Customs, Excise and Gold Tribunal - Tamil Nadu
Sterlite Industries (India) Ltd. vs Cce, Tirunelveli And Cce, Madurai on 12 April, 2004
ORDER Jeet Ram Kait, Member (T)
1. Appeal Nos. E/314 to E/335/2003 are filed by M/s. Sterlite Industries (India) Ltd. against Order-in-Original No. 1 to 22/2003 dated 27.3.2003 passed by the Commissioner of Central Excise, Tirunelveli, and Appeal Nos. E/450 & E/451/2002 are filed by the Commissioner of Central Excise, Madurai against Order-in-Appeal No. 127 & 128/2002 (MDU) (GVN) dated 28.6.2002 passed by the Commissioner of Customs & Central Excise (Appeals) Trichy.
2. The issue involved in all these 24 appeals are same and were therefore heard together and are taken up for disposal by this common order.
3. M/s. Sterlite Industries (India) Ltd., herein after referred to as '(SIIL or the assessee)' are registered with the Central Excise Department vide R.C. No. 12/TTN/CITY/95 and are engaged in the manufacture of Copper Anode falling under chapter 7402 of the first schedule to the Central Excise Tariff Act, 1985. They avail the benefit of CENVAT/Modvat Credit. The principal raw material used for the manufacture of Copper Anode in Copper concentrate which is imported from various countries. The copper anode so manufactured at their unit at Tuticorin is cleared on payment of Central Excise duty to their own unit situated at Silvasa, where the Copper anode is converted into Copper Cathode and other finished products such as Copper roads/wires and are sold. During the course of manufacture of Copper anode at the Tuticorin unit, two by-products namely Sulphur Di-oxide and granulated slag emerge. The manufacturing process does not come to an end at that stage and in the continuous and integrated process of manufacture, sulphur di-oxide is further used in the manufacture of Sulphuric acid falling under tariff heading 2807 of the First schedule to the CETA, 1985. A portion of the sulphuric acid is further used captively in the manufacture of Phosphoric acid falling under heading 2809 of the First Schedule of the CETA, 1985 in conjunction with imported rock phosphate. The assessee clears Sulphuric Acid on payment of duty at the rate of 16% to independent buyers, whereas, they clear a part of it without payment of duty for manufacture of fertilizer following the procedure set out in Chapter X of Central Excise Rules, 1944 vide Notification No. 3/2001 dated 1.3.2001. The assessee continued to clear the Sulphuric acid on payment of duty @ 16% to independent buyers, and after framing of the Central Excise (Removal of Goods at concessional Rate of Duty for manufacture of Excisable Goods) rules, 2001 vide Notification No. 34/2001 - CE (NT) dated21.6.2001, they also cleared a part of it without payment of duty for manufacture of fertilizers under Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 (herein after referred as CERGCMEGR) read with Notification No. 6/2002 dated 1.3.2002. The imported goods were cleared for home consumption on payment of applicable Basis Customs duty including countervailing duty. Modvat/Cenvat credit is availed by the appellants on the countervailing duty paid on the copper concentrate, which is the input for manufacture of Copper Anode falling under Chapter 7402.
3.1. The copper concentrate is smelted in the ISA Smelt furnace to obtain blister copper which is further processed into copper anodes as finished product which is cleared on payment of Central Excise duty. In the course of obtaining blister copper through the process of smelting, Sulphur-do-oxide in gaseous form emerges. Being a hazardous gas, the same cannot be let out in open air. It is an environmental compulsion that this cannot be allowed to be vented to air. Consequently, sulphur-di-oxide gas is taken through pipes from the ISA smalter and conveyed to the mixing chamber and then this gas (1,40,000 M3/HR) at 350° centigrade enters the gas cleaning and cooling section through the main gas duct. The remaining fine dust is removed and the gas is cooled to 35° centigrade. The cleaned gas is dried by means of circulating sulphuric acid in the drying tower and the sulphur-di-oxide gas is converted into sulphur tri-oxide in the catalytic converter over four beds of vanadium pentoxide catalyst. The sulphur-tri-oxide gas is absorbed by circulating sulphuric acid in the absorption towers and the product sulphuric acid is pumped to the storage tank. After the sulphur-di-oxide is received through the gas duct into the mixing chamber and later the drying tower, the following inputs such as caustic soda flakes, ferric sulphate, ferric chloride, Indion, Magnafloc and other chemicals are added in the process for the sumphur-di-oxide to become sulphuric acid. This sulphuric acid is cleared from the factory to various buyers which include fertilizer unit. Appellants pay 16% duty on sulphuric Acid for sale to independent buyers whereas when the same are cleared to fertilizer units for manufacture of fertilizers, these are removed without payment of duty under Chapter X Procedure read with Central Excise (Removal of Goods) at concessional rate of duty for manufacture of excisable goods Rules, 2001 read with Notification No. 3/2001 dated 1.3.2001 and No. 6/2002 dated 1.3.2002 respectively. A portion of sulphuric acid is captively consumed in the manufacture of phosphoric acid by reacting with rock phosphate. The process of manufacture consists of reacting rock phosphate and sulphuric acid in three reactors. The temperature of the slurry in the reaction system is controlled by flash cooler system which removes excess heat of reaction and dilution. Slurry, from the flash coolers is fed to the filter and treated counter currently. The acid collected from the first filterate is a product acid on 43% P2 O5. About 5% of P2 O5 fed in the rock is co-precipitated in the hemi-hydrate. The purpose of next stage is, therefore, to recover this by transforming hemi-hydrate to di-hydrate. Hemi-hydrate cake is discharged to transformation tank and it is converted into dry di-hydrate by the adoption of the H2SO4 at a temperature of 70° centigrade. The di-hydrate cake undergoes two washings before it is discharges to gypsum slurry tank. Product acid of 43% P2 O5 from the Hemi-hydrate filter is further concentrated to obtain 54% P2 O5 in the concentration section. Finally 54% acid is stored in storage tanks. 43% P2 O5 acid is an intermediate product formed in the reaction and it is sent to concentration section for recovery of 54% of phosphoric acid. The phosphoric acid is sold to various independent buyers after payment of 16% duty and in the case of fertilizer units for use in the manufacture of fertilizers and these are again cleared under Chapter X Procedure read with the Central Excise (Removal of Goods) at concessional rate of duty for manufacture of excisable goods, Rules, 2001 read with Notification No. 3/2001 dated 1.3.2002 and No. 6/2002 dated 1.3.2002 respectively. In other words, duty paid imported cooper concentrate is smelted to the furnace and after processing the same results in copper anode as finished excisable goods on which appropriate excise duty is paid.
3.2 In the course of manufacture of cooper anode, Sulphur dioxide (SO2) emerges during the course of smelting Cooper concentrate as and intermediate product and is captively consumed in the manufacture of Sulphuric acid, within the factory of production by availing the benefit of duty exemption under Notification No. 67/95 dated 16.3.1995. The basis raw material used, namely copper concentrate for producing the SO2, SO3 and Sulphuric Acid is invariably the input for Phosphoric acid also. These intermediate products viz. Sulphur di-oxide, Sulphur tri-oxide and Sulphuric acid are not chargeable to duty when they are captively consumed for the manufacture of Phosphoric Acid by reacting with rock Phosphate. The "Cooper concentrate" is primarily the input for manufacture of copper anode, during which sulphur-di-oxide emerges as by products which in turn is used for manufacture of sulphuric acid and phosphoric acid in the integrated plants located within the factory premises. The credit availed for cooper concentrate is utilized by the appellants to pay the duty of excise on all the final products. Therefore, cooper concentrate is the basis input used in or in relation to the manufacture of sulphuric acid and phosphoric acid inasmuch as without the copper concentrate these two gases cannot be produced. The other inputs used in or in relation to the manufacture of final products are ferric sulphate, ferric chloride, Indian, Magnfloc, Caustic soda flakes.
3.3 The sulphuric acid is captively consumed in the manufacture of phosphoric acid which is partly cleared without payment of duty for manufacture of fertilizer products, under Chapter X procedure, etc. as well as cleared at the factory gate on payment of duty. Therefore, the appellants should have maintained a separate inventory and accounts for the receipt and use of above said inputs namely, Cooper Concentrate, Ferric Sulphate, Ferric Chloride, Indion, Magnfloc, Caustic soda flakes used in or in relation to the manufacture of Phosphoric acid which are exempted from the whole of duty of excise, leviable thereon, or chargeable to NIL rate of duty under Rule 57AD (2)(b) of the Central Excise (Second Amendment) Rules, 2000 issued under Notification No.27/2000 CE (NT) dated 31 March 2000 read with present Rule 6(2) of CENVAT Credit Rules. Since they have not maintained such separate account, the appellant were asked to pay an amount of 8% on the sale value (excluding sale tax and other taxes) of such exempted final products of Phosphoric acid and Sulphuric acid cleared for fertilizer unit without payment of duty or manufacture of fertilizers and inasmuch as they have not discharged the duty liability, show cause notice was issued which culminated in the order of adjudication passed by the Original authority namely the Commissioner of Central Excise, Tirunelveli whereby he has confirmed a duty demand of Rs. 16,11,90,936/- in terms of Section 11A of the CE Act, 1944 read with Rules 6 & 12 of the Cenvat Credit Rules, 2001/2002 and Rule 57CC/57AD/57 AH(1) of the CE Rules, 1944. He has also ordered recovery of interest at the appropriate rate under Section 11AB of the Act part from imposing penalty of Rs. 3,00,00,000/- (Rupees three crores only) under Rule 173Q of the Rules 1944 and/or Rule 25 of the Central Excise Rules, 2001/2002 read with Rules 13 of the CENVAT credit Rules, 2001/2002. It is against the above order of the Commissioner, the appellants have come in appeal. The period involved in the appeal of the appellants is 9/2000 to 7/2000 for Sulphuric acid and for the other product viz. Phosphoric acid the period is1/2001 to 7/2002. For the earlier period, April 2000 to August 2000, the Deputy Commissioner of Central Excise, Tuticorin vide order-in-original No. 12/2001 dated 25.6.2001 and order-in-original No. 20/2001dated 31.7.2001 confirmed the demand holding that Rule 57CC is applicable to the said case. Appellants preferred appeals against these two Orders-in-Original bearing and vide Order-in-Appeal bearing No. 127 and 128/2002-MDU (GVN) dated 28.6.2002, the Commissioner of Central Excise (Appeals) allowed the case of the appellants holding that Rule 57CC is inapplicable to the facts and circumstances of the case and consequently the demand of an amount @ 8% equivalent to the total price was held to be not maintainable.
4. The department has preferred two appeals and has come in appeal against the orders of the Commissioner (Appeals) whereby the Commissioner has set aside the two separate orders of the original authority and allowed the appeal of the assessees relying on the decision of the Tribunal in the case of Aarthi Drugs Ltd Vs. CCE, reported in 2001 (45) ELT 213. The facts in the Revenue appeals are similar. The period involved in Appeals No. E/450/02 is 4/2000 to 8/2000 and in Appeal No. E/451/2002 is 1/2000 to 3/2000.
5. The matter was finally heard on 5.12.2003. After the hearing was over, learned Counsels Shri N. Venkataraman and Shri S. Muthu Venkataraman for the appellants submitted a written submission on 10.12.2003 which was taken on record. Shri V.T.K. Nayanar, Jt. CDR along with Smt. R. Bhaghya Devi, SDR also submitted Synopsis on 12.12.2003, of the oral submissions they had made, in the Court on 5.12.2003. This has also been taken on record.
6. Shri N. Venketaraman and Shri Muthuvenkataraman, learned Counsels appearing for the appellants on 5.12.2003 referred to the grounds of appeal and also to the written submissions submitted on 5.12.2003 (Date of Hearing). They then proceeded to explain the manufacturing process to submit that the duty paid imported copper concentrate is smelted in the furnace and after processing, the same results as copper anode as finished excisable goods on which appropriate excise duty is paid. They have also submitted that in the course of manufacture of copper anode, sulphur dioxide emerges in gaseous form and the sulphur dioxide is taken through a gas duct separately and is processed independently, employing apparatus and mechanism into sulphuric acid first and later into phosphoric acid. They further submitted that the sulphuric acid and phosphoric acid are cleared to various independent buyers after payment of central Excise duty at 16%, while these two items supplied to fertilizer units are cleared without payment of duty under Notification No. 3/2001 dated 1.3.2001 and 6/2002 dated 1.3.2002. In the written submissions, it is stated as under :
(a) Imported copper concentrate is employed in the smelter for manufacture of dutiable copper anodes during which process sulphur dioxide emerges in gaseous form.
(b) The role of Copper concentrate and its employment in the smelter for the manufacture of copper anode during the course of which sulphur dioxide emerges as a gas is not under dispute.
(c) The copper concentrate is not where employed for manufacture of sulphuric acid or phosphoric acid in the sulphuric acid plant or phosphoric acid plant. These are employed exclusively in the smelter for manufacture of dutiable copper anodes during which process sulphur dioxide emerges.
(d) The role of the copper concentrate as an input ends in the smelter after giving out finished products viz. Copper anode and non-excisable by product viz. sulphur dioxide gas and this is on account of the fact that copper concentrate contains sulphuric impurities. In the process of manufacture and purification in the smelter, copper anode emerges as a finished product and sulphur dioxide as a non-excisable by product. It is reiterated that there is no presence of sulphuric acid or phosphoric acid at this stage.
(e) Sulphur dioxide is taken through a separate gas duct to the sulphuric acid plant wherein after addition of various chemicals such as ferric sulphate, ferric chloride, indion, magnfloc, caustic soda flakes and other chemicals is processed into sulphuric acid and portion of this sulphuric acid is treated with rock phosphate to manufacture phosphoric acid.
(f) No Modvat Credit whatsoever has been availed on any of the inputs employed in the sulphuric acid plant and phosphoric acid plant while processing sulphur dioxide into sulphuric acid or while processing sulphuric acid into phosphoric acid. In other words, inputs required for sulphuric acid are waste gas in the form of sulphur dioxide and duty paid inputs like ferric sulphate, ferric chloride, indian, magnfloc, ,caustic soda flakes and other chemicals against which no Cenvat credit has been taken . This aspect has been clearly verified and certified by Jurisdictional Supdt of Central Excise of the appellants and certificate dt 19/9/2003 is enclosed.
(g) The entire process activity is two fold.
(i) Employment of duty paid copper concentrate in the smelter for the manufacture of dutiable copper anodes during which process sulphur dioxide emerges as a non-excisable product.
(ii) The duty paid copper concentrate is exhausted fully in the manufacture of dutiable copper anodes and sulphur dioxide emerges only as a by-product which is conceded at every point of time by the learned Commissioner in his order.
7. They further submitted that independent infrastructure to manufacture Sulphuric Acid and Phosphoric Acid employing non-excisable Sulphur-di-oxide and various other duty paid inputs on which no modvat credit was availed was certified by the jurisdictional Range Superintendent vide certificate dated 19.9.2003. In the light of the above, the question that crops up for consideration is to whether the case on hand cannot fall under the rigours of erstwhile rules 57CC, 57AD and present Rule 6 of the CENVAT Credit rules and whether appellants are obligated to pay the amount equal to 8% of the Central Excise duty supply of Sulphuric Acid and Phosphoric Acid made to the fertilizer units as demanded by the Commissioner of Central Excise, Tirunelveli vide order dated 27.3.2003.
