Bombay High Court
Rallis India Limited vs The Union Of India on 16 December, 2008
Author: J.P. Devadhar
Bench: D.K. Deshmukh, J.P. Devadhar
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.8435 OF 2006
Rallis India Limited, a
company incorporated within
the meaning of Companies Act,
1956 and having its registered
Office at Apeejay House,
7th Floor, 3 Dinshaw Vachha
Road, Churchgate,
Mumbai - 400 020 ..Petitioner
V/s.
1. The Union of India,
through the Secretary,
Ministry of Finance,
Department of Revenue,
2.
North Block, New Delhi - 1.
The Customs, Excise &
Service Tax Appellate Tribunal
(CESTAT) through its Registrar,
at Jai Centre, 3rd floor, 34,
P. D'Mello Road, Poona St.,
Mumbai - 400 001.
3. The Commissioner of Central
Excise, Salem Commissionerate,
Salem having his office at No.1
Foulks Road, Foulks Compound,
Annai Road, Salem - 636 001 ..Respondents
Mr.Sridharan with Mr.Prakash Shah i/by M/s.PDS Legal
for the petitioner.
Mr.P.S. Jetly with Mr.R.C. Master for the
respondent.
CORAM : D.K. DESHMUKH &
J.P. DEVADHAR, JJ.
DATED : 16TH DECEMBER, 2008.
ORAL JUDGMENT : (Per J.P. Devadhar, J.)
1. This writ petition is filed to challenge the Larger Bench decision of the CESTAT dated 13-12-2006.
::: Downloaded on - 09/06/2013 14:08:59 ::: 2The Larger Bench was constituted because of the conflicting decisions rendered by the Tribunal in the case of Rama Industries Ltd. V/s. C.C.E. reported in 2004 (178) E.L.T.720 (T) and in the case of Binani Zinc Ltd. V/s. CCE reported in 2005 (187) ELT 390 (T).
(T)
2. The question referred to the Larger Bench was:-
" Whether 8% of the amount as per erstwhile Rule 57CC of Central Excise Rules, 1944 (now Rule 6 of Cenvat Credit Rules, 2002) is required to be discharged, before removal of by products / subsidiary products when such products are exempted from whole of duty therein in light of the conflicting view in the above decisions. "
The Larger Bench of the Tribunal concurred with the views expressed by the Tribunal in the case of Binani Zinc Ltd. (supra) and by the impugned decision held that the petitioner who manufactured both dutiable and exempted final products by utilizing duty paid common inputs (Modvat credit of which was taken) was liable to pay an amount equal to 8% of the value of the exempted final product under Rule 57CC of Central Excise Rules, 1944 / Rule 6 of Cenvat Credit Rules, 2002. The larger Bench has also recorded a finding to the effect that HCL was not a necessary input required in the manufacture of gelatin.
::: Downloaded on - 09/06/2013 14:08:59 ::: 33. Facts relevant to the present case are that since 1971 the petitioner is engaged in the manufacture of gelatin in its factory at Ootacamund, Tamil Nadu. Gelatin is an excisable product and falls under Chapter heading 35.03 of the Central Excise Tariff Act, 1985.
4. According to the petitioner, animal bone is the basic raw material required for the manufacture of gelatin. Animal bones contain both organic material material known known igas as protein phosphorus.
as well
According
as inorganic
to the
petitioner, when the animal bones are treated with
HCL, organic and inorganic substances in the animal
bones get separated. Organic substances are
insoluble in water and are known as 'Ossein'.
Inorganic substances are water soluble and are known
as 'mother liquor' / 'spent liquor' / 'phosphoryl
liquor'.
5. The insoluble organic substances known as
'Ossein' was further processed to manufacture gelatin which was cleared on payment of excise duty and the inorganic substances known as mother liquor being as waste liquid, was thrown away.
