TMI Blog2022 (10) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... tured by destructive distillation process and through high temperature carbonization of Bituminous Coal in a separate unit called coke oven battery. The crude coke oven gas containing by-products comes out as exhaust gases from the coke oven unit. The crude gas cannot be used as fuel as it contains coal tar and other organic compounds as by-products which on natural condensation would jam the pipeline thereby disrupting the supply system. The crude coke oven gas is therefore taken to another unit called by-product recovery plant where this crude gas is cleansed from the major by-products namely, Naphthalene, Ammonia, Motor Spirit, light oil etc. and waste (Coal tar) by using MODVAT inputs namely, Sulphuric Acid and Wash Oil - it was stated that the assessee has taken credit of duty on those inputs, utilized those inputs in the manufacture of dutiable as well as Nil rate of duty final products without debiting an amount equal to 20% or 8% of the price of the said final products at the time of their clearance during the period from 1st September, 1996 to 31st March, 2000 in terms of Rule 57CC(1) of the Rules. The manufacturing process adopted by the assessee and the emergence of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a finding that the respondent assessee is guilty of willful mis- statement, suppression of facts with an intent to evade payment of Central Excise Duty. Therefore, the invocation of the extended period of limitation to initiate action is vitiated. The appeal filed by the revenue is dismissed and substantial questions of law are answered against the revenue. - CEXA NO. 56 OF 2008 - - - Dated:- 30-9-2022 - HON BLE MR. JUSTICE T.S. SIVAGNANAM AND HON BLE MR. JUSTICE PRASENJIT BISWAS Appearance:- Ms. Manasi Mukherjee, Learned Standing Counsel.. .For the Appellant......Standing Counsel for Central Excise Mr. Rahul Tangri, Adv. ..For the Respondent. JUDGMENT (Judgment of the Court was delivered by T.S.SIVAGNANAM, J.) 1. This appeal by the revenue filed under Section 35G of the Central Excise Act, 1944 (the Act for brevity) is directed against the order dated November 21, 2008 passed by the Customs Excise and Service Tax Appellate Tribunal, East Regional Bench, Kolkata (Tribunal) in Excise Appeal No. EDM-716 of 2004 in Order No. A-254/Kol/2008. The revenue has raised the following substantial questions of law for consideration: (b) Whether M/s. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coke oven unit. The crude gas as such cannot be used as fuel as it consists of coal tar and other organic compounds which would disrupt the supply system. The crude coke oven gas is taken to another unit called product recovery plant where the crude gas is cleansed from the other major by-products namely, Naphthalene, Ammonia, Motor Spirit, Light Oil etc. and waste (coal tar) through use of MODVAT Inputs, namely, Sulphuric Acid, Wash Oil etc. The pure coal gas thus manufactured in a marketable stage portion of which is consumed by the assessee within their factory and a portion is also sold outside without payment of duty as the product was chargeable to Nil rate of duty under Chapter sub-heading 27.05. 3. After mentioning about the above manufacturing process, it was stated in the show-cause notice that coal gas was the only manufactured product of by-product recovery plant where other important products namely, Ammonium Sulphate, Naphthalene, Benzene, Toluene, LS Naphtha, Coal Tar were also manufactured. Further, they were purified through use of Sulphuric Acid, Wash Oil (MODVAT Inputs) in the recovery plant on which credit was taken by the assessee. The coal gas has been clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... best of their knowledge and understanding, they had disclosed all information from time to time as required and that the show-cause notice has been issued without appreciating the long standing process prevalent in iron and steel industry throughout the country. Further, they stated that they are a Public Sector Undertaking and there cannot be any motive to deprive the Government of its legitimate duties. 5. The assessee explained their manufacturing process in the following manner: In an integrated steel plant like IISCO, metallurgical coke is manufactured by carbonization of Coal for use in the Blast Furnace for iron making. In the course of manufacture of coke by coal carbonization coke oven gas/ coal gas emerged as a by-product, raw coal is carbonized by healing in a closed chamber at high temperature during which the volatile matter content of coal comes out in the form of coke oven/ coal gas which is collected through pipe lines. This is the manufacturing proce4ss of coke oven gas using cola as the only input. Subsequent steps are carried out for cooling and cleaning or purifying which does not give rise to anything different from coke oven gas itself. The following s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence during the manufacture of final products were mentioned. With the above submissions, the assessee requested for dropping the proceedings by accepting the explanation submitted by them. 8. The adjudicating authority by order dated 15.07.2004 rejected the explanation offered and confirmed the proposal in the show-cause notice, by observing that the perception of the assessee is not correct since Rule 57C(1) and/or Rule 57AD (1) and/or Rule 6(1) stipulates that credit of duty shall not be allowed if the inputs are utilized in the manufacture of final products, which is exempt from the whole of the duty of the excise leviable thereon or is chargeable to Nil rate of duty. Rule 57C(2) and/or Rule 57AD(2) and/or Rule 6 allows a manufacturer to avail credit subject to observance of Sub-Rule 1 or Sub-Rule 5 or Sub-Rule 9 of Rule 57CC and/or Sub-Rule 2(a) or Sub-Rule 2(b) of Rule 57AD of the said Rules. Therefore, the adjudicating authority concluded that the assessee had violated Rule 