8. They also brought on record the scenario that prevailed prior to the introduction of modvat regime 21/3/86 to 3/9/94 (prior to the introduction of Rule 57C) and scenario after 4.9.96 (after introduction of Rule 57CC) by stating as follows :
1. SCENARIO PRIOR TO INTRODUCTION OF MODVAT CREDIT The Supreme Court in its landmark judgement in the case of Swadeshi Polytex Limited Vs. Collector of Central Excise 1989 (44) ELT 794 (SC) was pleased to hold as follows :
This was a decision rendered under the proforma regime (set off duty on inputs) wherein provision similar to Rule 57D which permits retention of modvat credit on inputs even if the same is used in the manufacture of dutiable final products and emergence of by products, waste or refuse is not to be denied. Para 20.
"It is clear that the Tribunal should have held that even through a part of ethylene glycol was contained in the byproduct methanol, yet the credit of duty could not be reduced to the extent of the ethylene glycol contained in the methanol as ineligible.
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 user a lesser quantum of ethylene glycol to prevent methanol from arising for producing a certain quantum 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 wontedly 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. The Tribunal erred when it held that appellants were not entitled to a part of the credit of the duty since ethylene glycol when it reacts with DMT also gives rise to Methanol.
2. SCENARAIO UNDER THE MODVAT REGIME BETWEEN 01/03/86 TO 03/09/94 Bearing the spirit of the decision of the Supreme Court in Swadeshi Polytex the lawmakers when they introduced Modvat Scheme, brought into force a specific provision in the form of rule 57D(1) of the Central Excise Rules which reads as under :
Credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse or byproduct arising during the manufacture of the final product, whether or not such waste, refuse or byproduct is exempt from the whole of the duty of excise levaible thereon or is chargeable to nil rate of duty or is not specified as a final product under Rule 57A.
WHILE INTRODUCING RULE 57D CENTRAL GOVT ALSO BROUGHT INTO FORCE RULE 57C WHICH RADS AS UNDER :
Credit to duty not be allowed if final products are exempt. No credit of the specified duty paid on the inputs used in the manufacture of a final product shall be allowed if the final product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty.
Question arose in this regime whether inputs employed in the manufacture of dutiable final products during which process inputs may go or get contained in waste, refuse or by products and if so, whether credit to that extent on that quantum of inputs contained in such waste, byproducts or refuse should be reversed or not. This question was answered by the Hon'ble Tribunal in the case of M/s. Detergents India Ltd. Vs. Collector of Central Excise 1992 (61) ELT 310 wherein the Tribunal was pleased to hold "There is nothing in the rules to suggest that Modvat credit could be taken only for that portion of the inputs which got consumed in the manufacturing process. There is no provision requiring the appellants to declare the actual consumption of the materials in the finished products. Oleum in the manufacture of OSAA Detergent cakes used only to the extent of 49% of oleum used up in the manufacturing process but available in respect of total quantity of oleum used. Similar issue came in the case of collector Vs. Indichem Chemicals Manufacturing Company Pvt Ltd. 1996 (87) ELT 127 wherein the Tribunal was pleased to hold that "Since Credit of duty on sulphuric acid was lawfully available and taken by the respondents, the question of this denial of credit or recovery of the amount utilized out of this credit is not sustainable simply because the spent sulphuric acid is generated as a byproduct in the process of manufacture of acid."
The above decisions confirm the position that Modvat credit cannot be denied on such quantities of inputs contained in byproducts, waste or refuse and therefore cases of these nature get the protection under rule 57D of the Central Excise Rules and do not fall within the rigors of rule 57C and attempts made by the Department to invoke Rule 57C fail.
SCENARIO AFTER 04/09/96 INTRODUCTION OF RULES 57CC Rule 57C did not allow credit on inputs used in the manufacture of final products if the final product is exempt from the whole of duty of excise or chargeable to nil rate of duty. Occasions arose wherein a manufacturer could be engaged both in the manufacture of dutiable final products and exempted final products using duty paid common inputs. Since Rule 57C did not allow credit on inputs used in exempted final product, manufacturer had to reverse the corresponding input duty on such inputs used in the manufacture of exempted final products. This exercise was also approved by the SUPREME COURT IN THE CASE OF CHANDRAPUR MAGNET WIRES PRIVATE LTD V. COLLECTOR 1996 (81) ELT 3 (SC) wherein the Court was pleased to hold "The manufacturer may taken credit of duty paid on all the inputs used in the manufacture of final product on which duty will have to be paid. This can be done only if the credit of the duty paid on the inputs used in the exempted products is debited in the credit account before the removal of the exempted final products. If this debit entry is permissible to be made, credit entry for the duties paid on the inputs utilised in the manufacture of final exempted product will stand deleted in the account of the assessee. In such a situation, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in the manufacture of these goods.
Therefore, under the Modvat scheme prior to 04/09/96 the following situations existed.
(a) Should a manufacturer use all his inputs in dutiable final products, it would impose no difficulty
(b) Should a manufacturer use inputs in the manufacture of only exempted goods, he will not be allowed credit in terms of Rule 57C of the Central Excise Rules
(c) If a manufacturer employees inputs in the manufacture of dutiable final products during which course, by products, refuse or waste emerge and the inputs are contained in such byproducts, waste or refuse, there is no obligation to reverse Modvat credit and credit will not be disallowed.
(d) Should a manufacture use duty paid inputs both in the manufacture of dutiable final products and exempted final product, the manufacturer was under an obligation to reverse the Modvat credit on such quantum of inputs employed in the manufacture of exempted final products. This was also confirmed by the Supreme Court in the case of Chandrapur Magnet Wires Private Limited.
Since both Central Excise Department and CERA Audit found rampant misuse by the assessee in the case of reversal of inputs used in introduced specific provisions in the form of rule 57CC which was in existence between 04/09/96 to 31/03/2000. This provision was retained in the form of Rule 57AD under the Cenvat Regime for the period 01/04/2000 to 31/03/2001 and later this was carried forward and retained in the form of Rule 6 of the Cenvat Credit Rules 2001 and later as Rule 6 of the Cenvat Credit Rules 2002 and this continues to be in vogue even today. As submitted earlier, the purport of introducing Rule 57CC was to only cover such cases which were falling under erstwhile Rule 57C in the form of reversal of impute credit as approved by the Supreme Court in the case of Chandrapur Magnet Wires Private Ltd. In other words, Rule 57CC was introduced to regulate the mechanism involving such manufacturers employing duty paid common inputs in the manufacture of dutiable final products and exempted final products.
It in no way substituted or deleted or replaced or modified rule 57D of the Central Excise Rules. This Rule continues to exist in the Statute Book in the form of 57D till 31/03/2000. At the time of introduction of the Cenvat Regime, a provision to Rule 57D was not introduced. This gave rise to a lot of doubt. At this juncture, the Hon'ble Central Board of Excise and Customs was pleased to clarify that Cenvat Rules and procedures are actually a simplified mechanism. It is no way would take away the right to retain the inputs credit contained in by products, waste and refuse and this position was clarified by the Board vide its circular No. B-4/7/2000-TRU dated 03/04/2000 (para 5). THE PURPORT OF RULE 57CC, RULE 57AD AND RULE 6 OF THE CENVAT RULES ARE AS FOLLOWS :
(a) The rigors would apply at the outset only in such situations where a manufacturer is engaged in the manufacture of dutiable final products and exempted final products employing duty paid inputs in the said process.
(b) Such a manufacturer is given two options viz., He shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of goods used in the manufacture of exempted goods and take cenvat credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods.
(c) As a second option, if he is unable to maintain separate accounts for receipt consumption and inventory of inputs shall pay an amount equivalent to the cenvat credit attributable to the inputs in the case of few categories of goods or in the alternative pay an amount equal to 8% of the total price on such exempted final product charged by the manufacture for the sale of such goods at the time of their clearance from the factory.
(d) The purport of the Rule and its underlying spirit has to be understood in its totality. It offers two facilities or options. Either to maintain separate accounts for receipt, consumption and manufacture of inputs meant for use in the manufacture of dutiable and exempted final products respectively or pay an amount equal to 8% on the sale price of the exempted products. Therefore, this rule at this very outset would apply one an only for the following situations :
* The inputs in terms of its accounting inventories are separable or capable of being segregated/bifurcated.
* For example, assuming a manufacturer receives 100 kgs of inputs he should be in a position to show or demonstrate a portion of that 100 kgs say 30 kgs may be used in the manufacture of dutiable final products and the rest in the manufacture of exempted goods. he is now given an option either to maintain separate accounts of receipts, consumption and inventory and if not pay an amount equivalent to 8% on the total price of the exempted gods at the time of their clearances.
* In other words, it visualizes duty paid common inputs used in the manufacturing streams of exempted and dutiable final products.
A comparison was made between Rule 57CC vis-a-vis Rule 57D and Board Circular dated 03/04/2000 and submitted the following :
In short, the contingencies conceived under Rule 57CC, Rule 57AD, Rule 6 of the Cenvat Rules and those conceived under Rule 57D and later by the Board Circular dated 03/04/2000 under the Cenvat Regime are to meet different contingencies. There is no overlapping of the provisions. They are distinct and separate to serve different purposes. As referred above, Rule 57CC/57AD/Rule 6 of the Cenvat Rule can be invoked only in such cases where the inputs are separable and usable or capable of being used separately in two independent streams of manufacture namely dutiable and exempted final products per contra Rule 57D or Board Circular dated 03/04/2000 do not cover such contingencies. They cover only such cases where inputs are employed wholly and entirely in the manufacture of dutiable final products in the course of which byproduct, waste or refuse may emerge and a portion of the inputs ma get contained in the byproduct, waste or refuse. To put it in other words, the mother rule for rule 57CC/AD/Rule 6 of the Cenvat Credit Rules is rule 57C which permitted reversal of input credit on such inputs used in the manufacture of exempted final products. This was also approved by the Supreme Court in Chandrapur magnet Wires Private Limited Case. The decision of chandrapur Magnet Wires Private Limited was got over by bringing in Rule 57CC/Rule 57AD and rule 6 of the Cenvat Rules per contra the source for rule 57D is the decision of the Supreme Court in the case of Swadeshi Polytex Limited Vs. Collector of Central Excise 1989 44 ELT 794 (SC). The ratio of the said Supreme Court Judgment has been incorporated as part of the MODVAT scheme is in the form of Rule 57D.
In a given case if it can be demonstrated that it is not possible to use "lesser quantum of inputs to manufacture a desired final product and in the course of manufacture of final products some other byproducts emerge, the credit pertaining to the inputs used in its entirely cannot be denied."
TO ILLUSTRATE IT WITH AN EXAMPLE, Situation 1 - Receipt of 100 kgs of Inputs, 30 kgs capable of being used in dutiable final products and 70 kgs capable of being used in exempted final products.
Prior to Rule 57CC, credit relatable to the exempted product should be reversed. After introduction of Rule 57CC, a manufacturer has the option to maintain separate accounts and take credit only on 30 kgs and leave the balance 70 kgs or in the alternative take credit on 100 kgs and pay an amount equivalent to 8% on such quantities of exempted final products which come out of the usage of these 70 of inputs. This scenario is now totally covered under Rule 57CC.
Situation 2 - 100 kgs of inputs are received and credit taken and employed in the manufacture of dutiable final product A in the course of which by product B emerges and 30 kgs of input is contained in Byproduct B. Supreme Court in the case of swadeshi Polytex later Rule 57D and currently Board circular dated 03/04/2000 (para 5) makes it clear that the input credit on 30 kgs contained in byproduct B need not be reversed.
The principles which got evolved were applied to the facts of the case in the following way :
Situation 1- Duty paid copper concentrate of 100 kgs capable of being used for manufacture of dutiable final product A and exempted final product B is in the ratio of 30 kgs and 70kgs. Appellants should either maintain separate accounts and restrict availment of credit on 30 kgs or avail credit on the entire 100 kgs and pay an amount equivalent to 8% on the clearance of B. Situation 2 - Availment of credit on 100 kgs of inputs of cooper concentrate. Entire 100 kgs are employed in the manufacture of dutiable final product namely copper anode. During which process sulphur dioxide as a non-excisable by product emerge. In terms of the decision of the Supreme Court is swadeshi polytex it is not possible to use lesser quantity of copper concentrate to manufacture the required quantity of copper anode. If this is so, the situation is covered only under the decision of Swadeshi Polytex, Rule 57D and later Board Circular dated 03/04/2000 and not Rule 57CC/57AD/Rule 6 of the Cenvat Credit Rules.
9. They also submitted that there is no basis anomaly between the show cause proceedings and the order of the commissioner of Central Excise. All the show cause notices issued by the Department emphatically state that sulphur dioxide gas is an intermediate product and is captively consumed in the manufacture of sulphuric acid and phosphoric acid respectively whereas the order of the commissioner dated 27/03/2003 emphatically concedes that sulphur dioxide is a byproduct. The specific paras and page numbers have been referred already and therefore not reiterated. Once it is conceded that sulphur dioxide gas is a byproduct there is no option for the revenue except to classify the case only under Rule 57D and not under rule 6 of the Cenvat Credit Rules. Appellants have already stated that sulphur dioxide is a hazardous gas and cannot be vented to air because of environmental compulsions. This Sulphur dioxide gas is not only a byproduct but a non-excisable byproduct. In this connection, reliance is placed on the case of Sukhjit Starch and Chemical Limited Vs. Commissioner of Central Excise 2001 133 ELT 98(T) wherein the Hon'ble Tribunal was pleased to hold that sulphur dioxide gas as it emerges in the process of burning/heating of sulphur and consumed captively in the washing of maize to produce maize starch is an impure mixture of gases and is not known in the market as sulphur dioxide and not marketable and therefore not excisable. It is a common fact that sulphur dioxide emerging from the smelter can neither be vented in the open air nor can be marketed in that stage as sulphur dioxide gas and therefore is a non-excisable by product in which case it is truly governed by the provisions of rule 57D and later by Para 5 of Board circular 03/04/2000. Appellants proceeded to make a comparative study between the expression "inputs used in or in relation to manufacture" vis-a-vis "inputs contained in any waste, refuse or by product" in the following way :
Rule 57CC uses the expression "which is used or ordinarily used in or in relation to manufacture of both the aforesaid categories of final products namely dutiable final products and exempted final products". This spirit is retained under rule 57AD and Rule 6 of the Cenvat Rules which again used the expression "Inputs intended to be used in the manufacture of such final products which are chargeable to duty as well as exempted goods". In other words, Rule 57CC, Rule 57AD and rule 6 of the Cenvat Rules is in line with the main rule 57A and these rules obligate physical use of the inputs either "used in the manufacture (Rule 57AD and Rule 6) or "used in or in relation to manufacture" as in the case of Rule 57CC. To the contrary, the language employed in Rule 57D and later Board Circular dated 03/04/2000 is" inputs contained in any waste, refuse or byproducts". Rule 57D nowhere employs the expression "used in the manufacture" or "used in or in relation to manufacture". The expression "contained" has s much significance. When inputs are used in or in relation to manufacture of final products, waste, byproduct or refuse may emerge and these waste, byproduct or refuse may contain duty paid inputs. Nobody manufactures byproduct, waste or refuse. They occur naturally in the process systems in the course of manufacture of respective final products and therefore it is self evident that whenever final products are to be produced, Central government has employed the expression "used in the manufacture" or "used in or in relation to manufacture". And whenever it does involve any manufacturing process but a natural occurrence Central Government has employed the expression" "inputs contained in waste, refuse or by-product".