6. 'Mother liquor' being hazardous in nature, ::: Downloaded on - 09/06/2013 14:08:59 ::: 4 the Pollution Control Board recommended to the petitioner to process the mother liquor instead of throwing it away. Accordingly, in the year 1981 the petitioner set up a plant for processing the mother liquor into phosphoryl A and Phosphoryl B which are excisable under heading 23.02 of the Central Excise Tariff but are wholly exempt from payment of excise duty.
7. Thus, the manufacture of Gelatin involved the process of treating the animal bones with HCL, when ossein and mother liquor were obtained.
further processed to obtain Gelatin which was cleared Ossein was on payment of duty. Mother liquor was further processed to manufacture phosphoryl A & B, which being exempt, was cleared without payment of duty.
8. With the introduction of the Modvat Scheme in the year 1986, the petitioner became entitled to take credit of duty paid on inputs used in the manufacture of final products and utilize the same to pay the excise duty payable on the final products. The object of the Modvat Scheme was to avoid the cascading effect of taxation on inputs used in or in relation to the final products. Under Rule 57C of the Modvat Scheme, credit of duty paid on inputs was not allowable if the final products manufactured from duty paid inputs were exempt. Rule 57D further ::: Downloaded on - 09/06/2013 14:08:59 ::: 5 provided that the credit of duty paid on the inputs used in the dutiable final product would not be denied or varied, if part of the inputs were contained in any waste, refuse or by product arising in the manufacture of the dutiable final product and it was immaterial as to whether excise duty was payable or not on such waste, refuse or by-product.
In other words, as per Rule 57D, even if the waste
refuse or by-product arising in the manufacture of
dutiable final product are exempted from payment of
excise duty, the credit of duty paid on the inputs
used in
the manufacture of dutiable final cannot be denied or varied.
products
9. In the present case, since 1986 the petitioner availed the credit of duty paid on HCL used as input in the manufacture of gelatin and the waste mother liquor arising in the manufacture of gelatin was used in the manufacture of phosphoryl 'A' and 'B' and was cleared without payment of duty in view of the exemption.
10. Rule 57CC was introduced into the Modvat Scheme with effect from 1/9/1996 under which a manufacturer who manufactures by using common inputs, a final product which is chargeable to duty as well as a final product which is wholly exempt or chargeable to nil rate of duty was required to ::: Downloaded on - 09/06/2013 14:08:59 ::: 6 maintain separate accounts regarding the inputs received and used in the manufacture of exempted goods, failing which the manufacturer was liable to pay 8% of the price payable on the exempted final products at the time of its clearance from the factory.
11. At this stage, it would be appropriate to quote Rule 57C, 57CC and 57D (to the extent relevant) as they stood during the period 1998-99 :-
"Rule 57C. Credit of duty not to be allowed if final exempt products are exempt.- (1) No credit of the specified duty shall be allowed on such quantity of inputs which is used in the manufacture of final products [which are exempt from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty] except when the final products are either, -
(i) ......
(ii) ......
(iii) ......
(iv) ......
(2) Where a manufacturer avails of the credit of specified duty on any inputs and he is engaged in the manufacture of any final product which is chargeable to duty as well as in the manufacture of any other [final product which is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty] in the same factory, the provisions of sub-rule (1) shall be deemed to be satisfied only [when the provisions of sub-rule (1) or sub-rule (5) or sub-rule (9) of rule 57CC are complied with, or where goods are exported under bond in terms of the provisions of rule 13.] (3) ......
(4) ......
RULE 57CC. 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 manufacturer is engaged ::: Downloaded on - 09/06/2013 14:08:59 ::: 7 in the manufacture of any final product which is chargeable to duty as well as in any other [final product which is exempt from the whole of the duty of excise leviable there on or is chargeable to nil rate of 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.
(2) The amount mentioned in sub-rule (1) shall be paid by the manufacturer by adjustment in the credit account maintained under sub-rule (7) of rule 57G or in the accounts maintained under rule 9 or sub-rule (1) of rule 173G and if such adjustment is not possible for any reason, the amount shall be paid in cash by the manufacturer availing of credit under rule 57A.
