TMI Blog2008 (12) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... CE reported in 2005 (187) ELT 390 (T). 2. The question referred to the Larger Bench was:- "Whether 8% of the amount as per erstwhile Rule 57CC of Central Excise Rules, 1944 (now Rule 6 of Cenvat Credit Rules, 2002) is required to be discharged, before removal of by products/subsidiary products when such products are exempted from whole of duty therein in light of the conflicting view in the above decisions." 3. The Larger Bench of the Tribunal concurred with the views expressed by the Tribunal in the case of Binani Zinc Ltd. (supra) and by the impugned decision held that the petitioner who manufactured both dutiable and exempted final products by utilizing duty paid common inputs (Modvat credit of which was taken) was liable to pay an amount equal to 8% of the value of the exempted final product under Rule 57CC of Central Excise Rules, 1944/Rule 6 of Cenvat Credit Rules, 2002. The larger Bench has also recorded a finding to the effect that HCL was not a necessary input required in the manufacture of gelatin. 3. Facts relevant to the present case are that since 1971 the petitioner is engaged in the manufacture of gelatin in its factory at Ootacamund, Tamil Nadu. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by product arising in the manufacture of the dutiable final product and it was immaterial as to whether excise duty was payable or not on such waste, refuse or by-product. In other words, as per Rule 57D, even if the waste refuse or by-product arising in the manufacture of dutiable final product are exempted from payment of excise duty, the credit of duty paid on the inputs used in the manufacture of dutiable final products cannot be denied or varied. 9. In the present case, since 1986 the petitioner availed the credit of duty paid on HCL used as input in the manufacture of gelatin and the waste mother liquor arising in the manufacture of gelatin was used in the manufacture of phosphoryl 'A' and 'B' and was cleared without payment of duty in view of the exemption. 10. Rule 57CC was introduced into the Modvat Scheme with effect from 1/9/1996 under which a manufacturer who manufactures by using common inputs, a final product which is chargeable to duty as well as a final product which is wholly exempt or chargeable to nil rate of duty was required to maintain separate accounts regarding the inputs received and used in the manufacture of exempted goods, failing which the manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The amount mentioned in sub-rule (1) shall be paid by the manufacturer by adjustment in the credit account maintained under sub-rule (7) of rule 57G or in the accounts maintained under rule 9 or sub-rule (1) of rule 173G and if such adjustment is not possible for any reason, the amount shall be paid in cash by the manufacturer availing of credit under rule 57A. (3) ....... (4) ....... (5) ....... (6) ....... (7) The provisions of sub-rule (1) shall apply even if the inputs on which credit has been taken are not actually used or contained in any particular clearance of final products. (8) If any goods are not sold by the manufacturer at the factory gate but are sold from a depot or from the premises of a consignment agent or from any other premises, the price (excluding sales tax and other taxes, if any, payable) at which such goods are ordinarily sold by the manufacturer from such depot or from the premises of a consignment agent or from any other premises shall be deemed to be the price for the purpose of sub-rule (1). (9) In respect of inputs (other than inputs used as fuel) which are used in or in relation to the manufacture of any goods, which are exempt from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount equal to 8% of the price of the exempted final products, namely Phosphoryl 'A' and 'B' cleared during the period from September, 1996 to December, 2003 should not be recovered in view of the failure on part of the petitioner to maintain separate accounts as contemplated under Rule 57CC of the Central Excise Rules / Rule 6 of the CENVAT Credit Rules, 2002. By the said show cause notices, the petitioner was further called upon to show cause as to why interest should not be demanded and penalty should not be imposed under the provisions of the Excise Act and the Rules made thereunder. 14. The petitioner in its reply contended that the duty paid HCL was an input used in the manufacture of gelatin. It was contended that the mother liquor arising in the manufacture of gelatin was a waste and, therefore, in terms of Rule 57D, the petitioner was entitled to full credit of duty paid on HCL used in the manufacture of dutiable gelatin. In such a case, it was contended that Rule 57CC was not applicable. 