10. Relating the legal position to the facts of the case they submitted that it is clear that copper concentrate besides copper contains several impurities including sulphur. When copper concentrate is treated with oxygen in the smelter becomes sulphur dioxide. In other words, sulphur in the input copper concentrate becomes sulphur dioxide and therefore the input is contained in the non-excisable byproduct namely sulphur dioxide and consequently covered under Rule 57D and Board Circular dated 03/04/2000.
11. Having proved that non-excisable sulphur dioxide emerges in the course of manufacture of dutiable copper anodes question that arises for consideration is whether copper concentrate can still be the input for manufacture of sulphuric acid or phosphoric acid. What is taken to the sulphuric acid plant is not copper concentrate but non excisable by product sulphur dioxide. It is true that various other inputs in the form of ferric sulphate, ferric chloride, indion, magnafloc, caustic soda flakes and other chemicals go into the manufacture of sulphuric acid and later phosphoric acid but no credit whatsoever has been availed on any of the inputs as has been certified by the Jurisdictional Superintendent of Central Excise vide letter dated 19/09/2003. Now coming to sulphur-di-oxide and all other chemicals referred above, these are employed in the manufacture of both dutiable sulphuric acid and exempted sulphuric acid and again dutiable phosphoric acid and exempted phosphoric acid. Therefore, assuming the rigors of Rule 57CC/Rule 57AD and Rule 6 of the Cenvat Credit rules can be applied, it may be possible to contend (without prejudice) the these are common inputs employed in the manufacture of dutiable and exempted final products and the consequences of the Rule can be made to follow but in the instant proceedings no credit whatsoever has been availed on any of these inputs whether they have been used for the manufacture of dutiable final products or exempted final products. Consequently these transactions do not come within the realms of rule 57CC/Rule 57AD/Rule 6 of the Cenvat Credit Rules 2002.
The case on hand also satisfied one more test. In terms of Swadeshi Polytex case of the Supreme Court, copper concentrate is employed wholly for manufacture of copper anode which are dutiable. They are not employed for manufacture of sulphuric acid or phosphoric acid. In the words of the Apex Court, appellants cannot produce sulphuric acid or phosphoric acid by stopping the production of copper anode by employing copper concentrate. To the contrary, appellants can very well employ copper concentrate and allow the waste sulphur dioxide in the air if permitted and need not produce sulphuric acid or phosphoric acid. Also for this reason, it can be submitted that copper concentrate is not an inputs for sulphuric acid or phosphoric acid.
12. Appellants place reliance on the following case laws in addition to the submissions made above in support of their contention :
(i) SWADESHI POLYTEX LIMITED VS. COMMISSIONER OF CENTRAL EXCISE - 1989 (44) ELT 749 (SC) This was a decision rendered under the proforma regime (set off duty on inputs) wherein provision similar to Rule 57D which permits retention of modvat credit on inputs even if the same is used in the manufacture of dutiable final products and emergence of by products, waste or refuse is not to be denied. Para 20.
"It is clear that the Tribunal should have held that even through a part of ethylene glycol was contained in the byproduct methanol, yet the credit of duty could not be reduced to the extent of the ethylene glycol contained in the mathanol as ineligible.
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 ethylene glycol to prevent methanol from arising for producing a certain quantum 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 wontedly 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. The Tribunal erred when it held that appellants were not entitled to a part of the credit of the duty since ethylene glycol when it reacts with DMT also gives rise to Methanol.
(ii) EID PARRY INDIA LTD V. COMMISSIONER - (E/49/2000) - FINAL ORDER DATED 01/12/2003 PASSED BY THE SOUTH ZONAL BENCH, CHENNAI The facts of the case were as follows :
EDI Parry was engaged in the manufacture of sugar. Sugarcane and various duty paid chemicals are employed in the manufacture of sugar. In the process of manufacture of sugar, pressmed emerged as a nonexcisable by product. The company also had a distillery plant which processed yet another byproduct molasses into rectified spirit and in that process effluent waste water emerged. Pressmud and effluent water were treated together to produce biomanure falling under 3105 and chargeable to nil rate of duty. Proceedings were initiated demanding an amount equivalent to 8% on the sale price of biomanure on the ground that EID Parry has availed modvat credit on various chemicals used in the manufacture of sugar and emergence of pressmud. This Hon'ble Tribunal heard the matter on 01/12/2003 and allowed assessee's appeal setting aside the order of the Commissioner , Trichy on the following counts :
* What is processed is pressmud and effluent water into biomanure * Various chemicals on which duty had been availed were employed only in the manufacture of sugar and not in the manufacture of pressmud which emerges as a natural nonexcisable byproduct * These chemicals cannot be stated to be used in the emergence of pressmud * In the circumstances, Rule 57CC is inapplicable and 8% amount cannot be demanded on biomanur.
APPLYING THE FACTS AND RATIO OF THE PRESENT CASE.
* Duty paid copper concentrate is employed only in the manufacture for copper anode and sulphur dioxide as a nonexcisbale byproduct emerge the similarity being sugar and pressmud.
* This sulphur dioxide is further processed with various other chemicals on which no credit is availed into sulphuric acid and phosphoric acid the similarity being pressmud and effluent water being further processed into biomanure.
* Sulphuric acid and phosphoric acid cleared to fertilizer units are not liable to central excise duty the similarity being biomanure falling under 3105 so chargeable to nil rate of duty * An amount of 8% is sought to be demanded on sulphuric acid and phosphoric acid the similarity being the same amount of 8% was demanded on the sale price of biomanure.
* In the facts and circumstances, This Hon'ble Tribunal vide its final order dated 01/12/2003 was pleased to hold that provisions of Rule 57CC Are inapplicable to biomanure since duty paid chemicals are employed in the manufacture of sugar and not biomanure the similarity being duty paid copper concentrate are employed only in the manufacture of copper anode and snot sulphuric acid or phosphoric acid. Therefore, the ruling of this Hon'ble Tribunal should be adopted and followed in the present facts and circumstances and assessee's appeal should be allowed and department's appeal should be dismissed.
(iii) AARTI DRUGS LIMITED V. COMMISSIONER OF CENTRAL EXCISE 2001 (133) ELT 385 Mother Liquor emerging in the process of manufacture of methyl nitroimidazole is a byproduct. Manufacture obtaining ammmonium sulphate from mother liquor by removal of water and clearing it without payment of duty under exemption - Rule 57CC of the Central Excise Rule does not apply to byproduct. Credit is permissible under Rule 57 D(2) on inputs contained in byproducts even if final product exempted. Marketability of exempted product is irrelevant. The position prior to enactment of Rule 57CC was clear. Notwithstanding that the byproduct was exempted from duty a manufacturer would take credit of duty paid on inputs which exemption in that product as the rule itself says "contained in the byproduct". We have also seen the object of enactment of Rule 57CC to introduce a clear viable procedure in the place of the one then prevailed earlier. By insertion of Rule 57CC , there was no intention to eliminate the benefit available under Rule 57D(1) to a byproduct. As a matter of fact, Rule 57D continues unamended even now.
(IV) INDIAN IRON AND STEEL COMPANY LTD V. COMMISSIONER 2002 (143) ELT 442 The decision in the case of Aarthi Drugs was referred to this Larger Bench and the referring order is reported in 2002 (141) ELT 695. However, the larger bench vide para 3 has very clearly held as follows :
"It has come out that there was no definite finding entered by the Commissioner in this case as to whether burnt dolomite, coal tar and ammonium sulphate are byproducts in the manufacturing process undertaken by the appellant". Appellants submit neither the referring order reported in 2002 (141) ELT 695 nor the large bench decision of the referring order reported in 2002 (143) ELT 442 applies to the facts of the case. The reason being * The Larger bench has observed that the Commissioner has not given a definite finding as to whether the items under question are byproduct whereas the commissioner in the present case has clearly held that sulphur dioxide is a byproduct. The same is the position in the case of Arthi Drugs.
* When the finding of facts are not clear, question of deferring or referring to large bench would not arise.
* In any view, large bench has not spelt any view on the matter referred and has remanded it as sought for by the appellants claiming some other benefit through a separate Board Circular.
* In the circumstance, the decision in the case of Aarti Drugs Limited continues to be good Law and has not been dissented or differed till date.
(V) CCE V. BASPUR COPERATIVE SUGAR FACTORY LIMITED - 2003 (59) RLT 398 In this case, in the process of manufacturing of sugar, sugarcane waste as pressmud emerge. This pressmud was cleared by the assessee without payment of duty. A demand was made under Rule 57CC for an amount equivalent to 8%. The Tribunal was pleased to hold that when pressmud itself is non-excisable. Rule 57CC is inapplicable. Applying the ratio to the above facts, Revenue obviously cannot demand any amount on the byproduct sulphur dioxide and Revenue has not done so. Once the Chainlink is broken, the further processing of this sulphur dioxide with any other inputs on which no inputs credit has been claimed cannot invite the rigors of Rule 57CC to stat or suggest copper concentrate is the input.
13. Appellants sought to distinguish the various case laws relied by the Department by submitting the following GTC India Vs. Commissioner of Central Excise 2001 (129) ELT 513 - Assessee took modvat credit on cut tobacco which was used in the manufacture of cigarettes and in the process tobacco refuse in the form of dust and winnowings was produced. Classifiable under 2401.10 of the Central Excise Tariff Act, 1985. Tobacco refuse was chargeable to nil rate of duty. Question arose since duty has been availed on cut tobacco, an amount equivalent to 8% should be recovered on the clearances of tobacco refuse. This view of the Revenue was upheld by the Tribunal. This case is not applicable t he facts of the present case for the following reasons :
In the case of GTC Industry, Tobacco refuse is a final product classifiable under 2401.10 and chargeable to nil rate of duty. In other words, cut tobacco which is a common input was employed in the manufacture of dutiable products cigarettes and exempted product dust and winnowings. On the other hand, in the appellant's case copper concentrate is employed in the manufacture of copper anode and non-excisable byproduct sulphur-di-oxide. There is no controversy that impure sulphur-di-oxide is excisable or marketable. In the circumstances, appellants case are identical to the case decided by this Tribunal in the matter EID Parry Limited and are totally distinct to GTC India. Furthermore, in the case of GTC appellants did not comply with the procedure contemplated under Rule 57 F18 of the Central Excise Rules. It is a settled law under modvat that if duty paid inputs are used in the manufacture of finished goods, during which process waste or scrap emerge such waste and scrap should be cleared on payment of duty. This is a simple balancing act for having availed credit. GTC India did not pay duty on dust and winnowings in terms of Rule 57 F18 for having used duty paid inputs and cleared the same under 2401.10 claiming nil rate. To put it more precisely.
* Credit was availed on cut tobacco * It was used in the manufacture of Cigarettes an dust and winnowings *Dust and winnowings as scrap should be cleared on payment of duty under Rule 57 F18 which GTC did not do so * They claimed nil rate of duty benefit under 2401.10 * Under such circumstances, the department did not deny the input credit on cut tobacco but demanded duty of an amount of 8% on dust and winnowings since no duty was paid as waste and scrap under rule 57 F18.
In short, the facts of the case are totally different and therefore cannot be relied upon.
Dujodwala Resins Terpenes Ltd. Vs. Collector of Central Excise, Chandigarh - 1997 (93) ELT 451 (Tribunal) Kirloskar Oil Engines Ltd. Vs. Collector of Central Excise, Pune - 1994 (73) ELT 835 (Tribunal) Orissa Extrusions Vs. Collector of Central Excise, Bhubaneswar - 2000 (115) ELT 30 (SC)
14. They further submitted that all these decisions have been rendered only under Rule 57C and not under Rule 57CC and they have no application. the decision of the Supreme Court in Orissa Extrusions was one considering the applicability of Rule 57C vis-a-vis Notification No. 180/88/ and therefore they have no relevance to the facts of the case. as regard the other two tribunal rulings, these are again decisions under Rule 57C and not Rule 57CC and further more, these decision are not longer goods law in the light of two larger bench decisions in the case of CCE Vs. ASHOK IRON AND STEEL FABRICATORS 2002 (140) ELT 277 AND RAGHUVAR INDIA LTD VS. COMMISSIONER 2002 (140) ELT 280.
15. It is the plea of the appellants that copper concentrate is employed only in the smelter which gives rise to copper anodes and emissions of sulphur-di-oxide in gaseous form. No other inputs are added at this stage. When this emissions of sulphur dioxide is processed into sulphuric acid and phosphoric acid, these is an addition of various inputs such as caustic soda, Ferric sulphate, ferric Chloride, Indion, Magnafloc, etc. The Commissioner of Central Excise, Tirunelveli in para 13 has observed that appellants have availed Modvat credit on some of these inputs also which the appellants deny. It is their case that appellants have not taken any credit at any point of time on any of these inputs. To this effect, a certificate dated 19.9.2003 issue by the Superintendent of Central Excise, SIPCOT Range was produced which confirmed that for the period September 2000 to July 2002 appellants have not taken any input credit on any of the inputs such as water treatment chemicals, magnafloc, ferric chloride, ferric sulphate, caustic soda flakes, deformer, sodium silicate, hydrogen hydrade, active silica, spak and maxtreat. The certificate confirms having verified the same with RG23A Part Ii register. No credit has been availed on any of these inputs except maxtreat but this input has been used only in the smelter and not in the sulphuric acid/phosphoric acid plant. In other words, certificate confirms that no credit has been taken on any of the inputs employed in the sulphuric acid/phosphoric acid plants. Finally, appellants made submissions as to how the Commissioner's findings are factually incorrect and legally not sustainable.
16. All the show cause notices have proceeded on the footing that sulphur dioxide is a intermediate product used in the manufacture of sulphuric acid and phosphoric acid. However, the Commissioner of Central Excise concedes in various places of his order that sulphur dioxide is only a byproduct. Having said so, learned authority ought to have dropped the proceedings on that score alone but still proceeded to confirm the demands. The submission of the appellants before the Commissioner (Appeals) that sulphuric acid is a byproduct is based on technical literature and materials which literature has not been denied or disputed in the impugned order. Learned authority erred in stating that there is misrepresentation of facts and non-appreciation of facts. having referred to the decision of the West Regional bench in the case of Arti Drugs Limited Vs. Commissioner 2001 (133) ELT 385 Learned authority has chosen not to give any findings whatsoever as to its applicability/non-applicability to the facts of the case. The presence of sulphur in the copper concentrate is not denied anywhere by the appellants. Sulphur dioxide emerges only because sulphur content in the copper concentrate reacts with oxygen in the smelter. Appellants have nowhere denied the presence of sulphur in copper concentrate. The decision in the case of GTC is factually and legally distinguishable and the decisions referred in para 38 and 39 and all with reference to Rule 57C and not Rule 57CC and these decisions are no longer goods law as these have been reversed by larger bench decisions referred supra.
