Customs, Excise and Gold Tribunal - Tamil Nadu
Grasim Industries Ltd. vs Commissioner Of Central Excise on 5 November, 1997
Equivalent citations: 1999(112)ELT161(TRI-CHENNAI)
ORDER
V.P. Gulati, Vice President
1. The issue in the appeal relates to utilisation of the Modvat credit taken in respect of Caustic Soda Lye which was used as an input in the manufacturing stream of Viscose Staple Fibre (VSF). The brief facts of the case as set out in the findings portion of the ld. Lower Authority's in para 9 are reproduced as under:-
"9. M/s. GIL are manufacturers of mainly VSF falling under Chapter 55 and Sodium Sulphate falling under Chapter 28 and Sodium Sulphate is their by-product which emerges during the course of manufacture of VSF. The common inputs used in the manufacture of these products are Caustic Soda Lye and Sulphuric Acid. They procure Caustic Soda Lye from other units and avail credit on the same, whereas Sulphuric Acid is manufactured by them and captively utilised claiming exemption from duty under Notification No. 217/86, dated 2-4-1986 and/or 67/95, dated 16-3-1995. They started availing the Modvat credit of duty paid on C.S. Lye used in the manufacture of Sodium Sulphate right from April, 1986. Since their main product VSF was not specified as a final product under Notification No. 177/86, they were apportioning the Modvat credit of duty paid on C.S. Lye and were taking credit in their RG 23A, Part-II only to the extent of quantity actually used in the manufacture of Sodium Sulphate based on the consumption ratio of C.S. Lye for the production of one M.T. of Sodium Sulphate which is 563 Kgs. PMT of Sodium Sulphate given as per their letter No. CX-86-87: 355, dated 5-4-1986 and were using the same for payment of duty on Sodium Sulphate only. However, as per the Belgaum Collectorate's Trade Notice No. 76/90, dated 13-6-1990, they started taking entire Modvat credit on Caustic Soda used in the manufacture of Sodium Sulphate and VSF in their RG 23A, Pt-II of Sodium Sulphate and utilised the same for payment of duty on Sodium Sulphate. From 25-7-1991, the Modvat scheme was extended to VSF also. The assessee started taking entire Modvat credit of duty paid on C.S. Lye used in the manufacture of Sodium Sulphate and VSF in their RG 23A, Part II of VSF and was being utilised towards payment of duty on VSF only. Since both VSF and Sodium Sulphate were specified as final products under Notification No. 177/86, dated 1-3-1986 and/or Notification No. 5/94 (N.T.), dated 1-3-1994 they were required to apportion the Modvat credit of duty paid on the common input C.S. Lye used in the manufacture of VSF and Sodium Sulphate and has to be taken separately in the RG 23A, Part II Registers of VSF and Sodium Sulphate."
2. As seen from the above, up to 25-7-1991, up to which date the VSF was not notified as a specified finished product under Notification No. 177/86 issued under Rule 57A of Central Excise Rules for Modvat purposes, the appellants were availing the benefit of the Modvat credit in respect of Caustic Soda Lye only to the extent which was used for the manufacture of Sodium Sulphate for payment of duty on Sodium Sulphate. With effect from 25-7-1991, the VSF was also notified as a final product under Modvat scheme and the Modvat therefore could be taken in respect of the inputs used for the manufacture of the same and utilised for payment of duty in respect of the same. The appellants w.e.f. 25-7-1991, started utilising the entire Modvat credit taken on Caustic Soda Lye for payment of duty on VSF including the portion of the credit which was attributable to the Caustic Soda Lye utilised for the manufacture of Sodium Sulphate earlier.
3. The authorities however objected to the same and were of the view that the Modvat credit in respect of Caustic Soda Lye should have been separately apportioned for Sodium Sulphate and VSF based on the earlier apportionment, up to 25-7-1991, up to which date VSF was not notified as a finished product under the Modvat scheme vide Notification No. 177/86 as it stood. The appellants, however, against the proposed denial of the Modvat credit for payment of duty which was attributable to the inputs apportioned to the Sodium Sulphate and utilised for payment of duty on VSF, pleaded that Sodium Sulphate was only a By-product obtained during the course of the manufacture of the VSF and therefore in terms of Rule 57D, they were eligible to utilise the Modvat credit for payment of duty on VSF notwithstanding that a portion of the Caustic Soda Lye utilised was attributable to the manufacture of Sodium Sulphate.
