In a major relief to Steel Authority of India Limited (SAIL) ruled that the Cenvat credit should not be reversed on waste or by-product generation during manufacturing.
The appellant, M/s. Steel Authority of India Limited is an integrated steel plant that manufactures various iron, steel and allied products falling under various Chapter Headings of the First Schedule to the Central Excise Tariff Act, 1985 at its said steel plant in Durgapur, West Bengal. The appellant has five coke oven batteries, each having 78 ovens and one coke oven having a battery of 39 ovens which are used to convert coal into coke. During the process of conversion of coal into coke, at very high temperatures, Coke Oven Gas (CO gas), a very poisonous and harmful gas is generated. Hence it is not permitted to be let out in the air as per environmental law.
Although according to the appellant the provisions of Rule 6(2) & (3) of the Cenvat Credit Rules are not applicable in respect of ammonium sulphate, since it is a byproduct though exempted, in order to avoid any future dispute, the appellant, after coming into force of the provisions of substituted Rule 6(3) and the newly inserted Rule 6(3A) in the Cenvat Credit Rules with effect from April 1, 2008, exercised option in terms of Rule 6(3)(ii) of the Cenvat Credit Rules and reversed cenvat credits on all common inputs used in or in relation to the manufacture of dutiable products and exempted goods, including ammonium sulphate, and paid, by way of reversal, cenvat credit attributable to inputs in or in relation to the manufacture of exempted goods, including ammonium sulphate and CO gas, in terms of Rule 6(3A) of the Cenvat Credit Rules, from the financial year 2008-09 onwards.
Cenvat credit attributable to inputs used in or in relation to the production of the exempted goods were paid by way of reversal. The appellant continued to exercise the said option under Rule 6(3)(ii) for subsequent financial years also. From the year 2009-10, the appellant also included common input services for reversal. There was no common input service used during the earlier years.
A show-cause notice was issued by the Additional Commissioner, alleging that the appellant had manufactured and cleared an exempted product, Coke Oven Gas, falling under Tariff Item 27050000 of the Central Excise Tariff which had been manufactured using different common cenvatable inputs and input services but without maintaining separate accounts as required under Rule 6(2) of the Cenvat Credit Rules and without payment of amounts as required under Rule 6(3)(i) of the Cenvat Credit Rules and called upon the appellant to show cause as to why a sum of Rs. 11,79,415/-, being 5% of the value of the said goods, should not be demanded and recovered from the appellant, along with interest, for the period August 2010 to March 2011 in respect of ammonium sulphate cleared during the said period and why penalty should not be imposed upon the appellant.
The coarm of P.K.Choudhary noted sulphur dioxide, emerging as an inevitable technological necessity during calcinations of ore concentrates for the production of zinc and copper (like coke oven gas in the instant case), was converted to sulphuric acid as a non-polluting measure and sold to fertilizer manufacturers. Given quantity of zinc concentrate resulted in the emergence of zinc sulphate and sulphur dioxide, according to the chemical formula on which the assessee had no control. Though sulphuric acid as an end product (ammonium sulphate in the instant case) was liable to ad valorem duty, under exemption notification, it was liable to nil duty for use in the manufacture of fertilizers.
Therefore, the CESTAT held that sulphuric acid was only a by-product, and conversion of sulphur dioxide (in the instant case ammonium sulphate) to sulphuric acid (mother ammonia liquor in the instant case) could not elevate sulphuric acid to the status of the final product.
The Tribunal deleted the demands of Rs. 11,79,415/- and Rs. 26,94,800/- respectively against the appellant, under Rule 14 of the Cenvat Credit Rules, 2004 and Explanation II of Rule 6(3)(b) of the Cenvat Credit Rules, along with interest thereon under Rule 14 of the Cenvat Credit Rules read with Section 11AB of the Central Excise Act, 1944 and imposing equivalent amount of penalties upon the appellant under Rule 15(2) of the Cenvat Credit Rules.
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