(3) .......
(4) .......
(5) .......
(6) .......
(7) The provisions of sub-rule (1) shall apply even if the inputs on which credit has been taken are not actually used or contained in any particular clearance of final products.
(8) If any goods are not sold by the manufacturer at the factory gate but are sold from a depot or from the premises of a consignment agent or from any other premises, the price (excluding sales tax and other taxes, if any, payable) at which such goods are ordinarily sold by the manufacturer from such depot or from the premises of a consignment agent or from any other premises shall be deemed to be the price for the purpose of sub-rule (1).
(9) In respect of inputs (other than inputs used as fuel) which are used in or in relation to the manufacture of any goods, which are exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty, the manufacturer shall maintain separate inventory and accounts of the receipt and use of inputs for the aforesaid ::: Downloaded on - 09/06/2013 14:08:59 ::: 8 purpose and shall not take credit of the specified duty paid on such inputs. "
RULE 57D. 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 the 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 57-A. (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 6 of CENVAT credit Rules, 2002 is similar to Rule 57CC of 1944 Rules.
12. It is not in dispute that during the period from 1971 to 1981 the petitioner had cleared gelatin on payment of excise duty and threw away the mother liquor arising in the above process as waste. During the period from 1981 to 1986, the petitioner manufactured & cleared two final products, namely, gelatin on payment of excise duty and 'phosphoryl 'A' & 'B' without payment of duty as it was exempted.
During the period from 1986 to 1996, the petitioner cleared gelatin on payment of duty after utilizing the credit of duty paid on HCL and continued to clear Phosphoryl 'A' & ' B' without payment of excise duty ::: Downloaded on - 09/06/2013 14:08:59 ::: 9 as it was exempted. Even after the insertion of Rule 57CC in the year 1996, the petitioner continued to clear gelatin on payment of excise duty by utilising the credit of duty paid on HCL and clear exempted phosphoryl 'A' & ' B' without payment of duty.
13. However, during the period from 4-4-1997 to 29-4-2004, the Excise authorities issued various show-cause notices under section 11A of the Central Excise Act, 1944 ('Excise Act' for short) calling upon the petitioner to show cause as to why an amount equal products, to 8% namely of the price of Phosphoryl the 'A' and exempted 'B' final cleared during the period from September, 1996 to December, 2003 should not be recovered in view of the failure on part of the petitioner to maintain separate accounts as contemplated under Rule 57CC of the Central Excise Rules / Rule 6 of the CENVAT Credit Rules, 2002. By the said show cause notices, the petitioner was further called upon to show cause as to why interest should not be demanded and penalty should not be imposed under the provisions of the Excise Act and the Rules made thereunder.
14. The petitioner in its reply contended that the duty paid HCL was an input used in the manufacture of gelatin. It was contended that the mother liquor arising in the manufacture of gelatin ::: Downloaded on - 09/06/2013 14:08:59 ::: 10 was a waste and, therefore, in terms of Rule 57D, the petitioner was entitled to full credit of duty paid on HCL used in the manufacture of dutiable gelatin.
In such a case, it was contended that Rule 57CC was not applicable.
15. By an order in original dated 23-12-2004, the adjudicating authority rejected the contention of the petitioner and held that Rule 57CC was applicable to the present case and accordingly, confirmed the demand with interest and also imposed penalty upon the petitioner.
16. The petitioner filed an appeal against the aforesaid adjudication order and the Tribunal in view of the conflicting decisions, referred the matter to a larger Bench of CESTAT. The larger Bench after hearing the parties, by its decision which is impugned in the present petition, held that :-
(a) HCL is not a necessary input required in the manufacture of gelatin and the same can be obtained without the use of HCL. HCL is used for extracting the inorganic part of the bones, which are further processed to manufacture phosphoryl A & B. Thus, HCL is used in the manufacture of phosphoryl A & B irrespective of emergence of mother liquor in between. In this ::: Downloaded on - 09/06/2013 14:08:59 ::: 11 connection, the Larger Bench relied upon the decision of the Apex Court in the petitioner's own case reported in 1999(114) E.L.T. 5 (S.C.) [Rallies India Ltd. V/s. State of Tamil Nadu].