4. Rule 57D(1) of Central Excise Rules, 1944 reads as under :-
"Rule 57D. Credit of duty not to be denied or varied in certain circumstances. - (1) 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 by-product arising during the manufacture of the final product, (or that the inputs have become waste in or in relation to the manufacture of the final product) whether or not such waste, refuse or byproduct is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty or is not specified as a final product under Rule 57A."
5. The Ld. lower authority has held that since Sodium Sulphate by itself was a finished product and this also stood notified under Rule 57A under Notification No. 177/86, as above, the Modvat credit had to be apportioned product-wise based on the quantum of inputs used for the manufacture of Sodium Sulphate and VSF separately and utilisation of the same was to be done product-wise accordingly. The ld. Lower Authority in paras 11 & 12 has observed as under :-
"11. Hence the provisions of Rule 57D(1) apply only if the by-product is not specified as a final product under Rule 57A. But in the instant case, the Sodium Sulphate though a by-product of M/s. GIL is specified as a final product under Rule 57A which ipso facto proves that the provisions of Rule 57D(1) do not apply in this case. Hence M/s. GIL's contention that the provisions of Rule 57D(1) apply in their case do not hold any material.
12. Further as per Rules 57F(1)(ii) and 57F(4)(i) [earlier 57F(3)(i)] read with Sub-rule (1) of Rule 57G of Central Excise Rules, 1944, the credit of specified duty allowed in respect of any inputs may be utilised towards payment of duty of excise on any of the final products in or in relation to the manufacture of which such inputs are intended to be used in accordance with the declaration filed under Rule 57G, i.e., credit of duty allowed on inputs shall be utilised towards payment of duty on a final product in the manufacture which such inputs are actually utilised. In this case part of C.S. Lye gets used in the manufacture of Sodium Sulphate and hence as per the provisions of the above said Modvat Rules and apportionment of Modvat credit is required and credit of duty paid on C.S. Lye has to be taken in the RG 23A, Part II Registers of Sodium Sulphate and VSF separately based on the quantity of Caustic Soda used in the manufacture of each of these products, VSF and Sodium Sulphate."
6. He has further gone to observe as set out in para 16 of his order which is also reproduced below for convenience of reference :-
"In this connection, I paid visit to M/s. GIL and I am not convinced with the arguments put forth by them inasmuch as the process involved in the manufacture of VSF and Sodium Sulphate has nothing to do with the availment of credit, but it is the actual quantity of common inputs used in or in relation to the manufacture of final product that matter with the utilisation of credit in this case. Their plea that it is very difficult to apportion the Modvat credit does not hold good in view of the fact that they were apportioning the Modvat credit of duty paid on Caustic Soda during the period from April, 1986 to June, 1990 based on the ratio of consumption of Caustic Soda in the production of Sodium Sulphate before the issue of Trade Notice No. 76/90, dated 13-6-1990 and when VSF was not specified as a final product under Notification No. 177/86."
7. The ld. Advocate for the appellants has pleaded that the appellants manufactured VSF and Caustic Soda Lye is the major input for manufacture of the same and has pleaded that when the Modvat scheme was introduced i.e. up to 25-7-1991, VSF was not one of the notified finished products. He has pleaded in the course of manufacture of VSF, the Caustic Soda Lye reacts with other materials and Sodium Sulphate emerged as one of the products. The Sodium Sulphate as emerged could not be discharged out of the factory on account of requirements of the Pollution Control Board. The same was therefore crystallized and emerged as a by-product. He has pleaded before the VSF was cleared on payment of duty and prior to the inclusion of VSF as a notified finished product for Modvat purposes, the appellants were allowed to utilised the Modvat credit in respect of Caustic Soda Lye for payment of duty on Sodium Sulphate which was cleared from the factory and proportionate credit attributable for its manufacture was allowed by the Board. Thus, he pleaded, the limited amount of Modvat credit was allowed to be utilised for payment of duty on Sodium Sulphate which was a notified finished product under Rule 57A read with Notification No. 177/86.
