TMI Blog2018 (2) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... e 57-C should be applied for availing credit on inputs used in or in relation to the manufacture of STEAM by treating it as a final product as STEAM is exempted from duty? - Whether for denial of credit under Rule 57-C of the erstwhile Central Excise Rules, 1944 the inputs must be directly linked to the final product? - Held that: - upon a co-joint reading of Rule 57C and Rule 57CC and Rule 57D it thus emerges that full input credit is to be availed by the assessee in cases covered under Rule 57D that is where the 'waste', 'refuse', 'by-product' or 'intermediate product' emerges but at the same time is chargeable to nil rate of duty or is exempt from payment of duty - 'off gases'/'lean gases' having been obtained by way of a technological necessity and their use to generate heat that was employed by the assessee to generate 'steam' from water rendered Rule 57C and 57CC wholly inapplicable to the facts of the present case despite the fact that steam was a final product - decided in favor of assessee. Reference allowed. - Central Excise Reference No. 3 of 2012 - - - Dated:- 30-11-2017 - Hon'ble Bharati Sapru And Hon'ble Saumitra Dayal Singh, JJ. For Applicant : C.S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to the assessee Carbon Monoxide being a hazardous gas, it could not be released freely into the atmosphere. Therefore, the assessee burnt the Carbon Monoxide content in the 'off gases' / 'lean gases' before releasing the same into the atmosphere. The burning of Carbon Monoxide generated heat that could either be allowed to escape or be put to use, which the assessee did by generating 'steam' from de-mineralised raw water treated with caustic soda and hydrochloric acid, by employing a boiler. The 'steam' so generated were then used, in part, to pre-heat CBFS (subjected to thermal cracking process to manufacture Carbon Black). The remaining quantities of 'steam' were sold to M/s Hindalco Industries Ltd., Renukoot, at nil rate of duty. According to the Tribunal, in the above described second part of the activity conducted by the assessee, no part of the CBFS or any other input (that had gone into manufacture of Carbon Black), was used/consumed. The Tribunal thus concluded - mere fact of use of 'off gases' / 'lean gases' to generate heat that in turn was used to obtain 'steam' did not tantamount to utilisatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se duty), did not amount to use of modvatable input (i.e. CBFS) to manufacture such 'steam'. Therefore, the assessee was held entitled to benefit of Rule 57 D of the Rules despite insertion of Rule 57CC to the Rules. At this stage, it would be useful to take note of the provisions of Rules 57C and 57CC (as amended w.e.f. 23.07.1996) and Rule 57D of the Rules. They are quoted herein below:- Rule 57C- Credit of duty not to be allowed if, final products exempt:- No credit of the specified duty paid on the inputs used [in the manufacture of a final product (other than those cleared either to a unit in a Free Trade Zone or to a hundred per cent Export-Oriented Unit)] [or to a unit in an electronic Hardware Technology Park or to a unit in Software Technology Parks] [ or supplies to the United Nations or an international organisation for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 108/95-Central Excise, dated the 28th August, 1995] shall be allowed if the final product is exempt from the whole of the duty of excise levi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uts are used in the manufacture of capital goods as defined in Rule 57 Q and that such intermediate products or capital goods, as the case may be, are for the time being exempt from the whole of the duty of excise leviable thereon or chargeable to 'nil' rate of duty: Provided that such intermediate products are used within the factory of production in the manufacture of a final product (other than those cleared either to a unit in a free trade zone, or to a hundred percent Export Oriented Unit or to a unit in an Electronic Hardware Technology Park or to a unit in Software Technology Park) or supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 108/95-Central Excise, dated the 28th August, 1995, which the duty of excise is leviable whether in whole or in part: Provided further that such intermediate products are specified as inputs or as final products under notification issued under Rule 57A. Provided also that the credit of specified duty shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les 57C or 57CC had to be examined at this stage only. What followed thereafter was disconnected with the first part of activity conducted by the assessee and therefore it could not be looked into. The second part of the assessee's activity could not be treated as a continuation or part of the process of the manufacture of Carbon Black from CBFS. Then, it has also been submitted that 'off gases' / 'lean gases' obtained in the manufacture of Carbon Black from CBFS could not have been released in the atmosphere on account of environmental laws prohibiting release of Carbon Monoxide contained in untreated 'off gases' / 'lean gases'. This was a legal compulsion which the assessee was obliged to discharge. Therefore, the harmful Carbon Monoxide contained in 'off gases' / 'lean gases' had to be burnt. Such burning of 'off gases' / 'lean gases' generated heat. It was heat that was utilised by the assessee to run it's boilers with cured / treated water to generate 'steam'. Thus, it has been submitted, no part of CBFS was ever utilised to manufacture 'steam'. The process of burning Carbon Monoxide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbon Black in particle form and 'off gases'/'lean gases'. The entire quantity of CBFS on which input credit had been availed was subjected to thermal cracking and no part of CBFS remained unused or unutilized at the end of that process. Thus, upon completion of the first part of the process the assessee had available with it, on one hand Carbon Black that was admittedly a final product and also a dutiable item. On the other hand, certain gases that were not intended to be manufactured being 'off gases' / 'lean gases' came into existence by way of technological necessity in the process of manufacture of Carbon Black. These gases have been categorised as 'by-product' by the Tribunal. In the first instance 'off gases' / 'lean gases' appear to be a 'waste' or 'refuse'. However, in the present case, the Tribunal has found them to be a 'by-product'. In any case being hazardous to the environment (on account of high content of Carbon Monoxide), they could not be freely released into the atmosphere. The assessee burnt the Carbon Monoxide present in 'off gases' / 'lean gases' before releas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing of Carbon Black from CBFS, there is no room or basis to apply either Rule 57C or Rule 57CC of the Rules in view of such finding of fact recorded by the Tribunal. Then, it is seen assessee engaged a boiler plant to burn Carbon Monoxide content in 'lean gases'/'off gases' to generate heat. The heat was then utilized in that boiler machinery to generate 'steam' from water. The 'steam' so generated was partially captively utilized as also partially cleared to M/s Hindalco Industries Ltd., Renukoot. The 'off gases'/'lean gases' itself arose because of technological necessity, upon CBFS being subjected to thermal cracking process to produce Carbon Black. However, for that process to be complete there was no requirement to burn 'off gases'/'lean gases'. The process to manufacture Carbon Black was complete before the 'off gases'/'lean gases' were burnt. The second process involving burning of 'off gases'/'lean gases' was therefore, totally separate and disconnected with the first, as emerges from the order of the Tribunal. Then in the second process, 'off gases'/'lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te plant and use the 'mother liquor' to manufacture Phosphoryl A-Phosphoryl B that were exciseable goods under falling Chapter Heading 23.02 of the Central Excise Tariff Act, but which at that time were wholly exempt from payment of duty. In the aforesaid factual background, the revenue proceeded to disallow 8% of input credit credit on inputs (Hydrochloric Acid) utilised by the assessee to manufacture Gelatin on the reasoning that some part of that input had got utilised to manufacture exempted goods namely Phosphoryl A - Phosphoryl B. We note, in that case also the revenue had relied on the provisions of 57C and 57CC. The Bombay High Court held as below:- 25. There is no merit in the above contention of the revenue. Under the input credit Scheme, credit of duty paid on inputs can be availed only if such inputs are used in the manufacture of dutiable final product. Where a manufacturer uses common inputs to manufacture both dutiable final product as well as exempted final product, then such manufacturer is required to reverse the credit to the extent the input is used in the manufacture of the exempted final product. Where separate account was not maintained or cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rger Bench of the Tribunal has held that Rule 57D referred to waste, scrap and by-products which are not exerciseable at all. In this connection, the Larger Bench has referred to the instances of the floor sweepings arising in the manufacture of biscuits, waste and scraps arising in the manufacture of iron products and hydrogen arising as a by-product in the manufacture of oxygen by the process of electrolysis of water. We find it difficult to accept the above finding. What Rule 57D provides is that where modvated input is used in the manufacture of dutiable final product and waste, refuse or by-product arise in that process, then, even if the modvated inputs are contained in the waste, refuse or by-product and whether or not excise duty is payable on such waste, refuse or by-product, the manufacturer would not be denied full credit of duty paid on inputs used in the manufacture of dutiable final product. Rule 57CC applies only if the modvated inputs are used in the manufacture of both dutiable final product and exempted final product and the manufacturer has not maintained separate accounts so as to ascertain the quantum of inputs used in the manufacture of exempted final products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th DMT to produce polyester and Ethanol. Methanol was not exciseable while polyester fibre was liable to excise duty. Credit was taken of duty paid on ethylene glycol wholly for the payment of duty on polyester. The department took a position that ethylene glycol was used in the production 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 fact in all these three appeals appear to be identical to the fact and the law laid down in Swadeshi Polytex (supra). Therefore, this judgment is squarely applicable. (emphasis supplied) Thus, applying the law laid down by the Supreme Court, we hold 'off gases'/'lean gases' having been obtained by way of a technological necessity and their use to generate heat that was employed by the assessee to generate 'steam' from water rendered Rule 57C and 57CC wholly inapplicable to the facts of the present case despit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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