture of final products such as Copper Cathode, Continuous Cast Copper Rods etc. classified under Chapter 74 of Central Excise Tariff Act, 1985. The company was availing the facility of Cenvat credit in respect of inputs, capital goods and input services in terms of the Cenvat Credit Rules, 2 Appeal Nos. E/11123/2017 & E/10907/2019 2004. The department is of the view that Copper Concentrate and Oxygen are the major inputs/ raw materials used by the appellant in their factory for manufacture of Copper Cathodes, Continuous Cast Copper rods, Sulphuric Acid etc. The appellant have availed benefit of Cenvat credit of the duty paid on the Copper Concentrate, Refrigerant gas used in the manufacture of oxygen and Vanadium Pentoxide used as catalyst for conversion of Sulphur Dioxide to Sulphur Trioxide. Further sulphuric acid is manufactured by the appellant from the Sulphur dioxide gases emanating during the smelting of the Copper concentrate. It is matter of record that Copper concentrate Catalyst and Oxygen are the common inputs used for manufacture of goods cleared on payment of duty such as Copper Cathodes, Continuous Cast Copper rods, Sulphuric Acid etc as well as in the manufacture of exempted goods. The department is of the view that certain inputs like Business Auxiliary Service, Business Support Service, Cargo Handling service, C&F Agent service, Customs House Agent services, General Insurance services, Manpower Recruitment or Supply Agency Service, Transport of goods by Road services, Works Contract services etc. are also common services for manufacture of both Copper products as well as Di-ammonium Phosphate (DAP). The department on the basis of above contention that certain inputs as well as input services have been used for exempted final products and therefore the Cenvat credit taken by them should have been reversed or paid as per the provisions of Rule 6 (3)(i) of Cenvat Credit Rules, 2004. As a consequence, following show cause notices and orders-in-original have been issued against which the appellants are before us in the above mentioned appeals:-
Appeal SCN Date Impugned Order- Period Duty (Rs.) Penalty (Rs.) No. in- Original E/11123 05.11.2015 BHR-EXCUS- 000- March 2015 Rs.64,85,39,886/- Rs. 6,48,53,989/ /2017 and COM-100- 101- to June 2016
14.09.2016 16-17 dated 29.12.2016 E/10907 26.06.2018 VAD-EXCUS- 002- July 2016 to Rs. 35,07,64,068/- Rs 3,50,76,406/ /2019 COM-014- 18-19 June 2017 dated 30.01.2019 TOTAL Rs.99,93,03,954/- Rs.9,99,30,395/-
3Appeal Nos. E/11123/2017 & E/10907/2019
2. The learned advocate appearing for the appellant submitted that imported copper ore in the form of concentrate which is a mixture of copper, sulphide, iron, unwanted minerals, traces of precious metal etc. The concentrate normally contains 25-35% copper. Learned advocate explained the process of manufacture of copper and copper products mentioning that the imported copper concentrate is first dried and the dried concentrate is then fed into a flash smelting furnace. Sulphur present in the copper concentrate is removed as Sulphur dioxide when the copper concentrate reacts at a high temperature in the presence of air and oxygen. In this smelting process, when the copper concentrate reacts with oxygen in the furnace, Sulphur present in the copper concentrate gets converted into Sulphur dioxide. He submits that Sulphur dioxide is hazardous gas by nature, the same cannot be released in the environment and therefore, Sulphur dioxide through an industrial process is converted into Sulphuric Acid. It has been submitted by the learned advocate that the appellant have installed Sulphuric acid plant where sulphuric dioxide released in flash smelting process converted into sulphuric acid.
2.1 The learned advocate submitted that the Sulphuric Acid so generated in the sulphuric acid plant is further utilised in the following manner:-
(a) cleared to outside parties on payment of appropriate excise duty.
(b) cleared to outside parties for use in the manufacture of fertilizers without payment of duty under Annexure-1 procedure in terms of Rule
3 of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 read with Sr. 128 of Notification No. 12/2012-CE dated 17.03.2012; and
(c) captively consumed in the manufacture of phosphoric acid at Phosphoric Acid Plant within the factory.
Thus it can be seen from the above that a part of Sulphuric acid arising in the sulphuric acid plant is used for manufacturing Phosphoric acid. In Phosphoric Acid Plant the Sulphuric acid is reacted with rock phosphate to get Phosphoric acid. The Phosphoric acid which emerges from the above 4 Appeal Nos. E/11123/2017 & E/10907/2019 plant is captively consumed in Di-ammonium Phosphate Plant. Phosphoric acid is reacted with ammonia to get the Di-Ammonium Phosphate (DAP for short). He submits that the appellant have cleared DAP as a fertilizer classified under Central Excise Tariff sub heading 3105 3000 on payment of duty at the rate of 1% ad valorem in terms of Serial No. 128 of Notification No. 12/2012-CE dated 17.03.2012.