8. He pleaded, the position however changed after VSF itself came to be notified for Modvat purpose and the appellants after the same was notified as a final product, filed necessary declaration for availing the Modvat credit in respect of the same for the inputs utilised in or in relation to the manufacture of the same. He has pleaded that the appellants after the VSF was notified, started utilising the entire Modvat credit taken in respect of Caustic Soda Lye for payment of duty on VSF cleared from the factory and in respect of Sodium Sulphate, which was cleared, they started paying the duty through PLA. He has pleaded that the departmental authorities have objected to the same and have sought for the apportionment of the Modvat credit taken in respect of Caustic Soda Lye for utilisation towards payment of duty on Sodium Sulphate and towards VSF based on the apportionment which was done earlier to the VSF being notified for Modvat purposes.
9. The ld. Advocate has pleaded that Sodium Sulphate was a byproduct and in terms of 57D(1), there could not be any objection to the entire Modvat credit being utilised for payment of duty towards notified finished product i.e. VSF in the present case in respect of Caustic Soda Lye notwithstanding the fact that Sodium Sulphate emerged as a by-product. He has pleaded Rule 57D(1) clearly sets out that the Modvat credit could be available notwithstanding that part of the inputs are relatable to either waste, scrap or by-product which is generated. He has pleaded likewise under Rule 57F(3) [now Rule 57F(4)], there is no provision for any such apportionment. He has pleaded that in law there was no requirement for apportionment of the Modvat credit on the inputs in the circumstances of the appellant's case and referred to the judgment of the Hon'ble Supreme Court in the case of Swadeshi Polytex Ltd. v. C.C.E., reported in 1989 (44) E.L.T. 794 (S.C.) and referred to paras 16,17,18, 19 & 20 and drew our attention to the ratio of the said judgment, which are reproduced below for convenience of reference :-
"16. The question involved in these appeals, is whether the Tribunal was right. On behalf of the appellants, Shri V. Lakshmikumaran contended that the Tribunal failed to appreciate that the provisions of Rule 56A and notification No. 201/79 were in para materia. It appears to us that the provisions of Rule 56A and the notification No. 201/79 are identical. The relevant provisions of Rule 56A are as follows :
"56A(1) ... ... ...
56A(2) The Collector may, on application made in this behalf and subject to the conditions mentioned in Sub-rule (3) and such other conditions as may, from time to time, be prescribed by the Central Government, permit a manufacturer of any excisable goods specified under Sub-rule (1) to receive material component parts of finished product (like Asbestos Cement), on which the duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975) (hereinafter referred to as the countervailing duty), has been paid in his factory for the manufacture of these goods or for the more convenient distribution of finished product and allow a credit of the duty already paid on such material or component parts or finished product, as the case may be :
Provided that no credit of duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods -
(i) if such finished excisable goods produced by the manufacturer are exempt from the whole of the duty of excise leviable thereon or are chargeable to 'nil' rate of duty, and
(ii) ... ... ...
Explanation.- Credit of the duty allowed in respect of any material or component parts shall not be denied or varied on the ground that part of such material or component parts is contained in any waste, refuse or by-product arising during the process of manufacture of the finished excisable goods irrespective of the fact that such waste, refuse or by-product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty or is notified under Sub-rule (1):
Provided ... ... ..."
17. The notification No. 201/79 prior to 11-4-1981 in so far as relevant for the present purpose was as follows:
"Set-off of duty on all excisable goods on use of duty paid goods falling under Item 68 (Tariff Items 1 to 68): In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 178/77-Central Excises, dated the 18-6-1977, the Central Government hereby exempts all excisable goods (hereinafter referred as "the said goods"), on which the duty of excise is leviable and in the manufacture of which any goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) (hereinafter referred as "the inputs") have been used, from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs:
Provided that the procedure set out in the Appendix to this notification is followed:
Provided further that nothing contained in this notification shall apply for the said goods which were exempted from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty."