17. No reliance ought to have been placed by the Commissioner to Board Circular No. F. No. 267/12/2001-CX dated 28/01/2002. Through the said circular, Board had clarified that Rule 57D will not apply since sulphur dioxide has been subjected to further process to manufacture sulphuric acid and phosphoric acid both of which are dutiable. This Board circular is no longer good law and sustainable for the following reasons :
The Board circular is dated 28/01/2002 whereas the decision in the case of Arti Drugs was rendered as early as 18/04/2001. Board circular has not been taken into consideration the prevailing judicial ruling on the subject and the clarification is not based on any Court rulings. This anomaly was pointed out to the Hon'ble Board and therefore one more detailed representation was made on 20/03/2003 to the Hon'ble Board pointing out the fact that many crucial submissions were omitted to be made in the early representation dated 29/12/2000 and further the decision of the Hon'ble Tribunal in the case of Arti Drugs was not taken into account. Appellant's representative and counsel met the Member, Central Board of Excise and Customs on 25/07/2003 and sought for a review of the circular after pointing out the anomalies. No orders have been passed till date. Further more, it is a settled legal principle that circulars of Board cannot be relied upon or not maintainable if the same are contrary to judicial decisions and precedence. In this connection, reference is drawn to the decision of the Hon'ble Madras Court in the case of Pioneer Miyagi Chemicals Vs. CBEC 2000 (116) ELT 441 (Mad). Circulars issued by the Board which runs counter to judicial pronouncements are not valid and sustainable. Reference is also drawn to the decision of the Delhi High Court in the case of Kissan Chemicals Vs. Union of India 1996 (88) ELT 648 and the ruling of the Hon'ble Tribunal in the case of CCE Vs. Bata India Limited 2001 (138)ELT 335 (Kol) wherein the Hon'ble Tribunal was pleased to hold that quasi judicial authorities are to decide matters independently and are statutorily protected from such instructions and can follow judgments of appellate forum instead of following such instructions. In view of the above, learned commissioner erred in placing reliance on the Board Circular. Reliance by the Learned authority on board circular no 654/45/2002-CX dated 19/08/2002 is clearly not sustainable as that circular has no application to the facts of the case and appellants have never relied on the same. Appellants finally state that when demands are not sustainable, question of imposition of penalty and interest are not maintainable.
18. Shri VTK Nayanar, learned Jt. CDR appearing for Revenue submitted that the copper concentrate is the primary inputs for the manufacture of copper anodes during which sulphur-di-oxide emerges as a by-product which in turn is used in the manufacture of sulphuric acid and phosphoric acid in the integrated plants located within the factory. In the synopsis of the oral submissions made, he has invited our attention to Annexures II and III to the order in original which gives the chemical composition of typical copper concentrate imported from various countries such as Indosnesia and latin American to contend that the chemical composition indicates that copper concentrate is an one containing around 35% of sulphur and other elements such as Iron, Silvar etc. in varying proportions and the most important ores are sulphide Ores such as Chalcolate (Cu2S) and Chalcopyrite (CuFe S2) from which copper is usually extracted. He has also referred to the Book General Chemistry by Henry F. Holtzclaw, Jr and William R. Robinson wherein it is stated that Sulphur dioxide is produced commercially by burning free sulfur and by roasting (hearing in air) sulfide ores. It was argued that since the appellants have cleared sulphuric acid and phosphoric acid partly on payment of duty and partly as exempted products, they should have maintained separate inventory and accounts for the receipt and issue of various inputs referred above and since they have not done so, and since common inputs have been used for the manufacture of dutiable as well as exempted final products; the department has issued show cause notices. It is further stated that the appellants are using the imported copper concentrate and also indion as an input in or in relation to the manufacture of copper anodes, sulphuric acid and phosphoric acid. Input credit is availed on copper concentrate and indion. Sulphur dioxide emerges as a by-product from the smelter plant wherein the copper anode is manufactured. Then the sulphur dioxide is converted into sulphur trioxide and thereafter sulphuric acid is manufactured, in an integrated process of manufacture, within the same factory of manufacture. While part of the sulphiric acid is cleared on payment of duty another part is cleared without payment of duty under the Chapter X procedure. Further, one more portion of sulphuric acid is captively used for the manufacture of phosphoric acid within the same factory premises. Part of the Phosphoric acid is cleared on payment of duty and part as exempted product. he has also referred to Rule 57AD in terms of which CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned under Sub Rule sub-rule (2) thereof and in terms of Sub-rule (2) of Rule 57AD which came into effect from 1.4.2000, where a manufacturer avails of CENVAT credit in respect of any inputs, the manufacturer shall maintain separate accounts for receipt consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. The manufacturer opting not to maintain separate accounts, shall pay an amount equal to either percent of the total price excluding Sales Tax and other taxes, in case the exempted goods are other than those falling under Chapter 50 to 63 of the CETA, black white TV Sets falling within Chapter 85 and newsprint in rolls or sheets falling within Chapter heading 48.01. The learned JCDR submitted that the contention of the appellants that copper concentrate is not the input and sulphur dioxide is the input for the manufacture of sulphuric acid does not hold goods inasmuch as the words "any input" used in the Rule makes it clear that credit need necessarily be taken in respect of all the inputs to attract the mischief of sub-rule (2) of rule 57AD. He has further submitted that copper concentrate has sulphur contents in the range of 30-35% depending upon the country of origin, addition to copper, iron and other elements in traces. Therefore, it cannot be said that sulphur is an impurity in the copper concentrate and for that matter any other elements are not impurities in the copper concentrate. He has further submitted that he department's case is that but for the use of copper concentrate, as the basic inputs, the emergence of sulphur dioxide would not have been possible and without sulphur dioxide, sulphuric acid and phosphoric acid could not have been manufactured. Therefore, the manufacture of sulphuric acid phosphoric acid and copper anodes are linked to the basic input which is copper concentrate, in an integrated and uninterrupted process. He has also cited the following case laws in support of his pleas for allowing the departmental appeals and for rejection of the appellants' appeals :
(1) CCE Vs. Ballarpur Industries reported in 1989 (43) ELT 804 SC.
(2) CCE Vs. Eastend Paper Industries Ltd. reported in 1989 (43) ELT 201 (SC) (3) Indian Iron & Steel Co. Ltd. Vs. CCE, Bolpur reported in 2002 - (141) ELT 695 (4) Deccan Sugar and Adkhari Co. Ltd. reported in 1982 (10) ELT 606 (5) Udaipur Phosphates & Fertilizers. Vs. CCE, New Delhi reported in 1994 (73) ELT 906 (6) AP State Electricity Board Vs. CCE, Hydrabad reported in 1994 (70) ELT 3 (SC).
(7) CCE Bombay Vs. Kohinoor Mills reported in 1995 (77) ELT 42 (SC) (8) CCE Vs. Mangalore Refinery & Petrochemicals Ltd. reported in 2002 (147) ELT 788.
19. Shri N. Venkataraman filed in the Court, a further written submissions on 10.12.2003, and after the matter was reserved on 05/12/2003, which are as under :
"The above batch of appeals were heard by the Hon'ble Tribunal on 5.12.2003 and orders reserved. During the course of argument, it was submitted that the sulphur-di-oxide gas emits as a non-excisable by product in the course of manufacture of copper anodes out of copper concentrate. The show cause notice issued by the Revenue also concedes that "copper concentrate is melted in the ISA smelt furnace, to obtain blister copper and during the course of smelting, sulphur-di-oxide gas is obtained. Therefore, sulphur-di-oxide gas is not produced independently. It emits as a non-excisable by product. The Joint Chief Department Representative during his arguments submitted the following :
That there is a specific tariff entry for sulphur-di-ixide gas and therefore is liable to Central Excise duty.
Reliance was placed on the decision of the Tribunal in the case of CCE Mangalore Vs. Mangalore Refinery and Petrochemicals Ltd. - 2002 (147) ELT 788 wherein it was held that for manufacture of a final product the appellants in the said case had purchased various duty paid inputs such as synthetic gum, gas mixture, sulphur-di-ixide, helium, etc., and consequently it was submitted that if credit is availed on sulphur-di-oxide it would only to the show manufacturer are producing sulphur-di-oxide and clearing the same on payment of duty and therefore the sulphur-di-oxide gas that emits in the process in the appellant's factory is liable to Central Excise Duty. In response to the said submissions, appellants place reliance on the following case laws :
(a) Before Case Laws are furnished it is submitted that at no point of time, either in the show cause notice or in any other proceedings, Revenue has alleged or stated that sulphur-di-oxide which gets emitted is an excisable product. Every show cause notice issued by the revenue on this issue only states that appellants are engaged in the manufacture of copper anode, sulphuric acid and phosphoric acid. There is no mention or allegation that appellant are manufacturers of sulphur-di-oxide gas.
(b) No reliance can be placed on the decision in the case of CCE Mangalore Vs. Mangalore Refinery and Petrochemicals Ltd. - 2002 (147) ELT 788. The case of the Revenue that duty credit has been availed on sulphur-di-oxide and therefore it is excisable, cannot be of any avail. It is never the appellant's case that there is no excisable product as sulphur-di-oxide. Appellant's case is only confined to the fact as to whether the emission of sulphur-di-oxide gas within the factory is an excisable commodity. The ruling relied by the revenue nowhere indicates that the duty paid sulphur-di-oxide is one which had emitted during the process of copper smelting and in the manufacture of copper anode and it is this sulphur-di-oxide which is cleared on payment of duty. In the circumstances, the decision relied by the revenue do not support their case.
(c) On the contrary, appellants rely on the decision in the case of South Bihar Sugar Mills Vs. Union of India - 1978 ELT 336 wherein the Supreme Court has observed as under :
"Kiln gas is not carbon-di-oxide. The mixture of gasses produced from the kiln in known both in trade and in science as kiln gas although one of its constituents in carbon-di-oxide. The kiln gas is neither liquefied nor solidified so as to be termed as carbon-di-oxide. Even it cannot be called as compressed carbon dioxide as in the trade the compressed carbon dioxide is understood as carbon dioxide compressed in cylinders with pressure ranging from 1000 to 1800 Ibs per square inch. The mere fact that at one stage or the other kiln gas is pressed to 40 to 45 Ibs per square inch by a pump or otherwise cannot mean that it is compressed carbon dioxide."
(d) Reliance is also placed on the decision of the Supreme Court in the case of Union of India Vs. Delhi Cloth and General Mills Co. Ltd. - 1997 (92) ELT 315 wherein the Supreme Court was pleased to hold "Learned counsel for the appellants submitted that Tariff Entry 14AA (1) was attracted, whatever might be the further process that the calcium carbine manufactured by the respondent might have to undergo by way of purification or packaging for that would not be tantamount to further manufacture. We are unable to agree for the simple reason that the commodity which is sought to be made liable to excise duty must be a commodity that is marketable as it is and not a commodity that may be further processing be made marketable". It further held that "The order of the collector shows that the calcium carbide that was manufactured by the respondent for further utilisation in the production of acetylene gas was not of a purity that rendered it marketable nor was it packed in such a way as to make it marketable, that is to say, in airtight containers. This is a finding of fact. Applying the ratio of the Moti Laminates judgment thereto, we must hold that the calcium carbide manufactured by the respondents is not excisable commodity which is sought to be made liable to excise duty must be a commodity that is marketable as it is and not a commodity that may be further processing be made marketable."
(e) Reliance is placed on the decision of the Supreme Court in M/s. Moti Laminates Vs. CCE - 1995 (76) ELT 241 (SC) wherein the Hon'ble Apex Court was pleased to hold that mere tariff entry is not sufficient and marketability is a must for levy of excise duty.
(f) It was contended by the Revenue that the sulphur-di-oxide is consumed captively and therefore removed for further use. Consequently, it should be held as marketable and dutiable. In this connection, appellants rely on the decision of the Supreme Court in the case of Commissioner of Central Excise Vs. Ambalal Sarabhai Enterprises - 1989 (43) ELT 214 (SC) wherein the Apex Court was pleased to hold that user in the captive consumption is not determinative of whether the article is capable of being sold in the market or known in the market as goods. Therefore it is a settled legal position that even captive consumption goods should satisfy the test of marketability before duty can be imposed on them.
(g) Reliance is placed on the Environment Protection Rules 1986. Schedule 1 issue under Rule 3 (Sl. No. 21) reveals that copper, lead and zinc smelting would result in particulate matter emission in the concentrator resulting in the emission of oxides of sulphur in the smelter and convertor and these off-gages must be utilized for sulphuric acid manufacture. In other words, there is not identity or name as sulphur-di-oxide as known to the market in the commercial sense. This smelting process of copper, lead and zinc results in emission of oxides of sulphur (the expression used in "oxides" namely sulphur-di-oxide, sulphur-tri-oxide) these are termed by the Environment Protection Rules as off-gases and not marketable commodities. When a statutory rule identified the item as an emission of oxide in the form of off-gases the argument of the revenue that it is marketable sulphur-di-oxide as mentioned in the tariff is without basis and evidence and therefore liable to be dismissed.
(h) Reliance by the revenue in the case of Ballarpur Industries is again out of place. The Supreme Court in the case of Ballarpur has only held that an input chemical need not be present physically in the final product and nevertheless it would still quality as an input. The issue on hand is not as to whether a particular item is an input or in the manufacturing to process. The question for consideration is whether the emission of oxides of sulphur is a non-excisable by product. In this connection, appellants reiterate and rely on the decision of the Supreme Court (para 20) which reads as under :
In the premises, it is clear that the Tribunal should have held even through a part of the ethylene glycol was contained in the by-product methanol yet the credit of duty could not be reduced t the extent of the ethylene glycol contained in the methanol as ineligible.
It is clear that the appellants are not engaged in the Production od 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. Shri N. Venkataraman, the learned Advocate, therefore, prayed that the above case laws may kindly be taken on record and thus render justice.
20. On 12/12/2003 Shri VTK Narayan, learned Jt. CDR accompanied by Smt. R. Bhaghya Devi, SDR also filed a synopsis in the Court of the oral submissions made by them during the course of personal hearing on 5.12.2003 after the matter was reserved on 5.12.2003 and after the appellants filed a further written submission on 10/12/2003. Their submissions are as under : -
1. M/s. Sterlite Industries (I) Ltd. Tuticorin, manufacturers copper anodes falling under Chapter 7402 of the Central Excise Tariff, which are cleared on payment of duty. Copper anodes are manufactured from the principle raw material, copper concentrate, which is imported, on which Cenvat credit is taken. During the course of manufacture of copper anodes from copper concentrate sulphur dioxide emerges as a by-product. In a continuous, uninterrupted and integrated process of manufacturer, sulphur dioxide gas is converted into sulphur trioxide and then sulphuric acid. A portion of phosphoric acid is also cleared without payment of duty under Chapter X procedure for the manufacture of fertilizer products by availing exemption notification 6/2002 dated 1-3-2002. The remaining portions of sulphuric acid and phosphoric acid are cleared on payment of duty.
2. The copper concentrate is subjected to smelting process in the presence of oxygen in the ISA Smelt furnace in two stages, producing copper matter in the first instance, then blister copper and later on copper anodes. The sulphur dioxide gas formed during the smelting operations is passed to the mixing chamber and this gas at 350 degree centigrade enters the gas cleaning and cooling sections through that main gas duct. In this section the remaining fine dust is removed and gas is cooled to 35 degree centigrade for conversion into sulphuric acid. The cleaned gas is dried by means of circulating sulphuric acid in the drying tower and the sulphur dioxide is converted to sulphur trioxide in the catalytic converter over four beds of vanadium pentoxide catalyst. The sulphur trioxide gas is absorbed by circulating sulphuric acid in the absorption towers and the product, sulphuric acid is pumped to storage tanks, a portion of which in turn is captively consumed in the manufacture of phosphoric acid by reacting with rock phosphate in the phosphoric acid plant.
Sulphur dioxide gas and granulated slag emerges as by-products from the smelt furnaces. Sulphur dioxide emerging during the course of smelting of copper concentrate as an intermediate product is captively consumed in the manufacture of sulphuric acid by availing the duty exemption under notification No. 67/95 dated 16.3.95.
