TMI Blog2019 (11) TMI 1349X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to all the relevant aspects - Appeal allowed by way of remand. - Tax Case No. 31 of 2017 - - - Dated:- 26-8-2019 - Shri P. R. Ramachandra Menon, Chief Justice And Shri Parth Prateem Sahu, Judge For the Appellant-Revenue : Shri Vinay Pandey, Advocate For the Respondent-Company : Shri Anumeh Shrivastava, Advocate ORDER PER P. R. RAMACHANDRA MENON, CHIEF JUSTICE 1. Correctness and sustainability of the Annexure-A/1 verdict passed by the Customs, Excise, Service Tax Appellate Tribunal (for short, 'CESTAT') Double Bench, New Delhi interdicting Annexure-A/3 order passed by the Commissioner Commissioner, Central Excise, Customs Service Tax, Raipur is subjected to challenge in this appeal preferred by the Revenue under Section 35 G of the Central Excise Act, 1944. 2. The Respondent-Company is engaged in the manufacture of 'Sponge Iron' and has been availing the benefit of CENVAT Credit of duty paid on Inputs, Capital Goods and input services under the CENVAT Credit Rules, 2004. The Respondent-Company had also availed 'Input Service Tax Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 15 of the CENVAT Credit Rules, 2004 read with Section 11 AC of the Central Excise Act, 1944 for violation of Rule 6 read with Rule 9 of the CENVAT Credit Rules, 2004. It was accordingly, that Annexure-A/2 notice was issued seeking for explanation as to why the amount due with interest and penalty, as specified, shall not be recovered. 4. The Respondent-Company filed a reply claiming that the 'Iron Ore Fines' was neither an 'exempted item' within the meaning of Rule 2(d) of the CENVAT Credit Rules, 2004, nor was a manufactured product. The Respondent-Company had purchased the duty paid Iron Ore concentrate and had used the same in the manufacturing of their final product i.e. 'Sponge Iron'; adding that 'Iron Ore Fines' generated and sold by them did not have any nexus with it, being only a 'by-product'. It was also contended similarly, that the Cargo Handling Service, Man Power Recruitment Service, Security Service etc. were not related to the process of involving generation of Iron Ore Fines. Almost similar plea was taken in respect of sale of Electricity as well, however, adding that since the Respondent-Company had reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the iron contents. It was also observed, as held by the Apex Court in National Mineral Development Corporation Ltd. Vs. State of Madhya Pradesh and Another (2004) 6 SCC 281 that Ores, Fines, Synclines and Concentrates were distinct items and that Ore is not converted to Fines automatically, but it emerges out of the processing of 'Ore' during the course of manufacture of 'Sponge Iron'. The Commissioner held that the 'Fines' were not a waste and rather were goods having distinct names, character, use and marketability, thus holding that the contention of the Respondent-Company that the Ores and the Fines are one and the same was not liable to be accepted. The Commissioner noted that the Respondent-Company had realised a sum of ₹ 1,94,92,382/- against the sale of 'Iron Ore Fines' and sought to apply the dictum laid down by the larger Bench of the CESTAT in Rallies India Ltd. Vs. Commissioner of Central Excise, Salem ( [2007 (208) ELT 25 (Tri-LD)] ) to the effect that as long as two final products emerging out of use of common inputs are excisable and one of them is exempted, the provision of Rule 57CC of the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der-in-Appeal No. 25/RPR-I/2008 dated 17.03.2008 passed by the Commissioner (Appeals I) Raipur, the Noticee have also availed credit of duty amounting to ₹ 21,31,137/- paid on various inputs of the capital goods which are used in or in relation to manufacture of dutiable and exempted goods both. However, they have also failed to reverse such input duty credit. Hence, their contention on compliance of the Rule is not correct. As obvious from the above, the Commissioner noted that the Respondent-Company had availed various other services as well, as discussed therein and that their version that such input services did not have any nexus or link with the process involving generation of 'Iron Ore Fines' was not acceptable. The input services like Mining Service, Erection and Commissioning Service, Site Formation Service, Manpower Requirement Service, Maintenance and Repair Service, Cargo Handling Service, Consulting Engineer Service were held as having direct relation to the manufacturing process of which the generation of 'Iron Ore Fines' was an inherent activity. It was accordingly held that the Respondent- Company had failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not meeting the requirements of the amended litigation policy, in terms of the monetary value involved. 10. With regard to the second point as to the availing of 'Input Credit' in respect of Electricity, the observation of the CESTAT in paragraph 6 is that the appellant had reversed the entire credit taken on input services, namely, GTA services in respect of transportation of coal, even though part of coal was used in the manufacture of dutiable 'Sponge Iron'. Reference was made to the verdict of the Apex Court in Chandrapur Magnet Wires (P) Ltd., Nagpur Vs. Collector of Central Excise, Central Excise Collectorate, Nagpur (1996) 2 SCC 159 , wherein the Court held that if the Credit originally availed is reversed subsequently, it would amount to the effect as if no credit had been availed and hence there was no justification to the demand of 10% of the value of electricity wheeled out. 11. The specific assertion made from the part of the Department that in addition to the credit taken on GTA services, the appellant had availed credit of over ₹ 2 crores on various other services as well and hence the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt that the assessee should have maintained separate accounts for duty free goods and the goods on which duty has to be paid. But our attention was drawn to a departmental circular letter on this problem in which it has been clarified by the Ministry of Finance as under:- 3. The credit account under MODVAT rules may be maintained chapterwise. MODVAT credit is not available if the final products are exempt or are chargeable to nil rate of duty. However, where a manufacturer produces along with dutiable final products, final products which would be exempt from duty by a notification (e.g. an end use notification) and in respect of which it is not reasonably possible to segregate the inputs, the manufacturer may be allowed to take credit of duty paid on all inputs used in the manufacture of the final products, provided that credit of duty paid on the inputs used in such exempted products is debited in the credit account before the removal of such exempted final products. 