18. The amending notification No. 102/81, dated 11-4-1981 is as follows :
"Provided also that credit of the duty allowed in respect of the inputs shall not be denied or varied on the ground that part of such inputs is contained in any waste, refuse or by-product arising during the process of manufacture of the said goods, irrespective of the fact that such waste, refuse or by-product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty or is not mentioned in the declaration referred to in the Appendix to this notification."
19. Central Board of Excise & Customs issued Circular No. 6/81-CX.6, dated 31-1-1981, which reads as follows:
"Central Excise-Rule 56A-Proforma Credit of duty paid on material/component parts contained in waste, refuse or by-product arising during the process of manufacture -regarding.
A doubt has been raised whether proforma credit of duty paid on material/component parts used in manufacture of the finished excisable goods notified under Rule 56A of the Central Excise Rules, 1944, is to be denied to the extent such material or component parts are contained in any waste, refuse or by-product arising during the process of manufacture of the notified finished excisable goods on the grounds that such waste, refuse or by product is either fully exempt from duty or not notified under Sub-rule (1) of Rule 56A.
2. Since the Government's intention has been not to deny the benefit of proforma credit in such situation, an Explanation has been added to Sub-rule (2) of Rule 56A, so as to remove the ambiguity in the rule. Notification No. 8/81-CE, dated 31-1-1981 amending Rule 56A is enclosed. It may, however, be noticed that such credit cannot be utilised for payment of duty leviable on such waste, refuse or by-product."
20. On an analysis and comparison of aforesaid, it is clear that the clarification in the form of trade notice issued by the Pune Collectorate in respect of Rule 56A was as much applicable to that rule as to Notification No. 201 /79. In the premises, it is clear that the Tribunal should have held that even though a part of the ethylene glycol was contained in the by-product methanol, yet the credit of duty could not be reduced to the extent of the ethylene glycol contained in the methanol as ineligible. It is true that when in a fiscal provision, if benefit of exemption is to be considered, this should be strictly considered. But the strictness of the construction of exemption notification does not mean that the full effect of the exemption notification should not be given by any circuitous process of interpretation. After all, exemption notifications are meant to be implemented and trade notices in these matters clarify the stand of the Government for the trade. It is clear, therefore, that the Tribunal failed to interpret the words of the exemption notification No. 201/79 properly and fully. The said notification exempted all excisable goods on which the duty of excise was leviable and in the manufacture of which any goods falling under Tariff Item 68 (i.e. inputs) had been used from so much of the duty of excise leviable thereon as was equivalent to the duty of excise already paid on the inputs. It is clear, however, that ethylene glycol was used in the manufacture of polyester fibre. 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 the ethylene glycol to prevent methanol from arising for producing a certain quantity 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 want only 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. 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. This construction would frustrate the object of exemption if something which evidently arises out of the interaction. Even prior to amendment to notification No. 201/79 with effect from 11-4-1987, the only situation where the credit of the duty paid on the inputs could be denied was only where the final products were wholly exempt from the duty of excise or chargeable to nil rate of duty. In the present case, the excisable goods, namely, polyester fibre were not wholly exempt from duty nor chargeable to nil rate of duty. It cannot be read in the notification that the notification would not be available in case non-excisable goods arise during the course of manufacture. In fact, the Tribunal seems to have erred in not bearing in mind that exemption notification was pressed in service in respect of polyester fibre which is excisable goods and not in respect of methanol which arises as a by-product as a part and parcel of chemical reaction. It appears further on a comparison of the Rule 56A and the Notfn. No. 201/79 that these deal with the identical situation."
10. He also referred us to the judgment of the Allahabad High Court in the case of Varuna Sulphonators Pvt. Ltd. v. Union of India reported in 1993 (68) E.L.T. 42. He has pleaded in that case the Sulphuric acid was produced and the appellants were not required to reverse the Modvat credit in respect of the same. He also referred us to the following two judgments of the Tribunal reported in 1996 (84) E.L.T. 354 (T) in the case of Jaydee Agrochemicals Pvt. Ltd. and in the case of C.C.E. v. Nisha Conductors reported in 1993 (66) E.L.T. 298 (T) to highlight that they were common inputs and quantum-wise apportionment of the inputs was not required.
