Whether reversal under Rule 6 required to be made for exempted by-product emerging during the course of manufacture of final product?

PJ/Case law/2013-14/1925

Case:-ANIL PRODUCTS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD

Citation:-2013 (296) E.L.T. 378 (Tri.-Ahmd.)

Brief Facts:- All appeals of the same appellant are being decided by a common order as the issue involved in all of them is identical. The appellant is engaged in manufacture of Dextrose/Anhydrous Dextrose/Liquid Glucose, Sorbitol solution and plain and Modified starch. The said products are dutiable and the appellant was availing the benefit of Cenvat credit of duty paid on the input used in the manufacture of said product, in terms of provisions of Cenvat Credit Rules, 2004.
During the course of manufacture of above product, 2 by-products viz. Redugent (Hydrol) and Corn Extractives (Corn Steep Liquor) falling under Chapters 17 and 23 emerged. Inasmuch as the said products are exempted from payment of duty in terms of Notification No. 3/2006-C.E., dated 1-3-2006, the same are being cleared by the appellant at Nil rate of duty.
Revenue entertained a view that inasmuch as the appellant is using common input for manufacture of dutiable as also non-dutiable product and are not maintaining separate Modvat account, they are required to pay 10% of the value of their final product in terms of provisions of Rule 6(3)(b) of Cenvat Credit Rules, 2004. Accordingly, proceedings were initiated against the appellant by way of issuance of Show Cause Notices, which stand adjudicated by the lower authorities, confirming the demand as also imposing penalty. The said orders are impugned before Tribunal.
It is seen that the lower authorities have primarily rejected the appellant's contention that inasmuch as the said Redugent (Hydrol) and Corn Extractives (Corn Steep Liquor) are by-products/waste, the provisions of Rule 6 would not apply. The said contention of the appellant stand rejected by the lower authorities, on the ground that the issue is no more res integra and stand settled by the Larger Bench decision of the Tribunal in the case of M/s. Rallis India Ltd. v. C.C.E. as reported in 2007 (208) E.L.T. 25 (Tri.-LB). Accordingly, the lower authorities have held that as the above mentioned exempted byproducts are not manufactured out of the manufacture of primary product and the same are also cleared regularly and continuously, and thereby getting huge amount as income through such sales regularly, they are liable to pay an amount equal to 10% of the total price of the exempted product cleared by them.

Appellant Contention:-The appellants has drawn attention to the fact that the Larger Bench decision of the Tribunal relied upon by Revenue stand reversed by Hon’ble Bombay High Court as reported in 2009 (233) E.L.T. 301 (Bom.). It stand held in the said decision of the Mumbai High Court that where common inputs are used in the manufacture of dutiable and exempted product, liability to pay amount under erstwhile Rule 57CC of Central Excise Rules, 1944 arises only for product and not for waste/by-product.

Respondent Contention:-He would reiterate the findings of the adjudicating authority.

Reasoning of Judgment:-We have considered the submission from both sides, we find from the impugned order that the exempted products are admittedly in the nature of by-product/waste/residue arising during the course of manufacture of dutiable final product, and so the ratio of above decision of Bombay High Court would squarely apply to the same.
As such, we set aside the impugned orders and allow the appeals with consequential relief to the appellant.

Decision:-Appeal Allowed.

Comment:-The crux of this case is that there is no duty liability of 10% of the value of exempted product when by-product that is chargeable to nil rate of excise duty emerges during the course of manufacture of the final product as it generates unintentionally. This view is also backed by the decision given by the Bombay High Court.

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