8. This circular deals with a case where the manufacturer produces dutiable final products and also final products which are exempt from duty and it is not reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered on the facts particularly when the quantification of the electricity sold out by the Respondent was an admitted situation as far as the authority which generated the original order and the first appellate authority are concerned. At the best, this issue is a mixed question of facts and law which has been answered by the CESTAT on the basis of materials on record. That having been done, we do not see that any substantial question of law arises for decision in this appeal under Section 35-G of the Central Excise Act, 1944.This appeal therefore fails. 14. In support of the contention of the Respondent-Company that no liability could have been mulcted upon Respondent-Company with reference to the Electricity generated and used, making use of the coal procured, a reference is made to the verdict passed by the Apex Court in Collector of Central Excise and Others Vs. Solaris Chemtech Ltd. And Others (2007) 7 SCC 347. The question considered therein was whether the Assessee was entitled to MODVAT Credit under Rule 57-A on Low Sulphur Heavy Stock (LSHS) and Furnace Oil used for generating Electricity captively consumed for the manufacture of fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty should have gone through the process of manufacture. Cinder cannot be said to have gone through any process of manufacture, therefore, it cannot be subjected to levy of excise duty. 16. Reliance is sought to be placed on a Division Bench Judgment passed by the High Court Allahabad (Lucknow Bench) in Balrampur Chini Mills Ltd. Vs. Union of India and Ors. 2014 (300) ELT 372 (All.) in support thereof. The question involved was whether 'bagasse' can be subjected to any duty under the Central Excise Act, 1944, it being a waste and not a manufactured product. In the process of manufacturing of sugar, sugar-cane is crushed, its juice is extracted and 'bagasse' emerges as residue / waste of the sugar-cane. Placing reliance on the verdict passed by the Apex Court in this regard, as referred in paragraph 5, it was held in paragraph 19, that the law was well settled that the 'bagasse' generated from crushing of sugar-cane was a neither manufactured good nor a manufactured final product, but a residue / waste. After making reference to Rule 6 of the CENVAT Credit Rules, 2004, which was equivalent and analogous to the Rule 57 CC of the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , though dross and skimming may be capable of fetching of some sale price (observation that for that matter any rubbish can be sold), the criteria can be something different and it could not be said that dross and skimming were results of treatment, labour or manipulation, where the end product was dross and skimming. There again, the position was answered against the Revenue, holding that though dross and skimming may contain some small percentage of metal, they are not metal in the same class as they are waste or scrap. 19. Coming to the verdict passed by the Apex Court in Union of India and Others Vs. Hindustan Zinc Limited (2015) 15 SCC 312 which made the CESTAT to hold in paragraphs 5 (extracted above) that in view of the said declaration of law by the Apex Court, the question was no more res integra and that 'Iron Ore Fines' was only a 'by-product', the issue considered by the Apex Court and the description therein gives a clear idea as to what is a 'by-product' and what is not. As discussed in paragraph 27, the contention of the Appellant/Revenue was that 'Sulphuric Acid', generated in the course of manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le and exempt tyres. Such assessees are mandated to maintain separate records to avoid the duty demand of 8% on exempted tyres. But when we find that in the case of the respondents, it is not as though some quantity of zinc ore concentrate has gone into the production of sulphuric acid, applicability of Rule 57-CC can be attracted. As pointed out above, the entire quantity of zinc has indeed been used in the production of zinc and no part can be traced in the sulphuric acid. It is for this reason, the respondents maintained the inventory of zinc concentrate for the production of zinc and we agree with the submission of the respondents that there was no necessity and indeed it is impossible, to maintain separate records for zinc concentrate used in the production of sulphuric acid. We, therefore, agree with the High Court that the requirements of Rule 57-CC were fully met in the way in which the respondent was maintaining records and inventory and the mischief of recovery of 8% under Rule 57-CC on exempted sulphuric acid is not attracted. 20. Similarly, the observations made in paragraphs 33 to 37 are also relevant to consider and decide the question as to when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of methanol and proportionate credit taken on ethylene glycol was to be reversed. This Court ruled that the emergence of methanol was a technological necessity and no part of ethylene glycol could be said to have been used in production of methanol and indeed it was held that the total quantity of ethylene glycol was used for the production of polyester. The facts in all these three appeals appear to be identical to the facts and the law laid down in Swadeshi Polytex (supra). Therefore, this judgment is squarely applicable. 36. Furthermore, the provisions of Rule 57-CC cannot be read in isolation. In order to understand the scheme of MODVAT credit contained in this Rule, a combined reading of Rules 57-A, 57-B and 57-D along with Rule 57-CC becomes inevitable. We have already reproduced Rule 57-D above. It can be easily discerned from a combined reading of the aforesaid provisions that the terms used are inputs , final products , by-product , waste products , etc. We are of the opinion that these terms have been used taking into account commercial reality in trade. In that context when we scan through Rule 57-CC, reference to final product being manufactured w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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