2.2 The learned advocate has further submitted that appellant have been issued various show cause notices proposing to demand reversal of 5%/ 6%/ 8%/ 10% as applicable during the relevant period on the value of exempted goods under Rule 6(3)(i) of the Cenvat Credit Rules, 2004. The details of the show cause notices are as follows:-
Sr. SCN No. And Annexure No. Of Appeal Period Amount Current status No. No. E/10907/2019 Covered Demanded 1 V Ch.74(15)5Hindalco/D- BRH/Commr/ February 2005 Rs 60,42,92,975/- Dropped and 08-09 dated 05.03.2010 (Annexure-2A) To November not challenged 2009 2 V.Ch.74(04)/Hindalco/DBRH/Ad j./ 95/ December Rs.8,04,86,276/- Dropped and Commr./2010 dated 23.12.2010 2009 to not challenged (Annexure-2B) November 2010 3 V.CH.74(04)/HINDALCO/ADJ./COM December Rs.2,06,91,693/- Dropped and MR/113/2011-12 DATED 30.11.2011 2010 to not challenged (ANNEXURE-2C) February 2011 4 V.Ch.74(04)/Hindalco/Adj/Com mr/144/ March 2011 to Rs. 10,62,19,738/- Dropped and 2011-12 dated 28.02.2012 (Annexure- November not challenged 2D) 2011 5 V.Ch.74(04)/Hindalco/Adj./Com mr/80/ December Rs. 18,32,89,388/- Dropped and 2012-13 dated 05.12.2012 (Annexure- 2011 to not challenged 2E) September 2012 6 V.Ch.74(04)/Hindalco/DBRH/Ad j./ October 2012 Rs. 22,00,33,716/- Dropped and Commr.59/2013-14 dated 29.08.2013 - May 2013 not challenged (Annexure-2F) 7 V.Ch.74(04)/Hindalco/Adj./Commr/145/ June 2013 - Rs. 18,76,03,884/- Dropped and 2013-14 dated 02.07.2014 (Annexure- December not challenged 2G) 8 V. Ch. (74)3-11/Dem/2014-15 2013 8 V(Ch.74)03-11/ Dem/2014-15 dated January 2014 Rs.29,15,09,272/- Dropped and 23.01.2015 (Annexure-21)dated November not challenged (Annexure- 2H) 2014 9 V(Ch.74)03-33/ Dem/2015-16 dated December Rs.38,14,79,397/- Dropped but 05.11.2015 (Annexure-21) 2014-August partially 2015 challenged by Department 5 Appeal Nos. E/11123/2017 & E/10907/2019 10 V(15)/21/Adj (Commr)/Dem/201 6-17 September Rs.40,63,13,910/- Dropped but dated 14.09.2016 (Annexure-2J) 2015-June entirely 2016 challenged by Department TOTAL Rs.248,19,20,249 The common point in all the above show cause notices have been that the appellant have availed Cenvat credit on following three inputs which have been used in manufacture of exempted sulphuric acid and DAP as well as dutiable copper products:-
(a) Copper concentrate,
(b) Vanadium Pentoxide as catalyst; and
(c) R-22 gas used in the manufacture of oxygen gas The show cause notice dated 01.05.2015 and 14.09.2016 which are mentioned at serial No. 1 at the table above also alleged that he appellant have availed Cenvat credit on common input service like Business Auxiliary Service, Business Support Service, CHA service, C&F Agent service, General Insurance services, Manpower Recruitment or Supply Agency Service, Works Contract services etc. for both for manufacture of excisable as well as exempted goods.
2.3 It is relevant to mention here that the learned Adjudicating Authority i.e. Commissioner of Central Excise, Bharuch vide order-in-original BHR- EXCUS-000-COM-001-024-16-17 dated 27.05.2016 dropped the proceedings initiated in the show cause notices demanding reversal under Rule 6(3)(i) of Cenvat Credit Rules, 2004 in relation to clearance of sulphuric acid, covering the period up to July 2015. The learned Adjudicating Authority while deciding various show cause notices by order dated 27.05.2016 has relied upon the judgment of Hon'ble Supreme Court in the appellant's own case reported in 2014 (303) ELT 321 (SC).
2.4 Learned advocate has submitted that learned Commissioner vide the impugned orders-in-original dated 29.12.2016 and 30.01.2019, the details are above at table of this order, have been confirmed as period covered in 6 Appeal Nos. E/11123/2017 & E/10907/2019 these two impugned orders-in-original is post 01.03.2015 when the definition of non-excisable goods have been amended by the legislature.
