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Custom, Excise & Service Tax Tribunal

M/S. Rallis India Ltd vs Cce, Salem on 26 May, 2015

        

 
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI

E/1020/2005

 (Arising out of Order-in-Original No. 33/2005 dated 21.09.2005, passed by the Commissioner of Central Excise, Salem).


M/s.  Rallis India Ltd.					  :     Appellant   

		 Vs.

CCE, Salem					   		  :   Respondent   

Appearance Shri V. Panchanathan, Adv., For the applicant Shri B. Balamurugan, AC (AR) For the respondent CORAM Honble Shri R. PERIASAMI, Technical Member Honble Shri P.K. CHOUDHARY, Judicial Member FINAL ORDER No. 40605 / 2015 Date of Hearing/Decision: 26.05.2015 Per: R. Periasami The present appeal is filed appeal against the adjudication Order of the Commissioner of Central Excise dated 21.09.2005 wherein an amount of Rs. 2,46,06,662/- was demanded and confirmed under Rule 57CC of the Central Excise Rules, 1944.

2. The brief facts of the case are that the appellants are manufacturers of gelatin by using input Hydrochloric acid. In the process of manufacture of final product hazardous waste emerges known as Mother Liquor. This liquor is treated with other chemicals and subsequently cleared without payment of duty. The department alleged that the common input HCL is used for manufacture of gelatin which is a dutiable and exempted product. The period involved in this case relates to September, 1996 to February, 2003.

3. After hearing both the sides, we find that this issue stands settled by the Honble Supreme Court in the appellants own case reported in 2014 (303) ELT 321 (SC), on identical issue pertaining to the demand for the period March, 2002 to December, 2003 in OIO No. 21/2004 dated 23.12.2004. This order was appealed before the Tribunal and the Tribunal in order dated 05.10.2005 reported in 2006 (199) ELT 443 (Tri.-Mum.) had referred the issue before the LB of the Tribunal. The Tribunal LB in their order dated 13.12.2006 reported in 2007 (208) ELT 25 (L.B), held in favour of Revenue and against the appellants. The appellants filed writ petition before the Honble High Court of Mumbai and the Honble High Court in the case of Rallis India Ltd. Vs. CCE, Salem reported in 2009 (233) ELT 301 (Bom.) had set aside the LB decision dated 13.12.2004 and as well as the order in original dated 23.12.2004. The relevant portion of the Honble High Court order is reproduced as under:-

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 in the waste mother liquor arising in the manufacture of 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 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 in the manufacture of dutiable final product. Where a manufacturer uses common 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 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 manufacture of gelatin. In other words, in the present case, the petitioner is not required 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, 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.

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 cases where the manufacturer is unable to reverse the credit 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 waste mother liquor was utilised in the manufacture of exempted final product, viz. Phosphoryl A & B.

33.?For all the aforesaid reasons, we find it 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.

 (Order dictated and pronounced in the open Court)



 (P.K. CHOUDHARY)				    (R. PERIASAMI)    
 JUDICIAL MEMBER 				TECHNICAL MEMBER		
  	             
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