(b) Relying upon a decision of the Apex Court in the case of Commissioner of Sales Tax V/s.
Bharat Petroleum Corporation Ltd. reported in 1995 (77) E.L.T. 790 (S.C.), (S.C.) it was held that phosphoryl A & B was consciously manufactured by inputs the petitioner by using duty paid and since phosphoryl 'A' & 'B' HCL as are exempt from payment of excise duty, Rule 57CC was squarely applicable.
(c) Rule 57CC applies where dutiable final product as well as exempted final product are manufactured from a common input and the rule does not make any distinction between an intended final product or unintended emergence of by-product. Therefore, even if mother liquor arises as an unintended by-product, the same is further used in the manufacture of phosphoryl A & B which attracts nil rate of duty and, therefore, the provisions of Rule 57CC would be applicable.
::: Downloaded on - 09/06/2013 14:08:59 ::: 12(d) the expression 'by product' in Rule 57D has to be interpreted in the context of the words 'waste' or 'refuse' used in Rule 57D. For example floor sweepings arise in the manufacture of biscuits. Such floor sweepings which arise in the manufacture of biscuits being waste, no excise duty is payable on floor sweepings and excise duty is payable only on biscuits. In such a case, as per Rule 57D, the entire credit of duty paid on inputs can be used in discharging the duty payable on biscuits.
as a
waste
Similarly, iron & steel scrap arises during the manufacture of iron products. If iron & steel scrap are excisable, then duty has to be paid while clearing the iron & steel scrap and if exempted, Rule 57CC would apply. Therefore, Rule 57D refers to waste, scrap and by product which are not excisable at all. In the present case since two final products emerge out of a common input and duty is payable on one final product and the other final product is exempt, Rule 57CC is applicable to the facts of the present case.
The question referred to the larger Bench was answered accordingly.
17. We have heard Mr.Sridharan, learned Advocate ::: Downloaded on - 09/06/2013 14:08:59 ::: 13 for the petitioner and Mr.Jetly, learned Advocate for the respondents. On careful consideration of the rival submissions, we find it difficult to sustain the decision of the larger Bench for the reasons enumerated hereinafter.
18. At the outset it must be held that the Larger Bench committed a fundamental error in holding that HCL was not an input required in the manufacture of gelatin, because, firstly that was not the question referred to it for its decision. Secondly, the specific show-cause case ig of the revenue set notice was that HCL was the common out in the input used in the manufacture of two final products namely, gelatin & phosphoryl 'A' and 'B' and since duty on phosphoryl 'A' and 'B' is exempted, Rule 57CC is applicable. Therefore, the finding given by the larger Bench that HCL was not an input required in the manufacture of Gelatin is beyond the scope of reference and contrary to the facts of the case on record.
19. It is evident that the Larger Bench arrived at the aforesaid conclusion by erroneously following the decision of the Apex Court in the assessee's own case reported in 114 ELT 5 (S.C.). That decision is distinguishable on facts. The question before the Apex Court in that case, related to the ::: Downloaded on - 09/06/2013 14:09:00 ::: 14 classification of gelatin manufactured by the petitioner under the provisions of Tamil Nadu General Sales Tax Act, 1959 and not relating to the duty liability under the provisions of the Central Excise Act and the Rules made thereunder. Moreover, whether HCL was an input required in the manufacture of gelatin or not was not an issue directly or indirectly considered by the Apex Court in the aforesaid case. Therefore, when there was no dispute regarding user of HCL as an input in the manufacture of gelatin and even the case of the revenue was that HCL was gelatin, an the input required in Larger Bench was the not manufacture justified of in relying upon a decision of the Apex Court rendered in the context of the Sale tax law and holding that HCL was not an input required in the manufacture of gelatin for the purposes of duty liability under the Excise law.