11. He also referred us to the judgment of the Tribunal reported in 1990 (49) E.L.T. 525 in the case of Anil Starch Product Ltd. and also in the case of C.C.E., v. Sri Chakra Tyres Ltd. reported in 1990 (50) E.L.T. 314 (T).
12. He further pleaded that the appellants' products are single product and their intention was to manufacture only the product viz. VSF and Sodium Sulphate was an accident of the production processes and was obtained as a by-product and sold so. He has pleaded earlier they availed of the Modvat credit in respect of Sodium Sulphate as VSF was not notified and since under the law they could utilise the Modvat credit and they were permitted to make use of the proportionate Modvat credit which was equivalent to the Modvat credit attributable to the Caustic Soda Lye utilised for the manufacture of Sodium Sulphate.
13. He has pleaded, subsequently by issue of notification 11/95, the Modvat credit has been allowed to be utilised for any one of the notified products manufactured in a factory. He has pleaded that this would clearly show that there was no bar to the appellants' utilising the entire Modvat credit taken in respect of Caustic Soda Lye for payment of duty on VSF.
14. The ld. JDR for the department has pleaded that the order had been passed by the ld. Commissioner after studying the processes of manufacture. He has pleaded in respect of the very same factory and the same item was being manufactured the apportionment of the Modvat credit was allowed and before the VSF was notified for Modvat purposes, the appellants were allowed to utilise the apportionment of the Modvat credit on Caustic Soda Lye which was based on the quantum of Caustic Soda Lye relatable to the manufacture of Sodium Sulphate. He has pleaded after the VSF was notified, there was no reason why this apportionment done earlier should not be continued to be done.
15. In regard to the judgments cited supra, he pleaded that all these judgments related to the admissibility of the Modvat credit and not utilisation of the same.
16. In this connection, he referred us to the Show Cause Notice dated 16-8-1993 wherein it has been clearly mentioned that since it appeared that Sodium Sulphate was specified as a final product under Rule 57A read with Notification No. 177/86 as amended, the provisions of Rule 57D(1) would not be applicable. It was also mentioned that for the said Sodium Sulphate they were availing the Modvat facility and also they had filed a separate declaration under Rule 57G and it was alleged therefore that the appellants wrongly availed of the entire Modvat credit for payment of duty on VSF.
17. He has pleaded that since the goods obtained as Sodium Sulphate and VSF as final products, same therefore had to be treated separately for Modvat purpose and apportionment of the credit to the extent of Caustic Soda Lye attributable to the goods manufactured was required to be done. He also adopted the reasonings of ld. Lower Authority as set out in Para 12 of his order which is reproduced above.
18. We have considered the pleas made by both the sides. We observe that Modvat scheme has been introduced with a view to mitigate and obviate the cascading effect from the duty. This would mean that duty in respect of inputs which were used in or in relation to the manufacture of the finished product should get added on into the cost of the finished goods manufactured. To effectuate the purposes and the objects of this scheme, various rules have been incorporated in the statute. The relevant rules for consideration before us are Rule 57A, Rule 57D, Rule 57F. These Rules for convenience of reference are reproduced below :-
"Rule 57A. Applicability. - (1) The provisions of this section shall apply to such finished excisable goods (hereinafter referred to as the "final products"), as the Central Government may, by notification in the Official Gazette, specify in this behalf, for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred to as the "specified duty") paid on the goods used, in or in relation to, the manufacture of the said final products (hereinafter referred to as the "inputs") and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the notification:
Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted.
Explanation. - [For the purposes of this rule, "inputs" includes -
(a) inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products, and
(b) paints and packaging materials, but does not include -
(i) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products;
(ii) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products;
(iii) packaging materials the cost of which is not included or had not been included during the preceding financial year in the assessable value of the final products under Section 4 of the Act;
(iv) cylinders for packing gases;
(v) plywood for tea chests; or.
(vi) bags or sacks made out of fabrics (whether or not coated, covered or laminated with any other material) woven from strips or tapes of plastics.
Rule 57D. Credit of duty not to be denied or varied in certain circumstances. - (1) 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 by-product arising during the manufacture of the final product, whether or not such waste, refuse or by-product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty or is not specified as a final product under Rule 57A.
