2015 (10) TMI 1559 - AT - Central Excise

Denial of CENVAT Credit - emergence of byproducts which is exempted from duty - Held that - The arguments of revenue are largely based on the plain reading of the provisions of rule 6. The argument of the revenue is that a part of the inputs on which credit has been claimed are used in production of the byproduct namely blast furnace gases. It has therefore been argued that credit of such quantity of inputs as are used in the production of the byproduct need to be reversed and if that has not been done in terms of sub-rule 3 of rule 6 of CCR a certain amount needs to be reversed. The reliance placed by the revenue on the decision of Hon ble Apex Court in case of Commissioner of sales tax versus Bharat petroleum Corporation Limited 1992 (2) TMI 250 - SUPREME COURT OF INDIA is misplaced as the issue in the said case was leviability of sales tax on byproduct sold. In the instant case the issue is substantially different from that. If in that process certain unintended byproducts emerge as a technical necessity then it cannot be said that part of the said inputs have been used in Manufacturer of the byproducts. In other words the credit of that quantity of raw materials shall be allowed which is required for manufacture of the intended quantity of final products irrespective of the fact that certain byproducts emerge as technical necessity. To support this proposition the appellants have relied on the decision of the Apex Court in the case of Hindustan zinc Limited (2014 (5) TMI 253 - SUPREME COURT). It is seen that Hon ble Apex Court has laid down the ratio that when a byproduct emerges as a technical necessity it cannot be said that any inputs have been used for the Manufacturer of the byproduct. The ratio of this judgement clearly applies to the facts of the impugned case. Moreover on perusal of the clarification dated 3.4.2000 it is seen that CBEC Circular also agrees with the said ratio laid down by the Hon ble Apex Court. - Decided in favour of assessee.

Issues:
1. Interpretation of Rule 6 of the Cenvat Credit Rules, 2004 regarding the obligations of manufacturers of dutiable and exempted goods.
2. Application of Rule 6 to the case of manufacturing steel products and selling blast furnace gases exempt from Central Excise duty.
3. Allegations of the appellants being hit by the provisions of Rule 6 and demands for reversal of credit.
4. Arguments based on judicial precedents, including the decision of the Hon'ble Supreme Court in Hindustan Zinc Limited case.
5. Reference to circular clarifications on Cenvat credit admissibility on waste, refuse, or by-products.
6. Analysis of whether the mischief of Rule 6 is attracted when exempted byproducts are sold.
7. Examination of the language of Rule 6 and its impact on the credit of inputs used in manufacturing dutiable final products and exempted byproducts.
8. Comparison of arguments from both sides regarding the interpretation of Rule 6 and the necessity of reversing credits for inputs used in producing byproducts.
9. Application of judicial interpretations and circular clarifications to determine the admissibility of credits for inputs used in manufacturing dutiable final products.

Analysis:

1. The judgment primarily revolves around the interpretation and application of Rule 6 of the Cenvat Credit Rules, 2004, concerning the obligations of manufacturers of both dutiable and exempted goods. The case involves the manufacturing of steel products and the subsequent sale of blast furnace gases exempt from Central Excise duty, leading to demands for credit reversal under Rule 6.

2. The appellants contended that their situation was not covered by the provisions of sub-rule (1) of Rule 6, emphasizing that all inputs claimed as credit were utilized in manufacturing dutiable final products, namely steel products. They argued that no inputs were specifically used to produce the exempted blast furnace gases, which were considered as mere byproducts of the manufacturing process.

3. Judicial precedents, notably the decision of the Hon'ble Supreme Court in the Hindustan Zinc Limited case, were cited by the appellants to support their argument. They relied on the principle that if the quantity of inputs required for manufacturing dutiable final products remains unchanged despite the production of byproducts, then the inputs cannot be deemed to have been used for the byproducts' manufacture.

4. The appellants further referenced a circular clarifying Cenvat credit admissibility on waste, refuse, or by-products, asserting that credits need not be reversed for exempted byproducts. They highlighted the circular's stance that credits are permissible as long as inputs are used in or in relation to the manufacture of final products, directly or indirectly.

5. The revenue's argument centered on the plain reading of Rule 6, asserting that a portion of the claimed inputs was utilized in producing the byproduct, blast furnace gases. Consequently, they argued for the reversal of credits corresponding to the inputs used in the byproduct's manufacture, as mandated by sub-rule (3) of Rule 6.

6. Ultimately, the Tribunal analyzed the conflicting interpretations and arguments, concluding that the Hon'ble Supreme Court's interpretation of Rule 6 supported the appellants' position. The Tribunal found that the credits for inputs used in manufacturing dutiable final products should not be reversed based on the emergence of exempted byproducts as a technical necessity.

7. Considering the judicial precedents and circular clarifications, the Tribunal allowed the appeal, ruling in favor of the appellants and rejecting the revenue's contention that the credits needed to be reversed due to the production of exempted byproducts alongside dutiable final products.

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