20. If the findings of the Larger Bench that HCL is not an input required in the manufacture of gelatin is accepted, then it would mean that in the present case, HCL is exclusively used in the manufacture of Phosphoryl 'A' and 'B' which is exempted from payment of excise duty. If the final product is exempted from payment of duty then the credit of duty paid on the inputs used in the manufacture of exempted final products is not ::: Downloaded on - 09/06/2013 14:09:00 ::: 15 available. In such a case, whatever input credit taken has to be reversed and there would be no question of demanding the presumptive amount under Rule 57CC. Rule 57CC would apply only in cases where the manufacturer is unable to reverse exact amount of credit availed on inputs used in the manufacture of exempted final product on account of not maintaining separate account. If the finding of the larger Bench that HCL is exclusively used in the manufacture of phosphoryl 'A' and 'B' is accepted, then it would be simply a case of reversing the entire credit and not a case 57CC.
of demanding presumptive amount under Rule
21. Thus, in the facts of the present case, the specific case of the revenue is that HCL is a common input used in the manufacture of excisable gelatin and exempted phosphoryl 'A' & 'B'. The question, therefore, to be considered in the present case is, whether the petitioner is liable to reverse the credit to the extent the input is used in the manufacture of exempted phosphoryl 'A' and 'B' by maintaining separate account or alternatively pay the presumptive amount under Rule 57CC ?
22. Animal bones are the basic raw material required to manufacture gelatin. When animal bones are treated with HCL, organic and inorganic ::: Downloaded on - 09/06/2013 14:09:00 ::: 16 substances in the animal bones get separated.
Organic substances ('ossein') which are in the insoluble form are separated from the soluble inorganic substances known as 'mother liquor'.
Ossein is further processed to manufacture gelatin.
It is not in dispute that the mother liquor is a waste arising in the manufacture of gelatin.
23. Under Rule 57C and 57D of the Central Excise Rules, 1944, credit of duty paid on HCL which is used as an input in the manufacture of gelatin cannot be denied or varied merely because HCL is contained the waste mother liquor arising in the manufacture of in gelatin and that no excise duty is payable on the mother liquor. Rule 57D specifically provides that even if no excise duty is payable on the waste arising in the manufacture of dutiable final product, the credit of duty paid on the input used in the manufacture of dutiable final product cannot be denied or varied. In the present case, excise duty is payable on the final product namely gelatin and as per Rule 57D, even though no excise duty is payable on the waste mother liquor arising in the manufacture of gelatin, the petitioner is entitled to avail the entire credit of duty paid on HCL which is used as input.
24. It is, however, contended by the revenue that ::: Downloaded on - 09/06/2013 14:09:00 ::: 17 on the introduction of Rule 57CC, the petitioner was liable to maintain separate account so as to ascertain the quantity of HCL used in the manufacture of exempted phosphoryl 'A' and 'B', and since no such account was maintained the petitioner was liable to pay amount at 8% of the value of the phosphoryl 'A' and 'B' under Rule 57CC.
25. There is no merit in the above contention of the revenue. Under the Modvat Scheme, credit of duty paid on inputs can be availed only if such inputs are used Where in a the manufacture of dutiable final manufacturer uses common product.
inputs to
manufacture both dutiable final product as well as
exempted final product, then such manufacturer is
required to reverse the credit to the extent the
input is used in the manufacture of the exempted
final product. Where separate account was not
maintained or could not be maintained so as to
ascertain the quantity of inputs used in the
manufacture of exempted final product, there used to
be difficulty in reversing the credit of duty taken
on inputs used in the manufacture of exempted final
product. To obviate this difficulty Rule 57CC was
introduced. As per Rule 57CC, where a manufacturer
manufacturing both dutiable final product as well as
exempted final product fails to maintain separate
account of inputs used in the manufacture, then, he
::: Downloaded on - 09/06/2013 14:09:00 :::
18
is required to pay 8% of the value of the exempted
final product at the time of its clearance from the
factory.