Flow chart of the manufacturing process submitted as Annexure - I.
3. INPUTS USED The copper concentrate is the primary input for the manufacture of copper anodes during which sulphur dioxide emerges as by-product which in tern is used in the manufacture of sulphuric acid and phosphoric acid in the integrated plants located within the factory premises. The assessee has availed Cenvat Credit on copper concentrate.
The other inputs used :
i) Maxtreat - a chemical used in smelter plant and captive power plant - Cenvat credit taken.
(On all the inputs used within the smelter furnace, viz copper concentrate and maxtreat used for the manufacture of copper anodes and sulphur dioxide, the assessee has availed Cenvat credit)
ii) Ferric chloride, Ferric sulphate and Magnofloc are used for removal of dirt from water in the water treatment plant attached with the sulphuric acid plant. (Cenvat credit not availed)
iii) Water treatment chemicals - Water is used in the sulphuric acid plant to take the heat out from the process and for which cool water is to be circulated. The cool water comes from the cooling towers which contains some bacteria, corrosive elements and scaling elements. water treatment chemicals are nothing, but chemical, which enable to remove the bacteria, corrosive agents and scaling agents from the above water.
iv) Caustic soda flakes used in the sulphuric acid plant to maintain pH (to keep the water neutral).
v) De-foamer - used in phosphoric acid plant to remove the foam while sulphuric acid reacts with rock phosphate.
vi) Sodium silicate -used in the gas cleaning plant which is located in the sulphuric acid plant to remove impurities from sulphur dioxide gas, i.e., removal of fluorine from sulphur dioxide gas.
vii) Hydrogen hydrate - to remove impurities from sulphuric acid in the sulphuric acid plant.
vii) Active silica - used in the phosphoric acid plant for balancing the reaction.
ix) Spak - defoaming chemical used in the phosphoric acid plant.
4. COPPER CONCENTRATE Copper Concentrate is the essential raw material from which copper is extracted by smelting and refining process. Copper concentrate contain copper, sulphur and iron as major elements and a hosts of other minor elements. Annexures-II and III to the Order-in-Original give the chemical composition of typical copper concentrate imported from various countries. The Indonesia variety contains Copper (Cu) 30-38%, Fe (Iron) 23-27% and Sulphur (S) 30-34 %. It also contains other elements such as Gold, Silver Arsenic, Bismuth, Carbon, Lead, Zinc etc in traces. The Latin American variety contains, Cu 32-46 %, Fe 13-23 %, and Sulphur 33-35%. The chemical composition would indicate that copper concentrate is an ore of copper containing around 35% of sulphur and other elements such as Iron, Silver etc in varying proportions. The most important ores of copper are Sulphide Ores such as Chalcocate (Cu2S) and Chalcopyrite (CuFeS2), from which copper is usually extracted. Sulphur dioxide gas is commercially prepared by roasting sulphude ores (extracts from General Chemistry - by Henry F. Holtzclaw, Jr. and William R. Robinson) [Annexure - II]
5. Since the assessee has cleared sulphuric acid and phosphoric acid partly on payment of duty and partly as exempted products, they should have maintained separate inventory and accounts for the receipt and use of various inputs referred above. Since they have not done so and since common inputs have been used for the manufacture of dutiable as well as exempted final products, the department issued various show cause notices under the provisions of Rule 57AD (2) of the Central Excise rules 1942 read with Rule 6(2) of the CENVAT Credit Rules, demanding an amount of 8% of the price of the exempted final products, viz. sulphuric acid and phosphoric acid. The provisions correspond to Rule 57 CC of erstwhile Central Excise Rules with some variations.
6. The demands raised in all the show cause notices have a common background, ie., the assessee is using the imported copper concentrate and also indion as an input in or in relation to the manufacture of copper anodes, sulphuric acid and phosphoric acid. Input credit is availed on copper concentrate and indion. Sulphur dioxide emerges as a by-product from the smelter plant wherein the copper anode is manufactured. Then the sulphur dioxide is converted into sulphur trioxide and thereafter sulphuric acid in an integrated process of manufacture within the same factory of manufacture. While part of the sulphuric acid is cleared on payment of duty another part is cleared without payment of duty under the Chapter X procedure. Further, one more portion of sulphuric acid is captively used for the manufacture of phosphoric acid within the same factory premises. Part of the phosphoric acid is cleared in payment of duty and part as exempted product.
7. Rule 57AD of the Central Excise [Second Amendment (Amendment)] Rules 2000 states as follows :
(1) "CENVAT credit shall not be allowed on such quantity of inputs circumstances mentioned in sub-rule (2).
(2) Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufacturers such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of dutiable goods. The manufacturer, opting not to maintain separate accounts shall follow either of the following conditions, as applicable to him, namely : -
(a) if the exempted goods are : -
(i) ..............
(b) if the exempted goods are other than those described in clause (a) above, the manufacturer shall pay an amount equal to either per cent of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory"
8. Rule 6 of the CENVAT Credit Rules 2001, is identically worded and both Rule 57AD and rule 6 are more or less on the same lines as the erstwhile Rule 57 CC.
9. Definitions - Rule 2 of CENVAT Credit Rules, 2001.
(d) "final products" means excisable goods manufactured or produced from inputs, except matches;"
(f) "inputs" means all goods, except high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not, and included lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final products, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used for manufacture of final products or for any other propose, within the factory of production"
10. A plain reading of Rule 57AD or Rule 6, clearly indicates that where a manufacturer avails CENVAT credit in respect of "any inputs" and manufactures both dutiable and exempted final products, unless separate accounts and inventories for both the categories of goods are maintained, the manufacturer shall pay an amount equal to 8 per cent of the total price of the exempted final product. The usage of the word "any inputs" in the rule makes it clear that credit need not necessarily be taken in respect of all the inputs to attract the mischief of sub rule (2). Further, as per definition, inputs need not necessarily be directly used for the manufacture of final products. Also, it can be indirectly used and it need not necessarily be contained in the final products. In the circumstances, the assessee's contention that copper concentrate is not the inputs and sulphur dioxide is the input for the manufacture of sulphuric acid does not hold good. Also, the assessee's contention that they have not taken CENVAT credit on 10 chemical like water treatment chemicals, magnofloc, ferric chloride, ferric sulphate etc., also is of no avail in view of the language used in the sub rule (2) which refers to "any inputs". These is not dispute that the assessee has taken Cenvat Credit on copper concentrate and maxtreat used in the smelter furnaces.
11. As already stated, copper concentrate has sulphur contents in the range of 30-35%, depending upon the country origin, in addition to copper, iron and other elements in traces. We cannot call sulphur is an impurity in copper concentrate and for that matter any other elements are not impurities in the copper concentrate. The copper ore naturally occurs in this form in combination with various elements and during the metallurgical process while extracting copper metal, the other elements are eliminated stage by stage to obtain pure copper. The Department's case is that but for the use of copper concentrate, as the basis inputs, the emergence of sulphur dioxide would not have been possible and without sulphur dioxide, sulphuric acid and phosphoric acid could not have been manufactured. Therefore, the manufacture of sulphuric acid, phosphoric acid and copper anodes are linked to the basis inputs, copper concentrate, in an integrated continuous and uninterrupted process. This would clearly indicate that copper concentrate is the basis raw material or input for the manufacture of copper anodes, sulphuric acid and phosphoric acid.
12. In this regard the decision of Hon. Supreme Court in the case of Collector of Central Excise Vs. Ballarpur Industries Ltd, may kindly be referred to. The gist of the case is reproduced below :
1989 (43) ELT 804 (SC) - Collector of Central Excise Vs. Ballarpur Industries Ltd.
The issue involved is whether set - off of duty is admissible on sodium sulphate used for chemical reaction at pulp stage by treating the same as raw material used in the manufacture of paper even if sodium sulphate is burnt up and does not retain its identity in the end product. It was held by the Apex Court that set-off of duty is available, since odium sulphate is a essential ingredient in the chemistry of paper technology and it is to be treated as raw material irrespective of the fact that in the course of chemical reaction this ingredient is used and burnt up and does not retain its identity in the end product. The contention that sodium sulphate is used at a stage of preparation of pulp which is a stage anterior to the actual manufacture of paper was into accepted by the court since the manufacture of pulp is an integrated process of manufacture of paper and is converted in the definition of 'manufacture' under Section 2(f) of the Central Excise Act In para 4 of the judgment the Hon'ble Apex Court observed as follows :
"5. The question, in the ultimate analysis, the whether in input of Sodium sulphate in the manufacture of paper would cease to be a "Raw-Material" by reason alone of the fact that in the course of the chemical reactions this ingredient is consumed and burnt-up. The expression "Raw-Material" is not a defined term. The meaning to be given to it is the ordinary and well-accepted connotation in the common parlance of those who deal with the matter.
The ingredients used in the chemical technology of manufacture of any end-product might comprise, amongst other, of those which may retain their dominant individual identity and character throughout out the process and also in the end-product; those winch, as a result or interaction with other chemicals or ingredients, might themselves undergo chemical or qualitative changes and in such altered from final themselves in the end-product; those which, like catalytic agents, which influencing an a accelerating the chemical reactions, however, any themselves remain uninfluenced and unaltered and remain independent of any outside the end-products and those, as here, which might be burnt-up or consumed in the chemical reactions. The question in the present case is whether the ingredients of the last mentioned class qualify themselves as and are eligible to be called "Raw-Material" for the end-product. One of the valid tests, in our opinion, could be that the ingredient should be so essential for the chemical process culminating in the emergence of the desired end product, that having regard to its importance in and indispensability for the process, it could be said that its very consumption on burning-up is its quality and value as raw material. In such a case, the relevant test is not its presence in the end-produce, but the dependence of the end product for its essential presence at the delivery and of the process. The ingredient goes into the making of the end-product in the sense that without its absence the presence of the end-products, as such, is rendered impossible. this quality should coalesce with the requirement that its utilization is in the manufacturing process as distinct from the manufacturing apparatus."
13. As observed by the Hon. Apex Court in the above cited judgment, the only relevant test to be applied here is not the presence of copper concentrate in the end products, namely sulphuric acid and phosphoric acid. It may be appreciated that the copper concentrate goes into the making of the end products, viz. sulphuric acid and phosphoric acid in the sense that in the absence of copper concentrate, the presence of the end product is rendered impossible. The argument that sulphuric acid has not been manufactured directly from copper concentrate, but from sulphur dioxide and, therefore, copper concentrate is not the input for sulphuric acid is absurd and contrary to fact. Even if copper concentrate is used a second time in the sulphuric acid plant, the manufacture of sulphuric acid takes place only through the same route, namely by the formation of sulphur dioxide at the first instance upon roasting of the copper concentrate. This would imply that copper concentrate is the only raw material for the manufacture of sulphur dioxide and sulphuric acid.
14. The decision of the Hon. Supreme Court in the case of Collector of Central Excise Vs. Eastend Paper Industries Ltd., may also be referred to, which is re-produced below :
1989 (43) ELT 201 (SC) - Collector of Central Excise Vs. Eastend Paper Industries Ltd.
The Hon. Supreme Court held that "anything that enters into and forms part of that process must be deemed to be raw material or component part of the end product and must be deemed to have been used in completion or manufacture of the end product". The court also observed that so long as it can be shown that the material used as inputs have a nexus with the process which is integrally connected with the ultimate production of goods till the same are fit for being put in the marketing stream and such process is so integrally connected with ultimate production of goods that it would be commercially inexpedient to produce the finished goods without that process, all such goods would fall within the expression "in the manufacture of goods". this view has been reiterated by the Hon'ble South Zonal Bench of CEGAT in the case of Collector of Central Excise Vs. Seshasayee Paper Boards Ltd. reported in 1992 61) ELT 304 (Tri.) The issue before the Tribunal was whether hydrochloric acid and sulphuric acid being used for treatment of water can be considered as 'inputs' used in or in relation to manufacture of paper. Hydrochloric acid was used for de-mineralisation of water, which is turned into stem. Specific use of hydrochloric acid resulted in the treated water fit for generation of steam after de-mineralisation of the same. This treatment has been done at the stage anterior to the start of the manufacturing process for generation of steam and its use therefore can be taken to be for treatment of water for making the water ready for use in the process of manufacture of paper. The Tribunal held that it is a Modvatable input.
15. There is no dispute that copper concentrate is the only input having a nexus with the process which is integrally connected with the ultimate production of phosphoric acid and sulphuric acid.
16. The Hon. Madhya Pradesh High Court, in the case of Century Textile & Industries Vs. Union of India reported in 2003 (154) ELT 52 (M.P), relying on the judgment of the Hon'ble Supreme Court in the Ballarpur Industries Ltd. explained in para 12 of the order the concept of "raw material". The High Court observed that the expression "raw material" is not a defined term. The meaning to be given to it is the ordinary well accepted connotation in the common parlance of those who deal with the matter. Denim fabric cannot be produced without the use of dye and therefore dye is an essential raw material for the production of denim fabric since in its absence the presence of the end product is impossible.
17. The appellants in their Appeal memorandum has elaborately dealt with the provisions of Rules 57C 57CC and 57D along with their legislative history. However, none of these Rules is applicable to the issue in hand, since Rules 57C and 57CC have since been merged together to become Rule 57AD and Rule 6 of the Cenvat Credit Rules. In the amended CENVAT Credit Rules, there is no provision parallel to the erstwhile Rule 57D. The appellants contented that under Rule 57D, they should have been permitted to retain the credit in respect of by-products, vis. sulphur dioxide. They are harping upon the words "inputs contained in the by-products", appearing in Rule 57D and has pleaded that credit on the inputs contained in sulphur dioxide cannot be denied. all these arguments do not have any basis and have been suitably dealt with by the adjudicating Commissioner. It is not the case of the Revenue that the appellants have been denied the credit, nor they have been called upon to reverse the credit. In the circumstances, it is not known why they are relying on the old provisions of Rules 57C and 57D. The demand in the show cause notice is not on the by-product, but it is on the final products, viz. sulphuric acid and phosphoric acid manufactured out of the by-product, viz. sulphur dioxide, emerging in the process of manufacture of copper anodes, using the input-copper concentrate - on which Cenvat Credit is taken.
18. In this regard the decision of the Tribunal reported in 2002 (141) ELT 695 (Tri. Kolkata)-Indian Iron & Steel Co. Ltd., Vs. Commissioner of Central Excise, Bolpur, may be referred. The Calcutta bench of the Tribunal held that Rule 57 CC of the Central Excise Rules does not make any distinction between intended final product and by-product. The said rules required the assessee to pay an amount equal to 8% of the price of the final product, cleared at NIL rate of duty even where the inputs have been directly or indirectly used in the manufacture of such final product and even where they are not contained in the said final product. The Bench also held that when it is not the credit originally taken that is being demanded, but an amount equal to 8% of the price of the exempted by-product, the erstwhile Rule 57D is not applicable.
19. In page 2 of the paper book the appellants have stated that sulphur dioxide being a hazardous gas, the same cannot be let out in open air and it is an environmental compulsion that it should be utilized for the manufacture of sulphuric acid. Whatever may be compulsions, so long as there is no dispute about the manufacturing of sulphuric acid, the demand raised by the Revenue is in order.