57C(1) and/or Rule 57AD(2) and/or Rule 2, 3(a)(b) of Rule 6 of the said Rules and they are required to pay Rs. 1,15,10,820/- which was calculated at the rate of 20% and 8% on the value of the said fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by- products that comes into being is crude gas which cannot be commercially used as it contained Coal Tar and the Coal Tar is cleansed from crude gas in order to procure pure coal gas as a final product and in the process certain by-products such as Naphthalene, Ammonia, light oil, motor spirit and the coal tar is cleansed through use of MODVAT inputs namely wash oil and Sulphuric Acid. Hence, it is submitted that in order to obtain pure coal gas which is the final product here, crude coal gas needs to be cleansed by using Sulphuric Acid and Wash Oil to remove the coal tar and in the process few by-products like Naphthalene, Ammonia, light oil etc. comes out. 11. It is further submitted that after that cleansing operation, pure coal gas emerged out in a marketable stage, used within the factory itself or outside payment of duty as the product was chargeable to Nil rate of duty falling under Chapter Sub-heading No. 2705.00 of the Schedule. It was thus evident that Coal Gas was the only final product of recovery plant where other important value added products referred were also manufactured and such coal was purified through use of MODVAT inputs (Wash Oil and Sulphuric Acid) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c Acid. Further, the respondent assessee has failed to give details of any raw material against which inputs have been used and also admitted to the allegation made by the revenue that no inventory on accounts of inputs were maintained by them in violation of the rules by keeping silent on the said issue. Thus, it is submitted that the case of the revenue is not whether Rule 57C, Rule 57AD of the 1944 Rules or Rule 6 of the 2002 Rules is applicable to the by-products but the case is that the respondent assessee have willfully evaded payment of duty by violating the Rules. Further, the respondent did not disclose to the department by way of filing return or maintaining register of separate accounts for receipt, consumption and inventory of inputs meant for the use in the manufacture of dutiable final products and quantity of inputs meant for the use in the manufacture of exempted goods and avail credit only on that quantity of inputs which is intended for use in the manufacture of dutiable goods. Once again referring to the relevant rules, it is submitted that the intention of the legislation is very clear on the aspect that a manufacturer cannot take double benefit by way of availi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2- CE dated 01.03.2002. The exemption was available to the assessee since Sulphuric Acid was used for removal of Ammonia from the coke oven gas which led to the emergence of Ammonium Sulphate, a fertilizer. Therefore, it was contended since no excise duty was payable on the procurement of Sulphuric Acid, there arises no question of reversal of any credit availed. With regard to Wash Oil it is submitted that it is used for recovery of other by-products such as Naphthalene, Toluene, Benzene and Benzol from the coke oven gas which are then separated and cleared on payment of duty. Therefore, it was submitted that since Wash Oil is utilized at the stage after the generation of coke oven gas, no part of such Wash Oil can be said to be used in the generation thereof. Thus, it was contended that since both Wash Oil and Sulphuric Acid are used at the stage after emergence of coke oven gas, the question of reversal of credit by treating these inputs as used in the manufacture of coke oven gas does not avail. It is submitted that though the above was the consistent stand of the assessee before the adjudicating authority, no finding has been rendered by the adjudicating authority in its order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Hon ble Supreme Court which was allowed and the judgment dated 28.08.2008 was set aside and the matter was remitted back to this Court to decide the matter afresh in accordance with law as expeditiously as possible (Commissioner Versus Steel Authority of India Ltd. 2015 (320) ELT A39 (SC)). In terms of the directions issued by the Hon ble Supreme Court, the appeal has been heard by us and is being disposed of by this judgment and order. 17. The question involved in the instance case is whether the inputs namely Wash Oil and Sulphuric Acid on which credit of duty was availed had a role in the production of coke oven gas/ coal gas directly or indirectly or in or in relation thereto or whether these were used in the production of by-products only as claimed by the assessee. Before we examine the factual and legal issues which have been elaborately canvassed before us, it would be useful to refer to the manufacturing process adopted by the respondent assessee which is stated as hereunder: GENENRATION AND CLEANING OF COKE OVEN GAS AT COKE OVENS IN ISP, SAIL In integrated steel plant like ISP, Coke Ovens play a vital role for providing metallurgical coke i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken out by air ejector and the crystals are separated in settling pan and then by centrifugation. Wet salt from centrifuge containing moisture upto 45 is dried in rotary drum drier to 0.2-0.3% moisture and bagged in HDPE bags for selling. After the recovery of tar and then ammonia by saturator process, Coke Oven Gas enters at a temperature of 50-55 degree Celsius at the bottom of Secondary Cooler (Stage I) where it is cooled by means of direct contact with water in counter current direction to a temp. (approx 35-38 degree Celsius) near that of gas after Primary Cooler. Gas, thus cooled, emerges from the top of secondary cooler (stage II) consists of two sections. Wash oil, a petroleum fraction is sprayed in the lower section by means of spray nozzles. The gas during its passage comes in direct contact