26. In the present case, the mother liquor
arising in the manufacture of gelatin is admittedly a waste on which no excise duty is payable. In spite of the fact that no excise duty is payable on the clearance of waste mother liquor, in view of Rule 57D, the petitioner is entitled to avail entire credit of duty paid on HCL which is used as input in the present case, manufacture of gelatin.
the
In other words, in
petitioner is not required
the
to
reverse the credit of duty on HCL at the time of
clearance of the waste mother liquor and consequently there would not be any obligation to pay presumptive amount under Rule 57CC for not maintaining separate account.
27. The fact that the waste mother liquor arising in the manufacture of gelatin was further processed to manufacture exempted phosphoryl 'A' and 'B' would not attract Rule 57CC, because, if Rule 57CC was not applicable at the time of clearance of the waste mother liquor arising in the manufacture of dutiable gelatin, then the said rule cannot be applied merely because mother liquor was further processed to manufacture exempted final product, namely, ::: Downloaded on - 09/06/2013 14:09:00 ::: 19 phosphoryl 'A' and 'B'. In other words, liability to pay the presumptive amount under Rule 57CC would arise only if the waste mother liquor is held to be a final product. It is not even the case of the revenue that the waste mother liquor arising in the manufacture of gelatin is a final product.
Therefore, in the facts of the present case, if Rule 57CC was not applicable at the time of clearance of waste mother liquor, then Rule 57CC would not apply at the time of clearance of the exempt phosphoryl 'A' and 'B' manufactured out of waste mother liquor.
28. The Apex Court in the case of CCE V/s. Gas Authority of India Ltd. reported in 2008 (88) RLT 123 (SC), (SC) has considered the scope of Rule 57CC. In that case duty paid natural gas was used as an input in the manufacture of dutiable liquid petroleum Gas (LPG) and in that manufacturing process 'lean gas' emerged as a by product which was cleared without payment of duty. The revenue claimed 8% of the price charged on the sale of lean gas as per Rule 57CC. In that context, the Apex Court held thus :-
"5. Therefore, the short question which arises for determination before this Court is whether Lean Gas was a by-product or a final product. If it is a by-product, then the assessee would be entitled to the benefit of Rule 57D. On the other hand, if Lean Gas is a final product, then the assessee would not be entitled to the benefit of Rule 57D in view of the provisions of Rule 57CC as it ::: Downloaded on - 09/06/2013 14:09:00 ::: 20 refers to set off / adjustment of duty payable."
In the present case, it is not in dispute that the mother liquor arising in the manufacture of gelatin is a waste and not a final product and hence Rule 57CC is not applicable while clearing the mother liquor. Therefore, the fact that the mother liquor is subsequently used in the manufacture of phosphoryl 'A' and 'B' would make no difference and to such a case Rule 57CC would not apply.
29.
decision of Strong reliance was placed by Mr.Jetly on the the Apex Court in the case of C.C.E. V/s. Ballarpur Industries Limited reported in 2007 (215) E.L.T. 489 (S.C.). That decision in our opinion is distinguishable on facts. In that case, the dispute was whether stock transfer of exempted pulp manufactured by the assessee therein and transferred to its sister concern on payment of 8% of the cost price of pulp constituted sale, so as to claim duty on the transferred pulp instead of the presumptive amount under Rule 57CC. The Apex Court held that there was no sale and that the presumptive price at 8% cost price of the pulp alone was payable under Rule 57CC. In the present case, the facts are altogether different. In the present case, the question is whether the waste mother liquor arising in the manufacture of gelatin is a by-product or a ::: Downloaded on - 09/06/2013 14:09:00 ::: 21 final product. Therefore, reliance placed by the counsel for the revenue on the decision of the Apex Court in the case of Ballarpur Industries Limited (supra) is totally misplaced.