20. On page 11 of the paper book they have stated that the inputs required for sulphuric acid are waste gas in the form of sulphur dioxide and duty paid inputs like ferric sulphate, ferric chloride etc., on which no Cenvat credit has been availed. Independent infrastructure to manufacture sulphuric acid and phosphoric acid employing non-excisable sulphur dioxide and various other duty paid inpute exist. The Department is not disputing that sulphur dioxide is a hazardous gas. It is not the case of either the department or the appellants that they are manufacturing sulphuric acid out of environmental compulsions in view of pollution control norms. Whatever may be the requirements under any other law, production of sulphur dioxide from copper concentrate upon roasting is a technological necessity. This sulphur dioxide is commercially prepared from sulphide ores as stated earlier. Therefore, what they are precisely doing is commercially utilizing the sulphur dioxide produced in the extraction of copper metal for the manufacture of sulphuric acid for which they have integrated manufacturing facilities in the same factory premises. This itself indicates that the sulphur dioxide so produced is not a waste gas, but a commercially useful commodity.
21. Their argument in page 20 that it is not possible to use lesser quantum of copper concentrate to manufacture a desired quantity of copper anode etc. is devoid of merit since as already stated copper concentrate is an ore of copper containing 30-35% of sulphur and evolution of sulphur dioxide on roasting of the ore is a technological necessity and we have no control over it. Depending upon the percentage of copper and sulphur content in the ore, the quantity of copper anodes, sulphur dioxide and sulphuric acid all will vary. It should be kept in mind that the input is copper concentrate and not the individual elements like sulphur, copper, iron etc., present in the copper concentrate, since copper concentrate is a chemical compound containing various elements in different combinations.
22. In page 22 the appellants are trying to make a distinction between an intermediate product and by-product. They argue that sulphur dioxide is a by-product and not an intermediate product as stated in the show cause notice. It is also non-excisable. Therefore, rule 57D is applicable and not Rule 6 of the Cenvat Credit Rules. As already pointed out, Rule 57D is no longer in force and there are no parallel provision in the present Cenvat Credit Rules. Therefore, retaining the credit on by products does not arise. It is also not the case of the appellant or the Revenue that they have been denied the credit. The department is simply demanding 8 per cent of the price of the exempted product since they are manufacturing both dutiable and exempted products, using common inputs and are not maintaining separate accounts and inventories. No doubt, sulphur dioxide may be a by-product in the smelting operation of copper concentrate, but it is an intermediate product in the manufacture of sulphuric acid, as would be evident from the chain of reactions. Sulphur in the copper concentrate gets converted into sulphur dioxide on heating in the presence of air, which in turn is converted into sulphur trioxide which ultimately is converted into sulphuric acid. Therefore, there is no anomaly in calling it as an intermediate product in the manufacture of sulphuric acid. Whether you call it as an intermediate product or as a by-product, in the absence of legal provisions parallel to the erstwhile rule 57D in the current Cenvat Rules, the arguments of the appellants is not going to be in their defence. The other contention of the appellants that sulphuric acid is not excisable is totally contrary to facts. Their reliance on case law of sukjit Starch and Chemical Ltd., Vs. Commissioner of Central Excise is also out of place. The Hon. Tribunal must have held that sulphur dioxide gas as it emerges in the process of burning of sulphur and consumed captively in the washing of maize to produce maize starch is an impure mixture of gases and is not known in the market as sulphur dioxide and hence not excisable. In the peculiar facts and circumstances of the case and also considering the degree of purity of sulphur dioxide needed for washing the maize, probably the Tribunal must have come to that finding. There are, however, many more decisions on this aspect which will be discussed subsequently, which will also cover the concept of marketability.
23. Sulphur dioxide is specifically covered in Chapter 28.11 of the Central Excise Tariff. Heading 2811.21-sulphur dioxide consumed in the manufacture of sulphuric acid within the factory of production - duty Nil. Heading 2811.29-Other categories of sulphur dioxide - duty 16%. It may, therefore, be seen that sulphur dioxide is an excisable commodity specifically covered as a tariff item attracting levy of duty if sold and no levy of duty if consumed captively. Since the excise duty is on manufacture and not on sale, strict ISI or any other quality standards are not to be applied to determine the excisability of the product in question. Chapter Note 28(a) of chapter 28, clearly states that the said chapter applies to separate chemical elements and separate chemically defined compounds, whether or not containing impurities. Therefore the sulphur dioxide produced on smelting of copper concentrate, whether contains impurities or not is an excisable commodity. Since it is captively consumed, no duty is leviable and clearance for captive consumption tantamounts to 'removal' under the Central Excise law, as held by the Courts. As regards the marketability of the product is concerned, we do not need any further proof other than the fact that they themselves are consuming it for the manufacture of sulphuric acid which would clearly imply that the sulphur dioxide produced from the copper concentrate is a marketable commodity which can be used for the manufacture of sulphuric acid.
24. The following case laws may be relied upon. 1982 (10) ELT 606 (GOI) - IN RE: Deacon Sugar and Adkhari Co. Ltd. In this case the petitioners manufactured sulphur dioxide gas and used the same in the factory of production in the process of manufacture of sugar. They have contended that the gas in question is impure sulphur dioxide which is not marketable and therefore not excisable. The Govt. observed that the very fact that the gas in question has been actually used in the manufacture of sugar answers the test of marketability of the goods and hence excisable. The Govt. also observed that the ratio of the Supreme Court judgment in the South Bihar Sugar Mills Ltd., case is not applicable to the present issue. In the case cited the Supreme Court held that kiln gas is not classifiable as carbon dioxide under the relevant tariff entry because it is not recognized in the trade as compressed carbon dioxide.
25. 1994 (73) ELT 906 (TRIBUNAL) - UDAIPUR PHOSPHATES & FERTILIZERS LTD., VS. COLLECTOR OF CENTRAL EXCISE, NEW DELHI. In this case the appellants are manufacturing oleum of different grades and during the process of manufacture, sulphuric acid comes into existence as an intermediate product, sulphuric acid comes into existence as an intermediate product. The Tribunal held that it may be true that the appellants may not be marketing the sulphuric acid in this case but that does not mean that sulphuric acid is not "goods" or the same does not have marketability and further sulphuric acid is also marketable.
26. 1994 (70) ELT 3 (SC) - A.P. STATE ELECTRICITY BOARD VS. COLLECTOR OF CENTRAL EXCISE, HYDERABAD. The Hon. supreme Court, in para 10 of the judgment, held as follows:
".........Marketability is an essential ingredient in order to be dutiable under the Schedule to the Act... The 'marketability' is thus essentially a question of fact to be decided in the facts of each case. There can be no generalization. The fact that the goods are not in fact marketed is of no relevance. So long as the goods were marketable, they are goods for he purposes of Section 3. It is not also necessary that the goods in question should be generally available in the market. Even if the goods are available from only one source or from a specified market, it makes no difference so long as they are available for purchasers.. The marketability of articles does not depend upon the number of purchasers nor is the market confined to the territorial limits of this country"
This has again been reiterated by the Hon. Supreme Court in the case of Indian Cable Co. Ltd., Vs. Collector of Central Excise, Calcutta, reported in 1994 (74) ELT 22 (SC).
27. 1995 (77) ELT 42 (SC) - COLLECTOR OF CENTRAL EXCISE, BOMBAY VS. KOHINOOR MILLS. The Hon. Apex Court in para 6 of the judgment held that if a manufactured item covered by the charge of excise duty is captively consumed, it would amount to removal of such manufactured item. Consequently, once the yarn is manufactured in the weaving department of the composite textile mill and it taken to the spinning department for being captively utilized by way of consumption in the spinning department, and gets consumed, it is deemed to have been removed within the meaning of Rule 9 (1).
28. 2002 (147) ELT 788 (TRI. BANG) - COMMISSIONER OF CENTRAL EXCISE, MANAGALORE VS. MANGALORE REFINERY & PETROCHEMICALS LTD. The issue relates to eligibility to Modvat credit on certain items including sulphur dioxide. The Hon. Tribunal held that credit is admissible. This would clearly indicate that sulphur dioxide gas are 'goods', bought and sold in the market and cleared from factories on payment of duty
29. The reliance of the appellants on the SWADESHI POLYTEX LTD., VS. COMMISSIONER OF CENTRAL EXCISE CASE (1989 (44) ELT 749 SC) has no relevance to the facts in the present case since the said case also deals with retention of Modvat credit on inputs contained in the by-products under Rule 57D, which is not the case here.
30. The case law of SOUTH BIHAR SUGAR MILLS LTD., VS. UNION OF INDIA, REPORTED IN 1978 (2) ELT J.336 (SC), deals with the classification of kiln gases - whether it can be classified as carbon dioxide under the relevant tariff entry. The Hon. Supreme Court held otherwise on the ground that the mixture of gases produced from the kiln is known to both trade and in science as kiln gas, although one of its constituents is carbon dioxide, yet it is not known as carbon dioxide. There is no ambiguity about this decision that kiln gas cannot be carbon dioxide. This is not the case in respect of sulphur dioxide produced when copper concentrate is smelted. The appellant has not produced any technical evidence to show that the gas evolved on smelting of copper concentrate is something other than sulphur dioxide or it is a mixture of different gases. As already stated when copper concentrate is smelted, no gas other than sulphur dioxide can be produced, which can be supported with any amount of technical literature. Even sulphur dioxide is commercially prepared from roasting of sulphide ores. Therefore, the excisability of sulphur dioxide is no way in doubt. As observed by the Hon. Supreme Court in the case laws cited by the appellants the duty of excise is on manufacture and not on sale and therefore the mere fact that a product is not actually sold will not make any difference in determining the excisability of the product. In the instant case, the sulphur dioxide has not been sold, but consumed captively for the manufacture of sulphuric acid. This clearly indicated that sulphur dioxide is a marketable commodity. (Also please refer to para-24)
31. The appellants have also placed reliance on the Final Order No. 1040/2003 dated 4.12.2003, in the case of M/s. EID Parry India Ltd., vs. Commissioner of Central Excise, Trichy, for their arguments, wherein the Hon'ble Tribunal, South Regional Bench has allowed the party's appeal with the following observations:
"We find both these orders passed by the Commissioners (Appeals) are correct orders as they have not used the chemicals for the manufacture of Bio-compost, but the said chemicals were used in the manufacture of Sugar and sugar being the final product and as the duty is paid on sugar and therefore, noted that the inputs are not used in the non duty paying product. This view is acceptable and therefore we hold that the provisions of Rule 57CC is not applicable in this case".
32. This reliance on the case law is totally out of place since the facts in both the cases are clearly distinct and distinguishable. The statement of facts filed by M/s. EID Parry in that case is submitted herewith (as Annexure-III).
33. To narrate the facts in brief, the appellants are manufacturers of sugar, sugar Molasses, De-natured Ethyl Alcohol and Carbon dioxide falling under various headings of the Central Excise Tariff. The process description at Exhibit 'A' submitted by EID Parry along with their appeal memorandum is also annexed (as Annexure-IV). Briefly, sugar cane pieces are fed into the mill and the juice is extracted. The bagasse which emerges after final milling is conveyed to the boiler and used as fuel for generating steam, which is used for running the turbine. The extracted juice is heated to 70 degree centigrade in the primary juice heater and then treated with lime and sulphur dioxide gas for removal of impurities in the juice. The treated juice is further heated to 102 degree centigrade in the secondary juice heaters and then pumped to clarifiers where the impurities are settled in the form of mud and the overflow as clear juice is separated. The muddy thick juice is mixed with fine powder of bagasse and further filtered in vacuum drums for extraction of the maximum amount of the juice. The mud filtrate so extracted is recycled into the juice extracted by the mills. The pressmud is removed from the Oliver station as a waste and used as manure. The clear juice is concentrated, bleached and then crystallized in the pan station. The product is dropped into the crystaliser and passed to centrifugal for separation of sugar and molasses. Molasses from the lower grade product goes out of the product.
34. As stated-by the appellants themselves, pressmud or filter press emerges as a waste product during the preparation of cane juice for the manufacture of sugar. Similarly in the course of manufacture of Ethyl alcohol from molasses in the distillery plant, spent wash which is distillery effluent emerges. Both these products are non-excisable and they have been clearing the same without payment of duty. Later on they set up a unit outside the registered premises to mix both these waste products to make bio-compost (organic manure). Since the process was carried out outside registered premises it was not incorporated as a final product in the registration certificate also. The department issued a show cause notice invoking Rule 57CC, demanding an amount equivalent to 8 per cent on the price of the bio manure on the ground that EID Parry has availed Modvat credit on various chemicals used in the manufacture of sugar and pressmud.
35. It can be seen that the bio compost processing takes place outside the factory premises and bio compost manufacturing plant is separately registered under the Factories Act. The appellants have not treated it as part of the registered premises. Since bio-compost is not a excisable commodity, they have not taken any Central Excise Registration.
36. The duty paid raw materials are not required for the manufacture of bio compost, whereas they are used in the process for the manufacture of sugar only. The duty paid chemicals do not enhance the manure value of the waste products, pressmud.
37. That they were manufacturing sugar in the factory for years together prior to the start of the organic manure manufacture and the same set of raw materials were used in the sugar process.
38. What is required for preparation of organic manure is any waste material containing organic matter. Even municipal waste or garbage is used for preparation of organic manure. Bio compost is compost consisting of rotten vegetable or animal matter where decay has been accelerated or controlled by other matters.
39. They have contended that none of the duty paid raw materials are required or used in the production of bio compost fertilizer and as such Rule 57CC cannot be invoked.
40. Pressmud, as held by the Tribunals and the Supreme Court in various cases is only a waste product and not final product and hence not excisable.
41. They have not taken any credit on the inputs used for the production of bio compost. The various inputs used on which credit has been availed by the appellants and their uses are as follows:
i) Phosphoric acid - used in the sugar process for sedimentation of non-sugar elements in the juice. This does not contribute in any manner to the characteristic of pressmud.
ii) Ammonium Bi-flouride - used for killing micro organism in the raw juice.
iii) Flocculants - used for sedimentation of non-sugar elements in the juice. This is used by all sugar factories irrespective of whether they sell organic manure or not.
iv) De-naturants - This is added to alcohol to make it non-potable when it is sold in the market.
v) sugar cane-it has got all ingredients required for a manure or fertilizer.
42. The fertilizer elements and the quality in the organic manure are obtained not from any of the Modvated inputs, but from the soil itself which contribute to the characteristic of sugar cane which in turn contribute to the characteristic of pressmud.
43. The Commissioner (Appeals) in the case of Sakthi sugars Ltd., vide Order in Appeal No. 152/98 dropped the proceedings on the ground that the view taken by the lower authority that bio earth is also a final product and that they had also used the chemicals in the manufacture of bio earth is found to be erroneous. The chemicals used in the manufacture of sugar cannot be said to be the common inputs for manufacture of sugar and bio earth. However, in the case of EID Parry, a different view was taken.