(2) Credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that any intermediate products have come into existence during the course of manufacture of the final product and that such intermediate products are for the time being exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty:
Provided that such intermediate products are -
(a) used within the factory of production in the manufacture of a final product (other than those cleared either to a unit in a Free Trade Zone or to a hundred per cent. Export-Oriented Unit) on which the duty of excise is leviable whether in whole or in part; and
(b) specified as inputs or as final product under a notification issued under Rule 57A.
Rule 57F. Manner of utilisation of the inputs and the credit allowed in respect of duty paid thereon. - (1) The inputs in respect of which a credit of duty has been allowed under Rule 57A may -
(i) be used in, or in relation to, the manufacture of final products for which such inputs have been brought into the factory; or
(ii) be removed, subject to the prior permission of the Collector of Central Excise, from the factory for home consumption or for export on payment of appropriate duty of excise or for export under bond, as if such inputs have been manufactured in the said factory :
Provided that where the inputs are removed from the factory for home consumption on payment of duty of excise, such duty of excise shall in no case be less than the amount of credit that has been allowed in respect of such inputs under Rule 57A.
(1A)...
(2)...
(3) Credit of specified duty allowed in respect of any inputs may be utilised towards payment of duty of excise, -
(i) on any of the final products in or in relation to the manufacture of which such inputs are intended to be used in accordance with the declaration filed under Sub-rule (1) of Rule 57G; or
(ii) on the waste, if any, arising in the course of manufacture of the final products; or
(iii) on the inputs themselves if such inputs have been permitted to be cleared under Sub-rule (1):
Provided that the credit of specified duty in respect of inputs used in the final products cleared for export under bond or used in the intermediate products cleared for export in accordance with Sub-rule (2), shall be allowed to be utilised towards payment of duty of excise on similar final products cleared for home consumption or for export on payment of duty and, where for any reason, such adjustment is not possible, by refund to the manufacturer subject to such safeguards, conditions and limitations as may be specified by the Central Government in the Official Gazette :
Provided further that no such refund of credit of duty shall be allowed if the manufacturer avails of drawback allowed under the Customs and Central Excise Duties (Drawback) Rules, 1971, or claims rebate of duty under Rule 12A, in respect of such duty:
Provided also that the credit of specified duty in respect of inputs used in the final products cleared either to a unit in a Free Trade Zone or to a hundred per cent. Export-Oriented Unit under bond shall be allowed to be utilised towards payment of duty of excise on similar final products cleared for home consumption on payment of duty."
19. A reading of the Rule 57A shows that the benefit is available in respect of notified inputs which are used in or in relation to the manufacture of notified finished products. Rule 57F provides for the manner of utilisation of the Modvat credit taken during the course of manufacture of finished product by use of notified inputs. Some scrap or by-products which also emerge and which may otherwise be liable to duty or which may also be excisable goods and in the generation of which the inputs in question have come to be utilised. The statute provides under Rule 57D that credit which has been allowed to be taken for certain specified finished products shall not be denied or varied for the reason that part of the inputs in question for which credit was taken are contained in any waste, refuse or by-product arising out of the manufacture of the final product whether or not such waste, refuse or by-product is exempt from the whole of duty of Excise leviable or is chargeable to nil rate of duty or is not specified as a final product under Rule 57A.
20. It is in this context that the issue has to be examined. The appellants' claim is that Sodium Sulphate is produced as a by-product during the manufacture of VSF.
21. The term by-product as such has not been defined. In the Webster's New Collegiate Dictionary, the term "by-product" is defined as "Something produced (as in manufacturing) in addition to the principal product". In the Shorter Oxford English Dictionary, the term by-product is defined as "A secondary product; a substance obtained in the course of a specific process, but not its primary object". In the Chambers English Dictionary, the word by-product is defined as "a product formed in the process of making something else".
22. The question to be therefore first considered is whether the appellants' goods could be considered as "By-product" for the purpose of provisions of Rule 57D. As it is the finding portion in the order of the ld. Adjudicating Authority dated 29-3-1996 in para 9, the ld. Commissioner in the opening line has stated as under :-
"M/s. GIL are manufacturers of mainly VSF falling under Chapter 55 and Sodium Sulphate falling under Chapter 28 and Sodium Sulphate is their by-product which emerges during the course of manufacture of VSF."
