By TIOL News Service

CHENNAI, JULY 09, 2015: THIS is a revenue appeal against the order of Tribunal with the following question of law:

"Whether Tribunal order is correct in rejecting the recovery of Modvat Credit attributable to the inputs relating to final product cleared under the exempted category under Rule 57C of Central Excise Rules, 1944?"

The assessee is a manufacturer of Linear Alkyl Benzene Sulphonic Acid and Spent Sulphuric Acid is obtained as by-product. The assessee had cleared Spent Sulphuric Acid partly on payment of duty and partly under exemption in terms of Notification No.8/96-CE dated 23.7.1996 and Notification No.4/97-CE dated 1.3.97. The Department invoking Rule 57C alleged that the credit of duty taken on the inputs was not admissible if the final product was cleared at 'nil' rate of duty and hence the credit taken on Sulphuric Acid, which was used to obtain the Spent Sulphuric Acid was liable to be reversed. Though the Commissioner (Appeals) decided the issue in favour of the assessee, revenue continued the litigation.

After hearing both sides, the High Court held:

The issue whether the Spent Sulphuric Acid is a by-product or not has been put to rest by the Allahabad High Court in the case of Varuna Sulphonators Pvt. Ltd. V. Union of India (1993 (68) ELT 42 (All) and also by the Supreme Court in the recent decision in the case of Union of India v. Hindustan Zinc Ltd. 2014-TIOL-55-SC-CX.

The Supreme Court in the case of Union of India v. Hindustan Zinc Ltd. while dealing with the entitlement of the assessee to Modvat / Cenvat Credit for the use of inputs in the manufacture of final products which are exempt or subject to nil rate of duty, held that Sulphuric Acid is indeed a by-product.

A reading of the above decision of the Supreme Court makes it clear that the invocation of Rule 57C by the Department is not justified and the Commissioner (Appeals) and the Tribunal were correct in holding in favour of the assessee.

The very language of Rule 57D makes it clear that credit of duty shall not be denied or varied on the ground that part of the inputs contained in any waste, refuse or by-product arising during the manufacture of the final product, or that the inputs have become waste during the course of manufacture of the final product. It also states that it is of no consequence whether the by-product such as waste, refuse or by-product is exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty or is specified as a final product.

Thus, following the ratio of the Supreme Court in case of Hindustan Zinc Ltd, the High Court dismissed the appeal by revenue.

(See 2015-TIOL-1562-HC-MAD-CX)