30. Reliance was also placed by the counsel for the revenue on the decision of the Apex Court in the case of Commissioner of Sales Tax V/s. Bharat Petroleum Corporation Limited reported in (1995) 77 E.L.T. 790 (S.C.). In our opinion that decision has no bearing to the facts of the present case. That and decision was rendered in the context of sales tax law not in the context of excise law. Moreover, the dispute in that case related to availing set off under the Sales tax law on sale of by-product arising in the manufacture of the main product. That decision does not deal with the provisions relating to the Modvat credit. Therefore, reliance placed on the decision of the Apex Court in the case of Bharat Petroleum Corporation Limited (supra) is also misplaced.
31. The larger Bench of the CESTAT has held that Rule 57D referred to waste, scrap and by-products which are not excisable at all. In this connection, the larger Bench has referred to the instances of floor sweepings arising in the manufacture of biscuits, waste and scrap arising in the manufacture ::: Downloaded on - 09/06/2013 14:09:00 ::: 22 of iron products and hydrogen arising as a by-product in the manufacture of oxygen by the process of electrolysis of water. We find it difficult to accept the above finding. What Rule 57D provides is that where modvated input is used in the manufacture of dutiable final product and waste, refuse or by-product arise in that process, then, even if the modvated inputs are contained in the waste, refuse or by-product and whether or not excise duty is payable on such waste, refuse or by-product, the manufacturer would not be denied full credit of duty paid on inputs product.
used
in
Rule
the manufacture of
57CC applies only if
dutiable
the
final
modvated
inputs are used in the manufacture of both dutiable
final product and exempted final product and the
manufacturer has not maintained separate accounts so
as to ascertain the quantum of inputs used in the
manufacture of exempted final products. Therefore,
the floor sweepings / waste and scrap / hydrogen
arising in the manufacture of biscuits / iron
products / oxygen, respectively would be governed by Rule 57CC if they are exempted final products and would be governed by Rule 57D if they are merely waste, refuse or by-product arising in the manufacture of dutiable final product. In the present case, mother liquor arising in the manufacture of dutiable gelatin, is not an exempted ::: Downloaded on - 09/06/2013 14:09:00 ::: 23 final product and, therefore, the petitioner was not liable to reverse any credit of duty availed on inputs or alternatively pay the presumptive amount under Rule 57CC.
32. The argument of the revenue that by demanding presumptive amount at 8% of the price of phosphoryl 'A' and 'B' at the time of its clearance from the factory, the input credit is neither denied nor varied cannot be accepted because, the liability to pay presumptive amount under Rule 57CC arises only in credit cases where the manufacturer is unable to reverse the on input used in the manufacture of exempted final product. In the present case, mother liquor arising in the manufacture of dutiable gelatin is a waste and not an exempted final product. Therefore, in the light of Rule 57D the petitioner was entitled to the entire credit availed and there was no obligation to reverse credit or pay presumptive amount under Rule 57CC. If Rule 57CC was not applicable at the time of clearance of the waste mother liquor arising in the manufacture of gelatin, then the said Rule cannot be made applicable merely because the said waster mother liquor was utilised in the manufacture of exempted final product, viz.
Phosphoryl 'A' & 'B'.
33. For all the aforesaid reasons, we find it ::: Downloaded on - 09/06/2013 14:09:00 ::: 24 difficult to sustain the decision of the Tribunal in the case of Binani Zinc Limited (supra) which is approved by the larger Bench.
34. In the result, the petition succeeds. Rule is made absolute in terms of prayer (a) by setting aside the decision of the larger Bench dated 13-12-2006 and also the order in original dated 23-12-2004. However, there will be no order as to costs.
ig (D.K. Deshmukh, J.)
(J.P. Devadhar, J.)
::: Downloaded on - 09/06/2013 14:09:00 :::