44. The facts in the EID Parry case and in the present case are clearly distinct and distinguishable in view of the following grounds:
i) In the Sterlite Industries case copper anodes, sulphuric acid and phosphoric acid, which are the final products, are manufactured in an integrated chemical plant, in an uninterrupted and continuous chemical process, starting from the basic input, copper concentrate. In the EID Parry case, there is no integrated manufacturing operations involved. Bio-compost unit is located outside the factory premises and the bio compost manufacturing plant is separately registered under the Factories Act. The appellants have not treated it as part of the registered premises.
ii) In the Sterlite Industries case, sulphur dioxide gas is produced when the basic input, copper concentrate, is subjected to smelting process. The sulphur content in the copper concentrate gets oxidized to sulphur dioxide in presence of air upon heating. Therefore, there is a clear nexus between copper concentrate and sulphur dioxide. In the EID Parry case, Pressmud emerges as a waste product in the initial stages of preparation of sugar cane juice. The manure value of pressmud is obtained from the sugar cane. The various duty paid chemicals are utilized for the treatment of sugar cane juice to facilitate optimum yield of sugar, which is the duty paid final product. Thus, pressmud has no relationship or nexus with the chemicals employed for treatment of sugar cane juice. Therefore, comparing sulphur dioxide in the first case with pressmud is an obsurd proposition.
iii) In the Sterlite industries case, the sulphur dioxide evolved is an excisable commodity, finding specific entries in the Central Excise Tariff. Pressmud in the EID Parry case is a waste product and non-excisable.
iv) In the Sterlite Industries case, sulphur dioxide is used in the manufacture of well defined chemical compounds, namely sulphuric acid and phosphoric acid, both of them being excisable and dutiable under the relevant Tariff entries. Exemption from duty is permitted only on clearances under particular circumstances. There is a clear nexus between the copper concentrate, sulphur dioxide, sulphuric acid and phosphoric acid, the basic input being one and the same, namely copper concentrate. Copper concentrate gives sulphur dioxide, which is converted to sulphur trioxide, which in turn is converted into sulphuric acid, which again is converted into phosphoric acid. The inter dependence of one compound for the formation of the other is the striking factor in this case. In the EID Parry case, the non-excisable waste product, pressmud, is further used for the manufacture of bio-compost. Bio-compost is totally exempt from duty. As stated by the appellants themselves, bio-compost can be prepared out of any waste, rotten vegetable or animal matter and even from garbage and the duty paid chemicals have no nexus to the formation of bio-compost. Bio-compost itself has been produced outside the factory premises.
v) In the Sterlite industries case, Cenvat credit was availed on the basic input, copper concentrate, which is the source for the manufacture of subsequent compounds. In the EID Parry case, credit was availed on certain sugar chemicals used in the treatment of cane juice and both have no comparison.
vi) sulphuric acid cannot be produced in the absence of sulphur dioxide, whereas bio-compost can be produced in the absence of pressmud.
vii) In the Sterlite industries case, the final products are copper anodes, sulphuric acid and phosphoric acid. All these are excisable goods and as per the definition contained in CENVAT Credit Rules, "final products means excisable goods manufactured or produced from inputs, except matches". It is, therefore, mandatory that the final product should be manufactured out of 'inputs'. "Inputs" as per definition means all goods used in or in relation to the manufacture of final product, whether directly or indirectly. As already stated there is a clear nexus between copper concentrate and the final products. In contrast, in the EID Parry case, bio-compost is not the final product and sugar is the final product as held by the Hon'ble Tribunal, South Regional Bench, Bio-compost, being non-excisable, cannot become the final product. Therefore, sugar is the only final product which has been cleared on payment of duty, as against three final products in the Sterlite case. Rule 57CC and Rule 6 of the Cenvat Credit Rules, apply only to dutiable and exempted final products. In the EID Parry case, since there is no final product exempted from payment of duty, Rule 57CC is not applicable. In the Sterlite industries case, since there are final products, both exempted and dutiable, Rule 6/ Rule 57AD is very much applicable.
21. We have carefully considered the rival submissions, both oral and written, and have gone through the case records and pursued the various case laws. From the narration of facts, it is seen that M/s Sterlite Industries (India) Ltd. are engaged in the manufacture of Copper Anode falling under chapter 7402 of the first schedule to the Central Excise Tariff Act, 1985. They avail the benefit of CENVAT/Modvat Credit. The principal raw material used for the manufacture of Copper Anode is Copper Concentrate which is imported from various countries. The copper anode so manufactured at their unit at Tuticorin is cleared on payment of Central Excise duty to their own unit situated at silvasa, where the Copper anode is converted into Copper Cathode and other finished products such as Copper rods/wires and are sold. During the course of manufacture of Copper anode at the Tuticorin unit, two by-products namely Sulphur Di-oxide and granulated slag emerge. The manufacturing process does not come to an end at that stage and in the continuous and integrated process of manufacture, sulphur di-oxide is further used in the manufacture of sulphuric acid falling under tariff heading 2807 of the first schedule to the CETA, 1985.A portion of the sulphuric acid is further used captively in the manufacture of Phosphoric acid falling under heading 2809 of the First Schedule of the CETA, 1985 in conjunction with imported rock phosphate. The assessee clears Sulphuric Acid on payment of duty at the rate of 16% to independent buyers, whereas, they clear a part of it without payment of duty for manufacture of fertilizer following the procedure set out in Chapter X of Central Excise Rules, 1944 vide Notification No. 3/2001 dated 1.3.2001. The assessee continued to clear the Sulphuric Acid on payment of duty @ 16% to independent buyers, and after framing of the Central Excise (Removal of Goods at Concessional Rate of Duty for manufacture of Excisable Goods) Rules, 2001 vide Notification No. 34/2001-CE (NT) dated 21.6.2001, they also cleared a part of it without payment of duty for manufacture of fertilizers under Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 (herein after referred as CERGCMEGR) read with Notification No. 6/2002 dated 1.3.2002. The imported goods viz. copper concentrate were cleared for home consumption on payment of applicable Basic Customs Duty including countervailing duty. Modvat/Cenvat credit is availed by the appellants on the countervailing duty paid on the copper concentrate, which is the input for manufacture of Copper Anode falling under Chapter 7402.
22. The copper concentrate is smelted in the ISA Smelt furnace to obtain blister copper which is further processed into copper anodes as finished product which is cleared on payment of Central Excise duty. In the course of obtaining blister copper through the process of smelting, Sulphur-di-oxide in gaseous form emerges. Being a hazardous gas, the same cannot be let out in open air. It is an environmental compulsion that this cannot be allowed to be vented to air. Consequently, sulphur-di-oxide gas is taken through pipes from the ISA smelter and conveyed to the mixing chamber and then this gas (1,40,000 M3/HR) at 350° centigrade enters the gas cleaning and cooling section through the main gas duct. The remaining fine dust is removed and the gas is cooled to 35° centigrade. The cleaned gas is dried by means of circulating sulphuric acid in the drying tower and the sulphur-di-oxide gas is converted into sulphur tri-oxide in the catalytic converter over four beds of vanadium pentoxide catalyst. The Sulphur-tri-oxide gas is absorbed by circulating sulphuric acid in the absorption towers and the product sulphuric acid is pumped to the storage tank. After the sulphur-di-oxide is received through the gas duct into the mixing chamber and later the drying tower, the inputs such as caustic soda flakes, ferric sulphate, ferric chloride, Indion, Magnafloc and other chemicals are added in the process for the sulphur-di-oxide to become sulphuric acid. This sulphuric acid is cleared from the factory to various buyers which include fertilizer unit. appellants pay 16% duty on Sulphuric Acid for sale to independent buyers whereas when the same are cleared to fertilizer units for manufacture of fertilizers, these are removed without payment of duty under Chapter X Procedure read with Central Excise (Removal of Goods) at concessional rate of duty for manufacture of excisable goods Rules, 2001 read with Notification No. 3/2001 dated 1.3.2001 and No. 6/2002 dated 1.3.2002 respectively. A portion of sulphuric acid is captively consumed in the manufacture of phosphoric acid by reacting with rock phosphate. The process of manufacture consists of reacting rock phosphate and sulphuric acid in three reactors. The temperature of the slurry in the reaction system is controlled by flash cooler system which removes excess heat of reaction and dilution. Slurry, from the flash coolers is fed to the filter and treated counter currently. The acid collected from the first filterate is a product acid on 43% P2 O5. About 5% of P2 O5 fed in the rock is co-precipitated in the hemi-hydrate. The purpose of next stage is, therefore, to recover this by transforming hemi-hydrate to di-hydrate. Hemi-hydrate cake is discharged to transformation tank and it is converted into dry di-hydrate by the adoption of the H2SO4 at a temperature of 70 centigrade. The di-hydrate cake undergoes two washings before it is discharged to gypsum slurry tank. Product acid of 43% P2 O5 from the Hemi-hydrate filter is further concentrated to obtain 54% P2 O5 in the concentration section. Finally 54/% acid is stored in storage tanks. 43% P2 O5 acid is an intermediate product formed in the reaction and it is sent to concentration section for recovery of 54% of phosphoric acid. The phosphoric acid is sold to various independent buyers after payment of 16% duty and in the case of fertilizer units for use in the manufacture of fertilizers and these are again cleared under Chapter X Procedure read with the Central Excise (Removal of Goods) at concessional rate of duty for manufacture of excisable goods, Rules, 2001 read with Notification No. 3/2001 dated 1.3.2001 and No. 6/2002 dated 1.3.2002 respectively. Duty paid imported copper concentrate is smelted to the furnace and after processing, the same result in copper anode as finished excisable goods which is cleared on payment of appropriate duty.
23. In the course of manufacture of copper anode, Sulphur dioxide (SO2) emerges during the course of smelting Copper Concentrate as an intermediate product and is captively consumed in the manufacture of Sulphuric acid, within the factory of production by availing the benefit of duty exemption under Notification No. 67/95 dated 16.3.1995. The basic raw material used, namely copper concentrate for producing the SO2 SO3 and sulphuric Acid is invariably the input for Phosphoric acid also. These intermediate products viz. Sulphur di-oxide, Sulphur tri-oxide and Sulphuric acid are not chargeable to duty when they are captively consumed for the manufacture of Phosphoric Acid by reacting with Rock Phosphate. The "Copper Concentrate" is primarily the input for manufacture of copper anode, during which sulphur-di-oxide emerges as by products which in turn is used for manufacture of sulphuric acid and phosphoric acid in the integrated plants located within the factory premises. The credit availed for copper concentrate is utilized by the appellants to pay the duty of excise on all the final products. Therefore, copper concentrate is the basic input used in or in relation to the manufacture of sulphuric acid and phosphoric acid inasmuch as without the copper concentrate these two gases cannot be produced. The other inputs used in or in relation to the manufacture of final products are ferric sulphate, ferric chloride, indion, Magnfloc, Caustic soda flakes. The sulphuric acid is captively consumed in the manufacture of phosphoric acid which is partly cleared without payment of duty for manufacture of fertilizer products, under Chapter X procedure, etc. as well as cleared at the factory gate on payment of duty.
24. We observe that the case of the assessee-appellants is that :
(a) Employment of duty paid copper concentrate in the smelter is for the manufacture of dutiable copper anodes during which process sulphur dioxide emerges as a non-excisable by product.
(b) The duty. paid copper concentrate is exhausted fully in the manufacture of dutiable copper anodes and sulphur dioxide emerges only as a by-product which is conceded at every point by the Department and once it is conceded that sulphur dioxde gas is a byproduct there is no option for the Revenue except to classify the same under Rule 57D and not under Rule 6 of the CENVAT Rules.
(c) Copper concentrate is nowhere employed for manufacture of sulphuric acid or phosphoric acid in the sulphuric acid plant or phosphoric acid plant.
(d) The role of the copper concentrate as an input ends in the smelter after the finished products viz. copper anode and non-excisable by product viz. sulphur dioxide emerge.
25. On the other hand, the case of the department is summed up as under :
"But for the use of copper concentrate, as basic input, the emergence of sulphur dioxide would not have been possible and without sulphur dioxide, sulphuric acid and phosphoric acid could not have been manufactured. Therefore, the manufacture of sulphuric acid, phosphoric acid and copper anodes are linked to the basic input, copper concentrate, in an integrated continuous and uninterrupted process". Inasmuch as the assessee has not maintained separate accounts of inputs, which have gone into manufacture of both dutiable and exempted products, they are required to pay an amount of 8% of the sale value under Rule 57CC of the Central Excise Rules, 1944.
26. Before we proceed to examine the rival contentions, it is necessary to appreciate the relevant rules:
Rule 2 of CENVAT Rules, 2001 which reads as under:
(c) "final products" means excisable goods manufactured or produced (f) "input" means all goods, except high speed diesel oil and relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not, and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used for manufacture of final products or for any other purpose, within the factory of production"
Rule 57CC as it stood at the relevant time reads as under:
"Adjustment of credit on inputs used in exempted final products or maintenance of separate inventory and accounts of inputs by the manufacturer - (1) Where a manufacture is engaged in the manufacture of any final product which is chargeable to duty as well as in any other final product which is not chargeable to duty and the manufacturer takes credit of the specified duty on any inputs (other than inputs used as fuel) which is used or ordinarily used in or in relation to the manufacture of both the aforesaid categories of final products, whether directly or indirectly and whether contained in the said final products or not, the manufacturer shall, unless the provisions of sub-rule (9) are complied with, pay an amount equal to eight per cent of the price (excluding sales tax and other taxes, if any, payable on such goods) of the second category of final products charged by the manufacturer for the sale of such goods at the time of their clearance from the factory.
Rule 57D as it stood at the relevant time reads as under:
Credit of duty not to be denied or varied in certain circumstances-(1) 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.
(2) Credit of specified duty shall also not be denied or varied in case any intermediate products have come into existence during the course of manufacture of final products or the inputs are used in the manufacture of capital goods as defined in Rule 57Q and such intermediate products or capital goods are not chargeable to duty of excise.
Rule 57AD of the Central Excise (Second Amendment) Rules, 2000 reads as under:
Obligation of manufacturer of dutiable and exempted goods-
(1) CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in sub-rule (2).
(2) Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures of such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. The manufacturer, opting not to maintain separate accounts shall follow either of the following conditions, as applicable to him namely..
The definition of Oxides of Sulphur namely sulphur Dioxide, Sulphur trioxide as appeared in the Book titled "General Chemistry" Eighth edition by Henry F.Holtzclaw, Jr. University of Bebraska-Lincon and William R. robinson, copy of which was produced by the learned JCDR, is extracted herein below:
Oxides of Sulphur:
The two common oxides of sulphur and sulphur-di-oxide, SO2 and Sulphur-tri-oxide SO3. The odour of burning sulphur is due to sulphur-di-oxide. Sulphur-di-oxide occurs in volcanic gases and in the atmosphere near industrial plants that burn coal or oil that contains sulphur compounds. The oxide forms when these sulphur compounds react with oxygen during combustion. Air pollution by sulphur-di-oxide is a major problem, because it combined with water in the atmosphere to form acid rain.
Sulphur-di-oxide is produced commercially by burning free sulphur and by roasting (heating in air) sulphide ores such as ZnS, FeS2 and Cu2S. (Roasting, which forms the metal oxide, is the first step in the separation of the metals from the ores). Sulphur-di-oxide is prepared conveniently in the laboratory by the action of sulphuric acid upon either sulphite salts, containing the So3-2 ion, or hydrogen sulphite salts, containing H2SO3. Sulphurous acid, H2SO3 is formed first, but it quickly decomposes into sulphur-di-oxide and water. Sulphur-di-oxide is also formed when many reducing agents react with hot concentrated sulphuric acid.
Sulphur-tri-oxide forms slowly when sulphur-di-oxide and oxygen are heated together, the reaction is exothermic.
2SO2 + O2 ------------> H° =-197.8kJ If the temperature of the system is raised to about 400oC, equilibrium is reached more rapidly, but with reduced yield due to a shift in equilibrium to the left with increasing".