2.5 It has been submitted by the learned advocate that the insertion of Explanation 1 to Rule 6(1) of the Cenvat Credit Rules, 2004 is not applicable to the present case. The Circular dated 25.04.2016 relied upon in the order- in-original dated 30.01.2019 also stands rescinded by the Board by Circular dated 07.07.2022. It has further been submitted by the learned advocate that sulphuric acid is a by-product in the manufacture of copper cathode and same has been established in the case decided by the Hon'ble Supreme Court in the judgment reported as UOI vs. Hindustan Zinc Limited - 2014 (303) ELT 321 (SC). It has been the submission of learned advocate that the department has not challenged the portion of the order-in-original dated 27.05.2016 where the demand for the period prior to 01.03.2015 has been dropped after observing that sulphuric acid is a by-product and not a product manufactured by the appellant. It is a matter of record that this Tribunal in the appellant's own case followed the same principle and in the Final Order No. A/11215-11218/2023 dated 08.06.2023 and Final Order No. A/12425- 12427/2023 dated 02.11.2023 the Tribunal has held that Sulphuric Acid emerges during the process of manufacture of Copper Cathodes and it is a by-product and not a manufactured product. The learned advocate has submitted that the same principle is squarely applicable in the case of manufacture of DAP which is obtained from processing of Sulphuric Acid.
2.6 The contention of the Department is that in view of Explanation 1 inserted to Rule 6(1) of the CENVAT Credit Rules, 2004 with effect from 01.03.2015, read with Board Circular dated 25.04.2016, DAP manufactured from Sulphuric acid is also required to be considered as "exempted goods"
for the purpose of Rule 6 of the CENVAT Credit Rules, 2004
2.7 The Appellants submit that the Explanation inserted with effect from 01.03.2015 is not applicable or relevant to the facts of the present case since DAP is not a "non-excisable goods". The Explanation inserted with effect from 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 goods in question is DAP, which is specified in the Central Excise Tariff and even subjected to excise duty when not cleared to fertilizer 7 Appeal Nos. E/11123/2017 & E/10907/2019 manufacturers. Therefore, the same cannot be called "non- excisable goods". The Explanation to Rule 6 relied upon by the Department is irrelevant in the present case. The relevant Explanation is extracted below:-
"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 used in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services, except in the circumstances mentioned in sub-rule (2): Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002 on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.
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."
(Emphasis supplied) 2.8 The learned advocate submits that the above view is also supported by the following judgments of the Hon'ble Supreme Court:-
(a) Union of India v. Nandi Printers Pvt. Ltd 2001 (127) ELT 645 (SC)
(b) Shree Mahavir Metal Works v. Union of India 1998 (98) ELT 580 (SC)
(c) Vee Kayan Industries v. CCE, Chandigarh 1996 (83) ELT 262 (SC) Thus, the reliance placed by the Department on the Explanation inserted to Rule 6 with effect from 01.03.2015 is irrelevant and unsustainable. The issue having attained finality, the demand for the period after 01.03.2015 is also liable to be set aside on the same grounds on which the demand for the period prior to 01.03.2015 was dropped by the Learned Commissioner in the Order-in-Original dated 30.11.2016 and also accepted by the Department.8
Appeal Nos. E/11123/2017 & E/10907/2019
3. We have also heard the learned DR in detail who has reiterated the arguments on which the impugned order-in-original has confirmed the demand.
4. Before proceeding further in the matter it will be relevant to reproduce here the relevant paras of the show cause notice on the strength of which the demand of Cenvat credit has been raised:-
"7. It appears that in the instant case, Copper Concentrate and Oxygen are the major inputs/raw materials used by the assessee in their factory which are subjected to various metallurgical processes to give rise to various final products viz. Copper Cathodes, Continuous Cast Copper Rods, Sulphuric Acid, etc. The assessee is availing the benefit of CENVAT Credit of the duty paid on the Copper Concentrate, Refrigerant gas used in the manufacture of Oxygen and Vanadium Pentoxide used as catalyst for conversion of Sulphur Dioxide to Sulphur Trioxide. It further appears that the Sulphuric Acid is manufactured by the assessee from the Sulphur Dioxide gases emanating during the smelting of the Copper Concentrate. It therefore, appears that Copper Concentrate catalyst and Oxygen are the common inputs used for the manufacture of the goods cleared on payment of duty such as Copper Cathodes, Continuous Cast Copper Rods, Sulphuric Acid etc., as well as in the manufacture of exempted goods. Further it also appears that certain inputs services like Business Auxiliary Services, Business Support services, Cargo Handling services, Clearing and Forwarding agent services, Courier, Customs House Agent services, General Insurance services, Manpower Recruitment and Supply agent services, Transport of goods by road, Works Contract services etc. are also common for manufacture of both Copper Products as well as DAP.