15. By an order in original dated 23-12-2004, the adjudicating authority rejected the contention of the petitioner and held that Rule 57CC was applicable to the present case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If iron steel scrap are excisable, then duty has to be paid while clearing the iron steel scrap and if exempted, Rule 57CC would apply. Therefore, Rule 57D refers to waste, scrap and by product which are not excisable at all. In the present case since two final products emerge out of a common input and duty is payable on one final product and the other final product is exempt, Rule 57CC is applicable to the facts of the present case. The question referred to the larger Bench was answered accordingly. 17. We have heard Mr.Sridharan, learned Advocate for the petitioner and Mr.Jetly, learned Advocate for the respondents. On careful consideration of the rival submissions, we find it difficult to sustain the decision of the larger Bench for the reasons enumerated hereinafter. 18. At the outset it must be held that the Larger Bench committed a fundamental error in holding that HCL was not an input required in the manufacture of gelatin, because, firstly that was not the question referred to it for its decision. Secondly, the specific case of the revenue set out in the show-cause notice was that HCL was the common input used in the manufacture of two final products namely, g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 'B' is accepted, then it would be simply a case of reversing the entire credit and not a case of demanding presumptive amount under Rule 57CC. 21. Thus, in the facts of the present case, the specific case of the revenue is that HCL is a common input used in the manufacture of excisable gelatin and exempted phosphoryl 'A' 'B'. The question, therefore, to be considered in the present case is, whether the petitioner is liable to reverse the credit to the extent the input is used in the manufacture of exempted phosphoryl 'A' and 'B' by maintaining separate account or alternatively pay the presumptive amount under Rule 57CC ? 22. Animal bones are the basic raw material required to manufacture gelatin. When animal bones are treated with HCL, organic and inorganic substances in the animal bones get separated. Organic substances ('ossein') which are in the insoluble form are separated from the soluble inorganic substances known as 'mother liquor'. Ossein is further processed to manufacture gelatin. It is not in dispute that the mother liquor is a waste arising in the manufacture of gelatin. 23. Under Rule 57C and 57D of the Central Excise Rules, 1944, credit of duty paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edly a waste on which no excise duty is payable. In spite of the fact that no excise duty is payable on the clearance of waste mother liquor, in view of Rule 57D, the petitioner is entitled to avail entire credit of duty paid on HCL which is used as input in the manufacture of gelatin. In other words, in the present case, the petitioner is not required to reverse the credit of duty on HCL at the time of clearance of the waste mother liquor and consequently there would not be any obligation to pay presumptive amount under Rule 57CC for not maintaining separate account. 27. The fact that the waste mother liquor arising in the manufacture of gelatin was further processed to manufacture exempted phosphoryl 'A' and 'B' would not attract Rule 57CC, because, if Rule 57CC was not applicable at the time of clearance of the waste mother liquor arising in the manufacture of dutiable gelatin, then the said rule cannot be applied merely because mother liquor was further processed to manufacture exempted final product, namely, phosphoryl 'A' and 'B'. In other words, liability to pay the presumptive amount under Rule 57CC would arise only if the waste mother liquor is held to be a final produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Rule 57CC. In the present case, the facts are altogether different. In the present case, the question is whether the waste mother liquor arising in the manufacture of gelatin is a by-product or a final product. Therefore, reliance placed by the counsel for the revenue on the decision of the Apex Court in the case of Ballarpur Industries Limited (supra) is totally misplaced. 30. Reliance was also placed by the counsel for the revenue on the decision of the Apex Court in the case of Commissioner of Sales Tax v. Bharat Petroleum Corporation Limited reported in (1995) 77 E.L.T. 790 (S.C.). In our opinion that decision has no bearing to the facts of the present case. That decision was rendered in the context of sales tax law and not in the context of excise law. Moreover, the dispute in that case related to availing set off under the Sales tax law on sale of by-product arising in the manufacture of the main product. That decision does not deal with the provisions relating to the Modvat credit. Therefore, reliance placed on the decision of the Apex Court in the case of Bharat Petroleum Corporation Limited (supra) is also misplaced. 31. The larger Bench of the CESTAT ..... 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