By TIOL News Service

MUMBAI, NOV 17, 2015: THE appellants use blast furnace for manufacture of steel. During the process of Manufacture of steel due to reactions in the furnace certain gases are released. These gases usually consist of carbon monoxide, carbon dioxide etc. These gases are at very high temperature and it is possible to recover the heat from these gases and use the same. Therefore, these gases called blast furnace gases can be sold. The appellants are selling these gases to the neighbouringunit which manufactures cement.

Incidentally, the blast furnace gases are exempt from Central Excise duty by virtue of Notification No.76/86-CE, dated 10.2.1986 and later by Notification No.17/2011-C.E, dated 1-3-2011.

In view of the fact that the appellants are manufacturing dutiable excisable goods and also clearing blast furnace gases at Nil rate of duty it was alleged that they are hit by the mischief of rule 6 of the CCR, 2004.

Twelve SCNswere issued demanding reversal of credit in terms of sub-rule (3) of rule 6 of CCR. In terms of said sub-rule it was alleged that the appellants should have paid an amount equivalent to a certain percentage of the value of blast furnace gases sold to the neighbouring unit availing full exemption from Central Excise duty.

The demand notices were confirmed by the lower authorities and, therefore, the appellant is before the CESTAT.

Before the CESTAT, the appellant submitted that the issue is settled in their favour in view of the apex court decision in Hindustan Zinc Limited 2014-TIOL-55-SC-CX where it is held that so long as the quantity of input required for the manufacture of dutiable final products does not change and production of by-product is inevitable, it cannot be said that the inputs have been used for the production of the by-products; that by-products are manufactured as an unintentional consequence of manufacture of dutiable final products & the quantity of inputs consumed for the manufacture of final products does not change as a result of the manufacture of the exempted by-products. The appellant also relied on letter F.No. B-4/7/2000-TRU dated 03.04.2000 where it is clarified that CENVAT credit shall be admissible in respect of the amount of inputs contained in any of the exempted waste, refuse or by-product.

The AR reiterated the findings of the lower authority.

The Bench inter alia observed that the reliance placed by the AR on the SC decision in Commissioner of Sales Tax vs. BPCL is misplaced as the issue in the said case was leviability of Sales tax on by-product sold and the issue involved in the present case was substantially different.

Thereafter, the CESTAT held -

"8. The thrust of the argument of the appellant's is that the Hon'ble Apex Court has interpreted the sub-rule (1) of rule 6 to mean that credit of that quantity of inputs which are necessary to manufacture the intended quantity of final product will be allowed. If in that process certain unintended byproducts emerge as a technical necessity then it cannot be said that part of the said inputs have been used in Manufacturer of the byproducts. In other words the credit of that quantity of raw materials shall be allowed which is required for manufacture of the intended quantity of final products, irrespective of the fact that certain byproducts emerge as technical necessity. To support this proposition the appellants have relied on the decision of the Apex Court in the case of Hindustan zinc Limited (supra). It is seen that Hon'ble Apex Court has laid down the ratio that when a by-product emerges as a technical necessity, it cannot be said that any inputs have been used for the Manufacture of the byproduct. The ratio of this judgement clearly applies to the facts of the impugned case. Moreover on perusal of the clarification dated 3.4.2000, it is seen that CBEC Circular also agrees with the said ratio laid down by the Hon'ble Apex Court."

The appeal was allowed.

(See 2015-TIOL-2432-CESTAT-MUM)