with the oil and Naphthalene from C.O. Gas is absorbed into oil. The circulation of Wash Oil in the lower part of Sec. Cooker (stage II) is continuous and a part of this naphthalene rich oil is sent to naphthalene stripping plant where naphthalene is recovered as saleable product. The gas from the lower part ascends to the upper part of the cooler where it is cooled further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumed in the assessee s factory and the remaining sold outside without payment of duty as the product was chargeable to Nil rate of duty under SH 27.05. The revenue would state that from the aforementioned manufacturing process it is evident that coal gas was the only manufactured product of by-product recovery plant where other important products namely, Ammonium Sulphate, Naphthalene, Benzene, Toluene, LS Naphtha, coal tar were also manufactured. Further it is evident that coal gas was purified through use of MODVAT inputs namely, Sulphuric acid and Wash Oil in the recovery plant on which the credit was taken. It was further evident that coal gas was cleared by the assessee without payment of duty as it was chargeable to Nil rate of duty. Therefore, it was stated that the assessee has taken credit of duty on those inputs, utilized those inputs in the manufacture of dutiable as well as Nil rate of duty final products without debiting an amount equal to 20% or 8% of the price of the said final products at the time of their clearance during the period from 1st September, 1996 to 31st March, 2000 in terms of Rule 57CC(1) of the Rules. 20. Rule 57C(1) of the Rules states that credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d stated that no proper enquiry was conducted by the department for issuing the show cause notice and the allegations are misconceived in law as well as on facts. Further it was stated that the department failed to take into consideration that no credit of duty has been availed on the inputs under Rule 57AA or Rule 2 of the 2001 Rules for the final product namely Coal Gas. Manufacturing process adopted by the assessee has been noted above as well as the flowchart showing the process. The revenue has not denied the manufacturing process nor disputed the contents of the flow chart that sets out various stages in the process of manufacture. From the materials placed before this Court, it is seen that metallurgical coke is manufactured by the carbonization of coal for use in the Blast Furnace for making iron. In the course of manufacture of coke by coal carbonization by-product such as coke oven gas/coal gas emerges. It is being further explained that raw coal is carbonized by heating in closed chamber at high temperature during which the volatile matter content of coal comes out in the form coke oven/coal gas which is collected through pipelines. It has been specifically stated in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation of fuels has been explained. It is stated that there are four general classes of fuel namely fossil, by-product or waste, chemicals and nuclear. The first three classes of fuel are energy released by combustion of carbon and hydrogen with an oxidant usually oxygen; process involves electronics exchange to form products of lower energy such as a consequence of energy released in an exothermic reaction. By-product are derived from a main product and order of secondary nature and example of these fuel are coke oven gas, coke, blast furnace gas, wood waste, and so on. It has been further stated that fossil and by-product fuel accordingly used in the steel industry are classified further into three general divisions namely solid, liquid and gaseous fuel. Fuel in each general division can be classified further as natural manufacture or by-product. Fuel found in nature sometimes are called primary fuel; those manufactured for a specific purpose are market altogether with those that are inevitable by-product of some regular manufacturing process, are called secondary fuel. In the classification of fuel under the general division can gaseous the primary fuel being natural gas and one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 2004 rules on the value of the by- product namely sulphuric acid, which was cleared to fertilizer plant under exemption in terms of the bonds executed by the fertilizer plant. After noting the manufacturing process as explained before the Hon ble Supreme Court, it was held that sulphuric acid is indeed a by-product and it was so treated in the balance sheet of the respondent therein as well as various other documents and the assessee were established for the purpose of producing zinc and copper and not sulphuric acid. The revenue could not dispute the fact that emergence of sulphuric acid in the calcination process of concentrated ore is not a technological necessity and then conversion of the same into sulphuric acid as a non-polluting measure cannot elevate the sulphuric acid to the status of final product. Further it was pointed out that technologically, commercially and in common parlance, sulphuric acid is treated as a by-product in extraction of non ferrous metals by companies not only in India but all over the world. Further the respondent therein had explained that ore concentrates zinc or copper are completely utilized for the production of zinc and copper and no part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirements of 57CC were fully met in the way in which the Respondent was maintaining records and inventory and the mischief of recovery of 8% under Rule 57CC on exempted sulphuric acid is not attracted. 