TMI Blog2006 (12) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... ecide the issue it is worth referring to the manufacturing process of the appellant, who are engaged in the manufacture of gelatin. For the said purpose the initial raw material is animal bones and hydrochloric acid. The appellants were availing benefit of modvat credit in respect of HCL. The animal bones were treated with HCL. As a result inorganic material in the animal bones react with the HCL to form water- soluble compound. These inorganic materials in the form of water-soluble compound are removed from the process undertaken by the Appellant to manufacture Gelatin. The water soluble compound so removed from the manufacturing process is called Phosphoryl Liquor/Mother Liquor. The others material which remained in the process i.e. organic material is known as Ossien and further processed to manufacture Gelatin falling under Chapter 35 Heading 3503 of the Central Excise Tariff Act, 1985. Phosphoryl Liquor/ Mother Liquor removed from the process undertaken to manufacture Gelatin is a hazardous chemical waste. This Phosphoryl liquor Le. Waste obtained in the process of manufacturing Gelatin is processed by the Appellant with lime to form Dye-Calcium Phosphate (also known as Calph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manufacturer shall, unless the provisions of sub-rule (9) are complied with, pay an amount equal to eight percent of the price (excluding sales tax and other taxes, if any payable on such goods) of the second category of final products charged by the manufacturer for the sale of such goods at the lime of their clearance from the factory". CENVAT CREDIT RULES, 2000. "Rule 6. Where a manufacturer avails of CENVAT credit in respect of any inputs, except inputs intended to be used as fuel, and manufactures such final products which are chargeable to duty as well as exempted goods, then, the manufacturer shall maintain separate accounts for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods and take CENVAT credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods." The appellants main contentions is that the said rule is applicable only when a particular input is used in the manufacture of final products which are chargeable to duty as well as exempted goods. It is the appellants case that the entire qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oryl 'A' and 'B' have been manufactured with the assistance of HCL 8. After considering the submissions were made by both the sides, we find that the essential question required to be decided in the present appeal is as to whether HCL on which the appellant has taken the credit, is used in the manufacture of Phosphoryl 'A' and. Phosphoryl 'B'; that whether Phosphoryl 'A B' are final product; that whether mother liquor emerging in between is a by-product and whether the provisions of Rule 57CC would apply even if one of the two final products emerging is by-product. It is seen that the appellant in their own case before Supreme Court reported as Rallis India Ltd. Vs. State of Tamil Nadu [1999 (114) ELT 5 (S.C.)] (the case related to Sales Tax) had taken a stand that gelatin is a protein obtained from collagen which originates from the animal kingdom mainly front skin and bones under suitable pressure The expert's opinion placed on record by the appellant, in that case, are to effect that gelatin is obtained by boiling skin, ligaments, tender bones etc. with water under pressure. It was the appellant's case that gelatin has no chemical formula and, as such, would not come under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of the exempted by products under erstwhile Rule 57CC (identical to Rule 6 of Cenvat Credit Rules, 2002). The said decision stands subsequently followed by the Tribunal in the case of Narmada Gelatines Ltd. Vs. Commissioner of Central Excise, Bhopal [2005 (183) ELT 111 ('Tri.Del)] Further, in the case of Aarti Drugs Ltd. Vs. Commissioner of Central Excise, Mumbai-III [2001 (45) RLT 213 (CEGAT-Mum.)=2001 (133) ELT. 385 (Tri. Mumbai.)]. it was held that inasmuch as, mother liquor emerging in process of manufacture of methyl nitro imidazole is by-product, provisions of Rule 57CC will not apply. The ratio of the above decisions laying down that provisions of Rule CC are not applicable to by-product is primarily on the basis that prior to the enactment of the said Rules, modvat credit of duty paid on the inputs, contained in the by-product, was not liable to be reversed in terms of provisions of Rule 57-D. The Bench in the case of Aarti Drugs Ltd. observed that the object of Rule 57CC cannot be to eliminate the benefit available under Rule 57-D (1) to a by-product. Inasmuch as, the Rule 57-D continues Un- amended on the statute, the provisions of Rule 57CC cannot be pressed into ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . which uses the other expression "waste" or "refuse" etc It is in that scenario that the rifle provides for non-reversal of modvat credit, even if waste, refuse or by product has emerged during the course of manufacture. The effect of the said rule would be that if waste product, which may not be excisable, e.g. floor sweepings during the course of manufacture of biscuits, then the quantum of credit originally taken is not to be varied. Similarly, if iron steel scrap arises during manufacture of iron products, the modvat is not to be varied, but iron and scrap being excisable product, has to discharge duty burden. If the same is exempted, provisions of Rule 57CC will apply. As such it has to be concluded that Rule 57-D refers to waste, scrap and by-product, which are not excisable at all. The said provision can't be pressed into service in support of the plea that even if the by-product is excisable, but exempted, amount of 8% is not required to be paid. The appellant is not being directed to reverse the credit amount equivalent to the inputs contained in the said exempted final products. Further, taking an hypothetical example of electrolysis of water, which an assessee may under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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