8. The assessee has contended that Sulphuric Acid is an unintended by-product, However, it appears that manufacture of DAP from Sulphuric Acid is Excisable product for which assessee has made conscious effort. From the records, it is quite clear that the process of smelting of copper core for manufacture of copper concentrate and Copper rods does not have any relationship to the manufacture of DAP. Manufacture of DAP is having totally different facility and is not even remotely connected to the manufacture of Copper concentrate or copper rods. Hence, it appears that manufacture of DAP is conscious effort and is intended excisable product. It is also a matter of record that some quantity of Sulphuric Acid is sold by the assessee to the manufacture of Urea or Phosphate. Hence, captive consumption of Sulphuric Acid is totally an independent activity from that of manufacture of Copper Concentrate.
9. Further, it also appears that some of the input services like Business Auxiliary Services, Business Support Services, Cargo Handling, Clearing and forwarding agent services, Courier, Custom House Agent Services, General Insurance Services. Manpower Recruitment and Supply Agency Services, Transport of goods by road, Works Contract Services, etc. are common to entire manufacturing and selling operations of the assessee, including that of copper and DAP. Hence, it appears that use of common inputs and input services, on which the assessee has availed Cenvat credit and for which they have failed to maintain any separate account for use in dutiable excisable product as well as exempted excisable product. Hence, It appears that the assessee does not maintain separate account for receipt, consumption and inventory of inputs and input services used in the manufacture of exempted goods viz. Sulphuric Acid, which is used 9 Appeal Nos. E/11123/2017 & E/10907/2019 captively in the manufacture of exempted product viz., Di-Ammonium Phosphate (DAP) through an intermediate product viz., Phosphoric Acid."
The impugned order-in-original has decided the above issue justifying the confirmation of the demand on the following grounds:-
"19. I find that copper concentrate and Oxygen are the major inputs/raw materials used by the assessee in their factory which are subjected to various metallurgical processes to give rise to various final products viz. Copper Cathodes, Continuous Cast Copper Rods, Sulphuric Acid, etc. The assessee is availing the benefit of CENVAT Credit of the duty paid on the Copper Concentrate, Refrigerant gas used in the manufacture of Oxygen and Vanadium Pentoxide used as catalyst for conversion of Sulphur Dioxide to Sulphur Trioxide, Further, Sulphuric Acid is manufactured by the assessee from the Sulphur Dioxide gases emanating during the smelting of the Copper Concentrate. Hence, Copper Concentrate catalyst and Oxygen are the common inputs used for the manufacture of the goods cleared on payment; of duty such as Copper Cathodes, Continuous Cast Copper Rods, Sulphuric Acid etc., as well as in the manufacture of exempted foods. I find that certain inputs services like Business Auxiliary Services, Business Support Services, Cargo Handling Services, Clearing and Forwarding Agent Services, Courier, Customs House Agent services, General Insurance services, Manpower Recruitment & Supply Agency services, Transport of goods by road (GTA), Works Contract services etc. are also common services for manufacture of both Copper Products as well as DAP.
The assessee has contended that Sulphuric Acid is an unintended by-product, however, it appeared that manufacture of DAP from Sulphuric Acid is excisable product for which assessee has made conscious effort. From the records, it is quite clear that the process of smelting of copper core for manufacture of copper concentrate and Copper rods does not have any relationship to the manufacture of DAP. Manufacture of DAP is having totally different facility and is not even remotely connected to the manufacture of Copper concentrate or copper rods. It is also a matter of record that some quantity of Sulphuric Acid is sold by the assessee to the manufacturer of Urea or Phosphate. Hence, captive consumption of Sulphuric Acid is totally an independent activity from that of manufacture of Copper Concentrate.
Therefore, input services like Business Auxiliary Services, Business Support Services, Cargo Handling, Clearing and forwarding Agent services, Courier, Custom House Agent Services, General Insurance Services, Manpower Recruitment & Supply Agency Services, Transport of goods by road (GTA), Works Contract Services, etc. are common to the entire manufacturing and selling operations of the assessee, including that of copper and DAP. Hence, use of common inputs and input services, on which the assessee has availed Cenvat credit and for which they have failed to maintain any separate accounts for use in dutiable excisable product as well as by-product (i.e. Sulphuric acid). With effect from 01.03.2015 the assessee have not maintained separate accounts for receipt, consumption and inventory of inputs and input services used in the manufacture of exempted goods viz. Sulphuric Acid, which is used captively in the manufacture of the exempted product viz., Di-Ammonium Phosphate (DAP) through an intermediate product viz., Phosphoric Acid.