25. Further the Hon ble Supreme Court had pointed out as to in what manner rules have to be read and that the Rule 57CC cannot be read in isolation Furthermore, the provisions of Rule 57CC cannot be read in isolation. In order to understand the scheme of Modvat credit contained in this Rule. A combined reading of Rules 57A, 57B and 57D along with Rule 57CC becomes inevitable. We have already reproduced Rule 57D above. It can be easily discerned from a combined reading of the aforesaid provisions that the terms used are inputs , final products, by-products , waste product 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 57CC, reference to final product being manufactured with the same common inputs becomes understandable. This rule did not talk about emergence of final product and a by-product and still said that Rule 57CC will apply. The appellant seeks to apply Rule 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring process adopted by the assessee and the emergence of crude coke oven gas is technological necessity and in evitable by-product and it is not exempted final product and it is neither the case of the department that it is the final product. The decision in Hi-Tech Carbon is closest to the facts of the case on hand. The assessee therein manufactured carbon black that are goods classified under Chapter 28 of the First Schedule of the Tariff Act, 1985 using Carbon Black Feed Stock (CBFS) the raw material/input. In that process RFO/LSHS/LDO/FO was used as fuel. The assessee therein subjected CBFS to process known as thermal cracking. It resulted in production of carbon black in particle form. However in this process off gases also known as lean gases emerged by way of technological necessity and those gases have high content of carbon mono-oxide and are hazardous and cannot be released freely into atmosphere. Therefore, the assessee therein burnt carbon mono-oxide content in the off gases /lean gases before releasing the same into atmosphere. The burnt of carbon mono-oxide generated heat that could either to be allowed to escape or put to use which the assessee did by gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manufacture of of a final product or any product as the case may, must be established. Then such final product or other product must itself either be exempt from payment of duty or be chargeable nil rate of duty. In the instant case there is no doubt that steam was exempt from payment of duty. However, it remains to be seen whether it was a final product obtained from duty paid input. As to the scheme of the Rules, 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. In the instant case, the Tribunal has correctly examined the issue on facts and thereafter found that off gases / lean gases were the by-product in the manufacture of Carbon Black by subjecting CBFS to thermal process. The off gases / lean gases itself arose because of technological necessity upon CBFS being subjected to thermal cracking process to product Carbon Black. However, for that process to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or receipt, consumption and inventory of inputs. Examining the applicability of the aforesaid rules to the facts of the present case, as noted hereinabove, it not as it more quantity of Hydrochloric Acid is used than that required for manufacturing Gelatin or that by using a smaller amount of Hydrochloric Acid, the product of Mother Liquor could be averted. In the manufacturing process adopted by the assessee, it is not possible to manufacture Gelatin without Mother Liquor coming into existence. Thus, when the entire quantity of input viz. Hydrochloric Acid is used in the manufacture of the final product being Gelatin which is dutiable product, the mere fact that a by-product emerges during the process would not bring the by- product within the ambit of Rule 6 of the Rules so far 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 in as much the manufacturer does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded 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. 29. The above decision was affirmed by the Hon ble Supreme Court as the appeal against the said decision was dismissed as reported in 2015 320 ELT A 343 (SC). 30. The revenue placed reliance on the decision in the case of Paper Industries Limited. In the said case, the respondent manufactured different varieties of printing papers including wrapping papers falling under Item No. 17 (1) of the Erstwhile Central Excise Tariff. The Department s contention was the respondent therein had violated the provisions of Rule 9 (1) Rule 173 F and Rule 173 G of the 1944 rules in as much as they have removed 4000 wrapping papers without payment of central excise duty. The show cause notice was issued. It was contended that the wrapping of carbon product by wrapping paper is process incidental and auxiliary to the completion of manufactured product under 2(F) of the Act and wrapping is used as component part of having excisable goods attracting the benefit of notification dated 09.07.1993. The department did not agree with the stand taken by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Central Excise Duty. Merely, by stating that the assessee had suppressed vital facts and had been availing credit on duty paid inputs even in respect of goods chargeable to Nil rate of duty is not sufficient to justify invoking the extended period of limitation by resorting to the power under Section 11AC and Section 11AB of the Act. The respondent assessee s specific case is that they are a Public Sector Undertaking and at no point of time they had any intention to deprive the Government of its legitimate dues. Therefore, we can safely conclude that the ingredients of the relevant statutory provisions have not been made to invoke this extended period of limitation. Section 11A of the Central Excise Act states that when any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of fraud, collusion or any willful mis-statement or suppression of facts or contravention of any of the provisions of the Act or the Rules made thereunder with intent to evade payment of duty, such person is levied to pay duty in full or any part accepted by him and interest payable under Section 11AB and penalty equal to 15% of the duties spe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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