TMI Blog2010 (9) TMI 857X X X X Extracts X X X X X X X X Extracts X X X X ..... ambit of Rule 6 of the Rules so as to call for maintaining separate accounts in respect of the same. When the entire quantity of input is used in the manufacture of Gelatin, the question of maintaining separate accounts or of paying a percentage of the total price of the exempted goods would not arise. In the peculiar facts of the present case, sub-rule (1) of Rule 6, itself would not come into play inasmuch the manufacturer does not deliberately use any quantity of the inputs, viz. Hydrochloric Acid for manufacturing Mother Liquor, the entire Hydrochloric Acid is used in the manufacture of Gelatin. Thus, when no input is specifically used for the purpose of manufacturing Di-Calcium Phosphate, there would be no question of maintaining separate accounts for receipt, consumption and inventory of input. - Tax Appeal No. 1736 of 2009, - - - Dated:- 9-9-2010 - H.N. Devani and Abhilasha Kumari, JJ. Shri Varun K. Patel, for the Appellant. [Judgment per : H.N. Devani, J. (Oral)]. In this appeal under section 35G of the Central Excise Act, 1944 (the Act), appellant-revenue has challenged order dated 4th February, 2009 [2009 (248) E.L.T. 849 (Tri. - Ahmd.)] made by the Cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption and inventory of input viz. Hydrochloric Acid meant for use in the manufacture of dutiable product viz., Gelatin and exempted product Di-Calcium Phosphate in terms of sub-rule (2) of Rule 6 of the Rules. The assessee vide letter dated 8th December, 2004 had confirmed that it has not maintained separate accounts for receipt, consumption and inventory of Hydrochloric Acid. Accordingly, two show-cause notices dated 3rd February, 2005 and 23rd February, 2005 came to be issued to the assessee as to why the amount of duty specified therein should not be recovered under Rule 12 of the Rules, (now Rule 14 of the Cenvat Credit Rules, 2004) and as to why penalty under Rule 13 of the Rules (now Rule 15 of the Cenvat Credit Rules, 2004) read with the provisions of Rule 25 of Central Excise Rules, 2002 alongwith interest under the provisions of Section 11AB of the Act, as detailed in the show-cause notice should not be imposed. Both the show-cause notices came to be adjudicated vide common order dated 20th May, 2005 whereby a demand of Rs. 2,06,55,907/- came to be confirmed under Rule 12 of the Rules; penalty of Rs. 1,03,00,000/- came to be imposed under Rule 13 of the Rules, read with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty paid on Hydrochloric Acid and does not maintain separate records as stipulated under Rule 6(2) of the Rules despite the fact that Hydrochloric Acid being a common input is used in the process of manufacture of two products, one being gelatin and the other being Di-Calcium Phosphate. 4. Inviting attention to the impugned order of the Tribunal, it was submitted that the Tribunal has placed reliance upon the decision of the Bombay High Court in the case of Rallis India Limited v. Union of India, 2009 (233) E.L.T. 301 (Bom.) whereby the decision of the Larger Bench in case of Rallis India Limited v. Commissioner of Central Excise, Salem [2007 (208) E.L.T. 25 (Tri. - LB)] has been set aside. It was submitted that the decision of the Bombay High Court in the case of Rallis India Limited (supra) was rendered in the context of Rules 57, 57C, 57CC and 57D of the Central Excise Rules, 1944 as were applicable to the facts of the said case. It was submitted that Bombay High Court has, in the facts of the said case, held that Mother Liquor arising in the manufacture of dutiable Gelatin was a waste and not an exempted final product, therefore, in the light of Rule 57D, the petitioner ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. It is not as if there is a deliberate attempt on the part of the manufacturer to manufacture the Mother Liquor which emerges as a by-product during the course of manufacture of Gelatin. Moreover, it is not as if a particular quantity of Hydrochloric acid is used for the manufacture of Gelatin and a particular quantity is used for the production of Mother Liquor (whether ascertainable or unascertainable), the entire quantity of Hydrochloric acid in respect of which cenvat credit is availed of is used by the respondent for the manufacture of Gelatin. Considering the process of manufacture adopted by the respondent, it is not possible to manufacture Gelatin without corresponding production of Mother Liquor. This Mother Liquor which otherwise is in the nature of a waste product, is used by the respondent assessee for the manufacture of Di-Calcium Phosphate. 7. At this juncture, reference may be made to certain statutory provisions. Rule 6 of the Cenvat Credit Rules, 2002 makes provision for Obligation of manufacturer of dutiable and exempted goods . Sub-rule (1) thereof provides that CENVAT Credit shall not be allowed on such quantity of inputs which is used in the manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not deliberately use any quantity of the inputs, viz. Hydrochloric Acid for manufacturing Mother Liquor, the entire Hydrochloric Acid is used in the manufacture of Gelatin. Thus, when no input is specifically used for the purpose of manufacturing Di-Calcium Phosphate, there would be no question of maintaining separate accounts for receipt, consumption and inventory of input. 9. At this stage, it may be germane to refer to the decision of the Supreme Court in the case of Commissioner of Central Excise, Mumbai v. National Organic Chemical Industries Limited, (2008) 16 SCC 490 = 2008 (232) E.L.T. 193 (S.C.), wherein the question before the Supreme Court was as to whether emergence of methane and ethane during the course of manufacture of ethylene and propylene would be a ground for denial of benefit of exemption in respect of ethylene and propylene which was exempt from excise duty. It was contended on behalf of the respondent-assessee that there was no way by which the respondent could have manufactured ethylene and propylene for producing ethane and methane. The Court held that it was not as if by using a smaller quantity of raw materials or other goods involved in the process, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the respondent would be required to pay duty in respect of the same input utilized by it twice over, which would apparently result in unjust enrichment to the revenue. 12. On behalf of the appellant it has been submitted that common input Hydrochloric Acid was used in the manufacture of both Gelatin as well as Di-Calcium Phosphate hence, in the light of the provisions of Rule 6(2) of the Cenvat Credit Rules, 2002, the respondent was required to maintain separate accounts for receipt, consumption and inventory of input meant for use in the manufacture of dutiable final products and the quantity of input meant for use in the manufacture of exempted products and take cenvat credit only on that quantity of input which was intended for use in the manufacture of dutiable goods. In the present case, the assessee has taken cenvat credit only on that quantity of input, which was intended for use in the manufacture of dutiable goods, therefore, also the question of invoking sub-rule (2) of Rule 6 of the Rules would not arise. 13. Insofar as reliance placed upon the decision of the Bombay High Court in the case of Commissioner of Central Excise, Thane-1 v. Nicholas Piramal (India) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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