Customs, Excise and Gold Tribunal - Delhi
Jaydee Agrochemicals Pvt. Ltd. vs Collector Of C. Ex. on 1 March, 1996
Equivalent citations: 1996(84)ELT354(TRI-DEL)
ORDER K. Sankararaman, Member (T)
1. The appeal by M/s. Jaydee Agrochemicals Pvt. Ltd. is directed against the order-in-appeal dated 29-10-1991 passed by Collector of Central Excise (Appeals), Delhi whereby he had upheld the order-in-original passed by Assistant Collector of Central Excise, Jaipur Division in terms of which the latter had held that they were liable to reverse the Modvat credit taken by them on their inputs Suphuric Acid used by them in their manufacturing process part of which was recovered by them as spent Sulphuric Acid. The Assistant Collector had held that such spent Sulphuric Acid obtained by them and removed from their factory attracted the provisions 57F(l)(ii) as it amounted to removal of the inputs as such from the factory of the manufacturer.
2. Shri R. Nambirajan, learned advocate, stated that their case is squarely covered by the Tribunal decision in the case of Nirma Chemical Works v. CCE Ahmedabad - 1993 (63) E.L.T. 251. He pointed out that in the said judgment while the Tribunal had held that the spent sulphuric acid recovered by the manufacturers and cleared from their factory after their manufacturing process in which they had started with sulphuric acid as one of their inputs would again attract duty under a different classification, the Modvat credit itself taken on such input namely sulphuric acid was held to be permissible for discharging the duty liability on the spent sulphuric acid. The learned counsel submitted that the decision of the Collector(Appeals) in classifying the spent sulphuric acid under Chapter 28 goes contrary to the Tribunal decision in the case of Nirma Chemicals wherein it had been held that spent sulphuric acid is classified under Heading 38.23. Irrespective of the question of classification of such spent sulphuric acid, their grievance is mainly against the denial of Modvat credit taken by them on sulphuric acid used by them as an input to the extent of that portion thereof which has been held by the Assistant Collector to be referable to the resulting spent sulphuric acid. He pleaded that the order may be set aside and they may be granted the credit of such disallowed amount.
3. The arguments were replied to by Shri D.S. Mullick, learned DR. He supported the impugned order and stated that the Collector (Appeals) had squarely brought out in his order that the spent sulphuric acid cannot be held to be an altogether different product from the starting material, namely sulphuric acid and, to that extent the input material cannot be said to have been used in the manufacture of the declared final product but has to be held as having been cleared as such. It was this decision which was taken by the Assistant Collector and this was upheld by the Collector (Appeals) in his impugned order. He pleaded that the appeal be dismissed.
4. We have carefully considered the arguments addressed by both the sides. We have also gone through the order-in-appeal and the order-in-original. We are not able to appreciate the validity of the finding that simply because spent sulphuric acid is recovered from the manufacturing process it has to be treated as the very sulphuric acid with which the appellant started their manufacturing operations. The application of Rule 57-F(l)(ii) would apply only in cases where the inputs are cleared as such without taking them into manufacturing operation. It is nobody's case here that the appellants had got hold of the spent sulphuric acid directly from the material with which they started the operation. The entire quantity of sulphuric acid was put in process and due to the particular chemical process and reaction resulting in various products including the main product declared by them some sulphuric acid was recovered by them after some further treatment. This sulphuric acid cannot be treated to be the material with which they had started their process. It may chemically be the same product but diluted and containing some added impurities also as a result of the chemical process undergone. Such a product can, under no circumstances, be treated as the starting material itself attracting the mischief of Section 57F(l)(ii). This very issue reading the Modvat eligibility of the full quantity of sulphuric acid taken and used in the manufacture of Acid Slurry irrespective of the recovery of some quantity of spent sulphuric acid during the manufacturing process stands concluded by the judgment of Allahabad High Court in Varuna Sulphurators v. Union of India -1993 (68) E.L.T. 42. Relevant portion of the judgment is extracted below:
"5. The MODVAT Scheme provides for instant credit of the excise duty paid on inputs when used in relation to the manufacture of final product. No doubt the duty paid input, which is not used in the manufacturing process, would not be eligible for the MODVAT credit. To take MODVAT credit, the final product should be dutiable. Where the final product is exempt from excise duty, no credit of the duty paid on the inputs would be available. Let us proceed to find out whether on the facts and circumstances of the case, it can be said that the entire relevant duty paid input was used in the manufacture of the final product. The MODVAT Scheme does not emphasise that during the manufacturing process, the entire duty paid input must be actually consumed, but the emphasis is on the use of the duty paid input in the manufacture of final product. The words 'used' and 'consumed' are not identical and synonymous. They have not been defined in the Rules and in the Central Excises and Salt Act, 1944. The verb 'use' as per Chambers English Dictionary means:"to put to some purpose, to avail oneself of; to resort to; to make use of: to take or consume...." The verb 'consume' in the same, dictionary means : "to destroy by wasting, fire, evaporation, to use up, to devour; to waste or spend; to exhaust...." The word 'used' does not indicate that a thing, which is liquid, can be said to be used only when it is spent up to the last drop. The word 'consumed' may be used in the sense that a thing which is consumed must be finished, exhausted or devoured in full, but that is not the sense in which the word 'used' is used. To qualify for MODVAT credit, what is required is that a given input should be used in the manufacture of final product. There is nothing to show that MODVAT credit will not be allowed, if a manufacturer is not able to prove that required input has been exhausted so as to not leave even a drop of it behind. When the entire quantity of sulphuric acid was subjected to the manufacturing process, it cannot be said the same was not used for the manufacture of final product, simply because due to water being added, a layer is created which sparates the spent acid from the final product. Once the duty paid input is physically involved in the manufacturing process that can be said to have been used despite the fact that the same is not full assimilated in the final product. Hundred per cent absorption or assimilation of the duty paid input in the final product is not a sine qua non of MODVAT credit, but to take benefit of MODVAT Scheme, the petitioner is required simply to establish that the input was used in the manufacture of final product. The sulphuric acid (duty paid input) can be said to have been used by the petitioner in the manufacture of final product when the entire relevant quantity thereof was applied or subjected to the manufacturing."
From the records of the case the High Court noted that the Department had also held that when sulphuric acid was put to manufacturing process Modvat credit could not be denied to a manufacturer of detergent, simply because the entire input was not merged as the final product and that the spent acid emerged in the manufacturing process. The High Court also took note of Board's Circular dated 18-5-1992 ordering that Modvat credit can be taken on the full quantity of sulphuric acid used in the manufacture of detergents. It was not that credit would be admissible only on that input which is actually consumed. In the circumstances, we set aside the impugned order as regards the disallowance of Modvat credit is concerned. Credit so allowed has to be restored to their account for utilisation as admissible under the Rules.
5. Shri Nambirajan made a further submission that the Collector(Appeals) in passing the impugned order, had travelled beyond the scope of the order-in-original as the order passed by the Assistant Collector was only with reference to disallowance of Modvat credit. No order had been passed by the Assistant Collector regarding the classification of the spent sulphuric acid recovered by them. The decision of the Collector(Appeals) to classify the spent sulphuric acid under Chapter 28 is also against the Tribunal decision in the Nirma Chemical Works case referred to above. This order of the Collector (Appeals) which is contrary to the Tribunal decision is set aside not only on merits but on the ground that it went beyond the scope of the order of the Assistant Collector which was limited, as stated above, to the disallowance of Modvat credit only. It is stated by the learned counsel that there was no proposal by the Assistant Collector to recover duty on the spent sulphuric acid which was held to be non-dutiable by them at this stage. If it is the Department's stand that spent sulphuric acid is dutiable then that duty can be recovered only after appropriate proceedings are drawn up afresh and cannot follow from the proceedings already initiated in regard to disallowance of Modvat credit. We find that this submission is valid and we accept the same. The appeal is allowed on the above terms.