The ld. Lower Authority has entered this finding after he has studied the manufacturing process as set out in para 16 of his order which is also reproduced above. The plea of the appellant that the Sodium Sulphate is a by-product therefore could be accepted and we need not examine the manufacturing process whether the same could be considered as by-product or not and that the item is a "by-product" has also not been disputed by the Revenue.
23. The question therefore arises that once an item has been identified to be a by-product whether in that event by reason of that product being itself also excisable goods notified under Rule 57A and being cleared from the assessee's factory Modvat credit taken in respect of the inputs could be varied or denied for any portion which may be relatable to the by-product arising during the course of manufacture of the final product. There is no denial from the Revenue that the appellants' final product is VSF. However, the plea has been made that Sodium Sulphate is also a final product and therefore Modvat credit on the inputs has to be apportioned between the two products based on the quantum required for producing each of the items.
24. We observe that the legislature in this regard has introduced Rule 57D(1) and conscious decision has been taken that full Modvat credit available for the inputs which are used in or in relation to the manufacture of the notified finished product has to be given notwithstanding that part of those inputs are contained in any waste, refuse or by-product. The word "contained in waste, refuse or by-product" has to be given a meaning by harmoniously reading the various provisions set out in the Rules for Modvat purposes. The Rule 57A provides for the availability of the Modvat credit in respect of inputs which are used in or in relation to the manufacture of the notified final product. The word "contained" therefore has to be given a meaning by harmoniously reading Rule 57D(1). It could only mean that part of the inputs in terms of Rule 57D, which may by use be relatable to production of waste, refuse or by-product. In the present case, part of the inputs have been held to be relatable to production of Sodium Sulphate which has been held to be a by-product. As earlier VSF was not notified as a finished product, the apportionment in regard to utilisation of Caustic Soda Lye for production of Sodium Sulphate was done and Modvat credit in respect of the same was allowed, for use for payment of duly on Sodium Sulphate. However, when VSF came to be notified notwithstanding the fact that Sodium Sulphate was earlier considered as a finished product, its status as a by-product would not in any way be affected. Sodium Sulphate, according to the ld. Lower Authority, emerged, during the course of the process of manufacture of the VSF by reason of the reaction which takes place leading to the manufacture of the VSF. Rule 57D clearly calls for no variation or denial of the Modvat credit for utilisation of the notified finished product when part of the inputs which is shown to be used in or in relation to the manufacture of the by-product.
25. The ld. Lower Authority has sought to read Rule 57F(3) at the relevant time to hold that the apportionment was required to be done. In our view, a plain reading of the rule does not call for any such exercise. The plea has been taken that earlier to the notification of VSF as a specified product under Rule 57A, the appellants were allowed the benefit of the Modvat credit in respect of inputs which could be attributable to the production of Sodium Sulphate does not in any way take away the appellants' right to avail of the Modvat credit to the full extent for payment of duty on VSF in view of Rule 57D(-1). We observe that when earlier the Modvat credit was allowed to be taken and utilised in respect of Sodium Sulphate it was at the time when utilisation of the Modvat credit on VSF was not contemplated as VSF was not specified under Rule 57D.
26. The moment VSF was notified as a specified final product, under Rule 57A, the rules will have to be interpreted with reference to their product and the benefit of the Modvat credit will have to be considered in the context of appellants' manufacturing the VSF and the status of the Sodium Sulphate produced has to be reckoned with reference to the manufacture of VSF. Admittedly, the same is only a by-product. That benefit of Modvat credit was given to the by-product earlier in no way affects the appellants' right to claim the full benefit and utilisation of the Modvat credit on the inputs when VSF came to be notified.
27. In view of the above, we hold that the appellants' plea for the benefit of Modvat credit has to be allowed. The ld. Lower Authority's orders are therefore set aside and appeals of the appellants are allowed.
28. Inasmuch as we have allowed the plea of the appellants, the department appeals automatically based on the ratio of the decision above has to be dismissed.