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TMI Blog2006 (12) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... nimal 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. This inorganic material 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 other 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 i.e. waste obtained in the process of manufacturing Gelatin is processed by the Appellant with lime to form Dye-Calcium Phosphate (also known as Calphor). This Calphor is further processed to obtain Phosphoryl A and Phosphoryl B which are classifiable under Heading 2302 of the Central Excise Tariff Act, 1985 attracting nil rate of Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods) of the second category of final products charged by the manufacturer for the sale of such goods at the time 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 quantity of HCL is used in the manufacture of gelatin and emergence of mother liquor at that stage is incidental. Mother liquor is in the nature of a by product and hence cannot be considered to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 byproduct 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. v. State of Tamil Nadu [1999 (114) E.L.T. 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 from skin and bones under suitable pressure. The expert's opinion placed on record by the appellant, in that case, are to the 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 the generic of chemicals. The above stand of the appellant was accepted by the Hon'ble Supreme Court. As such, it is seen that even according to the appellant, HCL is not a necessary and fundamen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Central Excise, Bhopal [2005 (183) E.L.T. 111 (Tri.-Del.). Further in the case of Aarti Drugs Ltd. v. Commissioner of Central Excise, Mumbai-III [2001 (133) E.L.T. 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 57CC 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 57D. 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 57D(1) to a by-product. Inasmuch as, the Rule 57D continues un-amended on the statute, the, provisions of Rule 57CC cannot be pressed into service. 11. As against the above, the other line of thought is contained in the Tribunal decision in the case of Indian Iron & Steel Co. Ltd. v. Commissioner of Central Excise, Bolpur [2002 (141) E.L.T. 695 (Tri.-Kolkata)] and in the case of Binani Zinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aste 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 and 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 57D 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 undertake to obtain Oxygen, can he take the plea that hydrogen which also emerges during such electrolysis was an unintended product and even if the same is being sold as exempted product, the same should be treated as by-product and Rule 57CC would not apply? The answ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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