By Puloma Dalal, Jayesh Gogri, Mandar Telang Chartered Accountants
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Whether, as per Rule 57CC of the Central Excise Rules, 1944 (Rule 6 of the CENVAT Credit Rules, 2004), CENVAT Credit on inputs is required to be reversed/paid if by-products arising in the manufacturing process is cleared at nil rate of duty? Held, No.
Facts:
The assessee obtained zinc ore concentrate from the mines on payment of excise duty which is used as an input for the production of zinc. In the process of manufacturing, sulphuric acid was produced as a by-product which is also a dutiable product. However, clearance of sulphuric acid as a by-product to fertiliser plants was chargeable at nil rate of duty in terms of Notification No. 6/2002-CE. Revenue contended that as per Rule 57CC of the Central Excise Rules, 1944 (Rule 6 of the CENVAT Credit Rules, 2004), the assessee was obliged to maintain separate accounts and records for the inputs used in the production of zinc and sulphuric acid and in the absence of the same the assessee was obliged to pay 8% as an amount on the sale price of exempt sulphuric acid.
The assessee filed writ petitions under Article 226 before the High Court challenging the vires of Rule 57CC and constitutional validity of Rule 6 of the CCR, 2004 on the ground that the Central Government by subordinate legislation cannot fix rates of duties which is the prerogative of the Parliament u/s. 3 of the Central Excise Act, 1944 read with Central Excise Tariff Act, 1975. The High Court decided the petition in favour of the respondents on the interpretation of Rule 57CC and Rule 57D itself, without going into the question relating to the vires. On appeal by the department, the Apex Court decided the matter on merits and held as under:
Held:
The Apex Court observed that emergence of sulphur dioxide in the calcination process of concentrated ore is 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. 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.
It was further observed that the given quantity of zinc concentrate will result in emergence of zinc sulphide and sulphur dioxide according to the chemical formula on which respondents have no control. The ore concentrates (zinc or copper) are completely utilised for the production of zinc and copper and no part can be traced in the sulphuric acid which is cleared out. The Court held that, when in the case of the respondents, no quantity of zinc ore concentrate has gone into the production of sulphuric acid, and that entire quantity of zinc concentrate is used for the production of zinc, applicability of Rule 57CC cannot be attracted. Accordingly, the Hon’ble Court affirmed the decision of the High Court holding that the mischief of recovery of 8% under Rule 57CC on exempted sulphuric acid is not attracted.