27. From the definition it would be seen that the definition speaks about the characteristics of Oxides of sulphur and also as to how sulphur dioxide is produced. This is therefore, not relevant to the issues that arose for determination by the Tribunal.
28. Having considered the rival contentions supported by the various case laws the following issues arise for our determination:
(1) What is the final product that emerged during the process of manufacture of copper concentrate and was it cleared on payment of duty?
(2) What are the by-product emerged in the process of manufacture of copper anode?
(3) Whether a product manufactured by using the by-product/waste can be called as a final product or by-product?
(4) Whether copper concentrate could be called as a common input for the manufacture of dutiable copper anodes and the by-products, such as sulphuric acid and phosphoric acid?
(5) Whether provisions of Rule 57D applies to the facts of the present case?
(6) Whether provisions of Rule 57D became inapplicable with the introduction of Rule 57AD and Rule 57CC?
29. Now we proceed to decide the above issues.
(1) As regards the first issue it is an undisputed fact that the final product manufactured with the imported copper concentrate was copper anode and this item was cleared on payment of duty.
(2) As regards the second issue, the Department itself in the grounds of appeal in Appeal Nos E/5450 & E/451 has clearly stated that the main input for the manufacture of copper anode is copper concentrate and the sulphuric acid emerged during the process is only a by-product.
(3) As regards the third issue, when the department itself has repeatedly admitted and has taken the ground that the sulphuric acid and phosphoric acid are by-products, the department cannot turn around and say at the time of argument that these are also final products during the course of integrated and continuous chemical process, as stated by them in para 44 of the synopsis of the written submission.
(4) As regards the fourth issue, whether copper concentrate can be considered as a common input for all the products such as copper anode, sulphuric acid and phosphoric acid, we observe that as could be seen from the manufacturing process set out above and as admitted by the Revenue, the main input for the manufacture of the final product namely copper anode is copper concentrate. The role of the copper concentrate is for the manufacture of copper anode and with the manufacture of the final product copper anode, not only the dominate character but also the identity of the input copper concentrate comes to an end. The by-products sulphuric acid has been manufactured by using sulphur-di-oxide, Caustic soda flakes, Ferric Sulphate, Ferric Chloride, Indion, Magnafloc etc. Therefore we are of the considered opinion that copper concentrate cannot be said to be the common input for the final product viz. copper anode and the by-products such as sulphuric acid and phosphoric acid.
(5) As regards the fifth issue, as to whether provisions of Rule 57D would be applicable to the present case, we are of the considered opinion that in terms of Rule (reproduced above), 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 course of manufacture of the final product. In terms of sub rule (2) of the same rule, even if intermediate product coming into existence during the course of manufacture of the final product, is not chargeable to duty, credit of specified duty cannot be denied or varied. In the present case, even the by-product/intermediate product, has been cleared on payment of duty at 16% and only a minor portion of the by-product/intermediate product has been cleared as exempted goods under Chapter X procedure. We are therefore of the opinion that the provisions of rule 57D are applicable to the present case.
(6) As regards the sixth and last issue, both sides have conceded that Rule 57AD and Rule 57CC are worded on similar lines. We are of the considered opinion that the right to avail of the benefit under Rule 57D has not been taken away with the introduction of Rule 57AD/Rule 57CC.
30. As noted above, in the present case, the final product manufactured by the assessee is copper anode which is cleared on payment of duty only and no part of copper anode is exempted. Sulphuric acid is a by-product manufactured out of the waste emerging during manufacture of the final product viz. copper anode. Phosphoric acid is manufactured by using sulphuric acid and even these by-products are also cleared on payment of duty except a small potion which is cleared as exempted by observing the conditions in Chapter X procedure, etc. We, have already held above that Rule 57D is applicable to the present case. We also note that even in accordance with Rule 57CC the manufacturer is required to maintain separate account only in a case where a manufacturer is engaged in the manufacture of any final product which is chargeable to duty as well as in any other final product (emphasis supplied by us) which is not chargeable to duty and in case he does not do so, he is required to pay an amount equal to 8% of the price payable on the goods. In the present case the assessee has cleared the final product viz. copper anode on payment of duty and no other final product emerged and sulphuric acid was a by-product as admitted by the revenue vide para 34 of the Order-in-Original and also in the grounds taken in the revenue appeals. Sulphur-di-oxide was also a by-product as admitted by the revenue vide para 36 of the Order-in-original and even the by-products such as sulphuric acid and phosphoric acid have also been cleared on payment of duty except a small portion cleared under Chapter X, etc., for manufacture of fertilisers. We are, therefore, of the considered opinion that there is no force in the contention of the Revenue that the assessee is required to pay 8% of sale price as noted above. As rightly contended by the assessee, similar issue arose for consideration in the case of AARTI DRUGS LTD VS. CCE REPORTED IN 2001 (133) ELT 385. In this case the question posed before the Tribunal was whether goods emerging from manufacturing process whether final product that manufacturer sets out to produce are incidental or unavoidable by-product, waste, refuse would all be final product so long as they are excisable. It was held that mother liquor emerging in the process of manufacture of methyl nitro imidazole is a by-product and that manufacturer obtaining ammonium sulphate from mother liquor by removal of water and clearing it without payment of duty under exemption, Rule 5CC (1) of the rules ibid, does not apply to by product and that Credit is permissible under Rule 57D (2) ibid on inputs contained in by-product even if final product is exempted. It was also held that Marketability of exempted product is irrelevant. It was further held by the Tribunal that in terms of Section 2(f), and Section 3 of the CEA, marketable goods are liable to duty if not exempt from duty. It was also held that adjustment of credit under Rule 5CC (1) of CER is not duty and has no relation to value under Section 4 of CEA or credit taken on them. This decision squarely applies to the facts of the present case because it is held that credit is permissible under rule 57D (2) on inputs contained in by products even if final product is exempted. Further in the case of CCE, New Delhi Vs. Indian Chemicals Manufacturing Company Pvt. Ltd. Reported in 1996 (87) ELT 127 it was held that Modvat credit is not to be disallowed due to emergence of a by product. It was also held therein that since credit of duty on sulphuric acid was lawfully available and taken by the respondents, the question of denial of credit or recovery of the amount utilized out of this credit is not sustainable simply because spent sulphuric acid is generated as a by-product in the process of manufacture of acid. This case laws is applicable to the present case going by the ratio that modvat credit cannot be denied because of emergence of by-product or waste. In the case of Chandrapur Magnet Wires Pvt. Ltd. Vs. CC reported in 1996 (81) ELT 3 (SC), it was also noted by the Hon'ble Apex Court that same inputs were utilized for the manufacture of dutiable and duty-free goods and it was noted that admittedly the Modvat Credit taken on the inputs were used in the manufacture of duty free goods and the assessee neither maintained a separate account nor segregated the inputs utilized for the manufacture of dutiable goods and duty-free goods as should have been done. It was held that "our attention was drawn to a Circular according to which in a case where the manufacturer produce dutiable final products, as also final products which are exempt from duty, and it is reasonably not possible to segregate the inputs used in the manufacture of dutiable final products, from the final products, which are exempt from duty, in such a case the manufacturer may take credit of duty paid on all the inputs used in the manufacture of final products on which duty will have to be paid." In the case CCE vs. Ashok Iron and Steel Fabricators reported in 2002 (140) ELT 2 (LB), it was held by the Larger Bench in this case that credit is not to be reversed when subsequently final product is exempted from duty, credit having been taken validly and its benefit being available to manufacturer without any limitation in time. This decision is relevant to the present case inasmuch as in the present case the final product is cleared on payment of duty and even the major portion of the by-products are cleared on payment of duty except a small portion, cleared as exempted product without payment of duty. In the case of Raghuvir (India) Ltd. Vs. CCE, Delhi Reported in 2002 (140) ELT 280 (LB), it was held that credit taken and utilized at a time when final product was dutiable, subsequent exemption of final product is not a reason for reversal of credit. We are also of the view that no reliance ought to have been placed by the Commissioner to Board Circular No F No. 267/12/2001-CX dated 28.01.2002. Through the said circular, Board had clarified that Rule 57D will not apply since sulphur dioxide has been subjected to further process to manufacture sulphuric acid and phosphoric acid both of which are dutiable. This Circular of the Board, in our view, cannot be applied to the facts of the present case for the following reasons:
The Board circular is dated 28.01.2002 whereas the decision in the case of Arti Drugs was rendered as early as 18.04.2001. Board circular has not been taken into consideration the prevailing judicial ruling on the subject and the clarification is not based on any Court rulings.
31. It is well settled that circulars of Board cannot be relied upon and are not maintainable if the same are contrary to judicial decisions and precedence. The Hon'ble Madras High Court in the case of Pioneer Miyagi Chemicals Vs. CBEC 2000 (116) ELT 441 (Mad) has held that Circulars issued by the Board which runs counter to judicial pronouncements are not valid and sustainable. The Hon'ble Delhi High Court of Delhi in the case of Kissan Chemicals Vs. Union of India 1996 (88) ELT 648 has held that Circular under Section 327B cannot be issued contrary to the decision of the Tribunal. The Tribunal in the case of CCE Vs. Bata India Limited 2001 (138) ELT 335 (Kol) have held that that quasi judicial authorities are to decide matters independently and are statutorily protected from such instructions and can follow judgments of appellate forum instead of following such instructions.
32. The appellants have also placed reliance on the Final Order No. 1040/2003 dated 4.12.2003, in the case of M/s. EID Parry India Ltd., vs. Commissioner of Central Excise, Trichy, for their arguments, wherein the Hon'ble Tribunal, South Regional Bench has allowed the party's appeal holding that the orders passed by the Commissioners (Appeals) are correct orders as they have not used the chemicals for the manufacture of Bio-compost, but the said chemicals were used in the manufacture of Sugar and Sugar being the final product and as the duty is paid on sugar and therefore, noted that the inputs are not used in the non duty paying product. This view is acceptable and therefore we hold that the provisions of Rule 57CC is not applicable in this case.
33. The Revenue has also pressed into service various case laws noted below. We observe that the facts and circumstances in the cases were not similar to the facts and circumstances in the present case and are clearly distinguishable as could be seen from our discussion of each case law.
(1) CCE vs. Ballarpur Industries reported in 1989 (43) ELT 804 (SC). In this case it was held by the Hon'ble Apex Court that inputs used in the integrated process of manufacture to be treated as raw material having been used in the end product. The facts in the present case is not similar to the facts in the case at hand. In the cited case, the Hon'ble Supreme Court was dealing with a situation where ingredients used in the chemical technology of manufacture of any end-product might comprise amongst others, of those which may retain their dominant individual identity and character throughout the process and also in the end product and it was in that context the Hon'ble Apex Court held that inputs used in the integrated process of manufacture to be treated as "raw material" having been used in the end-product, whereas in the present case, the dominant character of imported copper concentrate undoubtedly has been lost with the manufacture of copper anode and emergence of sulphur dioxide.
(2) Eastend Paper Industries Ltd. reported in 1989 (43) ELT 201 (SC). In this case the Hon'ble apex Court has held that anything that enters into and form part of manufacturing process or is required to make the article marketable must be deemed to be raw material or component part of the end product and most be deemed to have been used in completion or manufacture of the end product. It was also held by the Hon'ble Apex Court that so long as it can be shown that the material used as inputs have a nexus with the process which is integrally connected with the ultimate production of goods till the same are fit for being put in the marketing stream and such process is so integrally connected with ultimate production of goods that it would be commercially inexpedient to produce the finished goods without that process, all such inputs would get the benefit of credit of duty. In this case the Hon'ble Apex Court was interpreting the meaning of the term "component parts" and "raw materials". The ratio laid down in this case law is not applicable to the present case inasmuch as in the present case the end product was copper anode and not only the dominant character of the input copper concentrate has been lost with the manufacturer of the final product "copper anode" but also its identity itself has been lost at that stage.
(3) Indian Iron & Steel Co. Ltd. Vs. CCE Bolpur reported in 2002 (141) ELT 695. In Terms of this judgment, the question whether the provisions of Rule 57CC are applicable to the by-products emerging during the course of the manufacture of intended final products and cleared at nil rate of duty or not is has been referred to larger bench. Further, in the instant case, it is not the case of the department that the by-products emerging during manufacture of final products are cleared at nil rate of duty. In the instant case only a small portion of the by-products are cleared as exempted goods under Chapter X procedure, while major portion are cleared on payment of duty @ 16%. Therefore, this case law has no application to the facts of the present case.
(4) Mangalore Refinery & Petrochemicals Ltd. reported in 2002 (147) ELT 788. The issue in this case relates to eligibility to Modvat Credit on certain items including sulphur dioxide. The Tribunal has held that credit is admissible. This case law has no application to the present case inasmuch as there is no doubt about the excisability of the goods viz. sulphuric acid and phosphoric acid and both these items are cleared on payment of duty @ 16% except a small portion cleared as exempted goods under Chapter X procedure.
(5) Deccan Sugar and Adkhari Co. Ltd. reported in 1992 (10) ELT (GOI). In this case, the assessee therein manufactured sulphur dioxide gas and used the same in the factory of production in the process of manufacture of sugar. The assessee contended that the gas in question is impure sulphur dioxide which is not marketable and therefore not excisable. However, the Govt. observed that the very fact that the gas in question has been actually used in the manufacture of sugar answers the test of marketability of the goods and hence excisable. This case is also not relevant to the issue at hand inasmuch as the excisability and dutiability of the by-products such as sulphuric acid and phosphoric acid is not the question posed before us. These by products are in fact cleared on payment of duty also except a small portion cleared under Chapter X Procedure, etc. (6) Udaipur Phosphates & Fertilizers Ltd. vs. CCE, New Delhi reported in 1994 (3) ELT 906. The question posed in this case was whether sulphuric acid emerged as intermediate product during the course of manufacture of different grades of oleum, is goods or not. This case law has no application to the present case because, the question posed in the instant case is not whether sulphuric acid and phosphoric acid are goods or not.
(7) AP state Electricity Board vs. CCE Hyderabad. In this case what the Hon'ble supreme Court has held was that "So long as goods were marketable, they are goods for the purpose of Section 3. It is not also necessary that the goods in question should be generally available in the market..... The marketability of the article does not depend upon the number of purchaser nor is the market confined to the territorial limits of the this country". This case has no relevance to the present case, as the ratio laid down relates to the interpretation of the term "goods".
(8) CCE vs. Kohinoor Mills. Reported in 1995 (77) ELT 42 (SC). In this case, the Hon'ble Supreme Court has held that if a manufactured item covered by the charge of excise duty is captively consumed, it would amount to removal of such manufactured item. Consequently, once the yarn is manufactured in the weaving department of the composite textile mill and taken to the spinning department for being captively utilized by way of consumption in the spinning department, and gets consumed, it is deemed to have been removed within the meaning of rule 9(1). This case law has no relevance to the present case because in the cited case yarn manufactured in the weaving department is consumed in the spinning department of the same mill. As against that in the present case the final product copper anode manufactured in the factory is removed on payment of duty and is not captively consumed. further, even the by-product viz. Sulphuric Acid manufactured by using the by-product copper sulphide is also removed on payment of duty @ 16% except a small portion under Chapter X Procedure.
34. In view of our discussion and finding as noted above, we come to an irresistible conclusion that the order of the Commissioner is not legal and proper and we set aside the same and allow the appeals of the assessee-appellants. Consequently, we uphold the order of the lower appellate authority and dismiss Appeal Nos. E/450/2002 and 451/2002 filed by the Revenue and we order accordingly.