20. It is observed that the assessee also clears their so-called by-product i.e. Sulphuric acid to other manufacturers of urea for a consideration. I, therefore, find that in terms of Explanation-1, which is inserted after amendment in the provisions of Rule 6 of the CENVAT Credit Rules, 2004 with effect from 01.03.2015, the Sulphuric Acid, which 10 Appeal Nos. E/11123/2017 & E/10907/2019 is emerged 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 factory, contravened the provisions of the then/amended Rule 6 of the CENVAT Credit Rules, 2004, which is required to be recovered from the assessee under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11A of Central Excise Act, 1944 along with interest under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11AA of Central Excise Act, 1944. The assessee is also liable for penalty under Rule 15(1) of the CENVAT Credit Rules, 2004."
5. We find that Di-Ammonium Phosphate (DAP) is being manufactured by the appellant by using phosphoric acid and in-house manufacturing of the sulphuric has been obtained by processing sulphuric acid. It is an accepted fact that sulphuric acid is unintended product which emerges during the process of copper concentrate while manufacturing various types of copper products. This Tribunal in the appellant's own case, vide final order No. 12425-12427/2023 dated 02.11.2023 reported under -2023 (11) TMI 1070
-CESTAT Ahmedabad has held as follows:-
"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.11
Appeal Nos. E/11123/2017 & E/10907/2019 (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 Rule 6 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 Rule 6 will not sustain. Accordingly, in the present case also, Sulphuric Acid being a by-product, no demand under Rule 6 shall sustain."
12Appeal Nos. E/11123/2017 & E/10907/2019 Thus we hold that sulphuric acid which is an unintended by-product, has further been used by the appellant for manufacture of phosphoric acid and the same has further found use in the manufacturing of Di-Ammonium Phosphate (DAP) which is chargeable to 1% rate of Central Excise duty as provided in Notification No. 12/2012-CE dated 17.03.2012. Since the Di- Ammonium Phosphate (DAP) has been manufactured by utilizing a product which has emerged as unintended by-product, following the various legal pronouncements including the Hon'ble Supreme Court decision in the case of Birla Corporation Limited vs. CCE - 2005 (186) ELT 266 (SC) and in the case of Commissioner vs. Sterling Gelatin -2015 (320) ELT A-343 (SC) we hold that even after the amendment to Rule 6 by Notification No. 6/2015-CE dated 01.03.2015, so far as demand of Cenvat credit pertaining to use of sulphuric acid/phosphoric acid for manufacturing Di-Ammonium Phosphate (DAP) is not sustainable.
6. We also take note of the fact that the impugned order-in-original mentions that some other common input services such as Business Auxiliary Services, Business Support Services, Cargo Handling, Clearing and forwarding Agent services, Courier, Custom House Agent Services, General Insurance Services, Manpower Recruitment & Supply Agency Services, Transport of goods by road (GTA), Works Contract Services, etc. have also been used commonly for manufacture of various copper products as well as Di-Ammonium Phosphate (DAP). The exemption which is being availed by the appellant under Notification No. 12/2012-CE dated 17.03.2012 provides a condition that for availing the benefit of exemption under Notification No. 12/2012-CE serial No. 128 at the rate of 1%, the condition at Sr. No.25 clearly mentions that "if no credit under rule 3 or rule 13 of the Cenvat Credit Rules, 2004 has been taken in respect of the inputs or input services used in the manufacture of these goods". Since the impugned order-in- original has not specifically mentioned the use of any input service on which Cenvat credit has been taken by the appellant while manufacturing and clearing Di-Ammonium Phosphate by the appellant and if so, he has to re- calculate the demand of Cenvat credit giving benefit of the fact that appellant is entitled not to reverse Cenvat credit on the inputs which have been availed on the copper concentrate while manufacturing various copper products.
13Appeal Nos. E/11123/2017 & E/10907/2019
7. In view of the discussion in the preceding paras, we hold that the Adjudicating Authority has to segregate the demand of Cenvat credit into two segments, one which has been demanded on the primary inputs namely copper concentrate etc. and second, the demand on the use of common input and input services which have gone into manufacture of exempted DAP. We thus remand back the matter for fresh adjudication on the above terms.
8. The appeals are allowed by way of remand.
(Pronounced in the open court on 15.07.2024) (Ramesh Nair) Member (Judicial) (C L Mahar) Member (Technical) KL