ORDER
S.L. Peeranm, Member (J)
1. The appellants are challenging the Order-in-Original No. 27/03 dated 10.9.2003 by which demands have been confirmed in respect of Ammonium Sulphate effected during the period 1997-98 to December 2000 and for the period January 2001 to March 2001 and another period from April 2001 to January 2002 and also imposition of penalty. The appellants are manufacturers of iron and steel products under chapter No. 72 and also byproducts falling under Chapter No. 26 to 29, 31, 38 and 68 of the Schedule of the CET Act, 1985. They are producing Ammonium Sulphate under sub heading 31.02 of the Tariff. They had filed declaration under Rule 173B of the CE Rules for the said goods viz., Ammonium Sulphate claiming exemption from payment of duty as fertilizers. The Commissioner’s recording in Order-in-Original from para 3 to 9 is reproduced herein below.
3. In the process of manufacture of the final products as well as the other products, water treated with chemicals is used ant he assessee is availing Cenvat credit on the chemicals used for water treatment. They filed a declaration dated 13.8.97 under Rule 57G of Central Excise Rules, 1944 declaring certain chemicals used for water treatment as inputs in relation to the manufacture of their final products of Chapter 72. They have not declared “Ammonium Sulphate” among the final products in relation to use of these chemicals for treatment of water, therefore, it implied that the chemically treated water is used in the manufacture of products under Chapter 72 only and not Ammonium Sulphate. However, on verification, it has been found that the assessee has been utilising the water, treated with chemicals, in the Ammonium Sulphate plant and they are not maintaining any separate inventory/record for accounting for the quantity of chemicals used in the water that goes into the Ammonium Sulphate plant. The assessee is also utilizing electricity in Ammonium Sulphate plant for the manufacture of Ammonium Sulphate and availing Cenvat Credit on the inputs used in the manufacture of Electricity in their Thermal Power plant. They are clearing Ammonium Sulphate at nil rate of duty.
4. As per Rule 57CC(1) of the earlier Central Excise Rules, 1944 relevant to the period “where a manufacturer is engaged in the manufacture of any final product which is chargeable to duty as well as in other (final products which is exempt from the whole of the duty of excise leviable thereon is chargeable to Nil rate of duty) and the manufacturer takes credit of the specified duty on any inputs (other than inputs used as fuel) which is used or ordinarily used in or in relation to the manufacture of both the aforesaid categories of final products, whether directly or indirectly and whether contained in the said final products or not, the manufacturer shall, unless the provisions of Sub-rule (9) are complied with, pay an amount equal to eight per cent of the price (excluding sales tax and other taxes, if any, payable on such goods) 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”.
5. And as per Sub-rule (9) of Rule 57CC of Central Excise Rules, 1944 (which was replaced by new set of Modvat Rules from 01.04.2000) the inputs (other than used as fuel) which are used in or in relation to the manufacture of any goods, which are exempt from the whole of the duty of excise leviable thereon or chargeable to nil rate of duty, the manufacturer shall maintain separate inventory and accounts of the receipt and use of inputs for the aforesaid purpose and shall not take credit of the specified duty paid on such inputs.
6. It, thus appeared that if a manufacturer uses the inputs in the manufacture of final product which is chargeable to nil rate of duty, they have to either maintain a separate inventory and account of the receipt and use of inputs and not to take modvat credit of the specified duty paid on such inputs as per Sub-rule (9) of Rule 57CC or pay 8% of the price (excluding sales tax and other taxes, if any payable on such goods) of the final product cleared as per Rule 57CC(1) of Central Excise Rules, 1944.
7. In the instant case, the assessees are using the inputs “Water treatment Chemicals” for treating water which is used in the manufacture of Ammonium Sulphate, which is cleared at nil rate of duty. They are also not maintaining any separate inventory/record accounting for the amount of chemicals used in the water that is utilized in the Ammonium Sulphate plant and the quantity of Electricity used in the Ammonium Sulphate plant. Hence as per Rule 57CC(1), the assessee is required to pay 8% of the price of Ammonium Sulphate cleared.
8. The particulars of he clearances of Ammonium Sulphate for the five years 1995-96 to 1999-2000 are as under:
FS ———————————————————–
Sl. Year Quantity Value No. (Mt.) (Rs.) ----------------------------------------------------------- 1. 1995-96 33050.15 104280530 2. 1996-97 38586.636 114156387 3. 1997-98 34049.387 107896315 4. 1998-99 18552.301 60195000 5. 1999-2000 11535.795 43899011 ---------------------------------------------------------- TOTAL 135774.269 430427243 ----------------------------------------------------------
The assessee in their letter No. VSP/FIN/52/Central Excise/096 dated 21.02.2001 stated that they have not availed Modvat credit on any of the water treatment chemicals upto. March, 1997. Hence, the assessee is liable to pay duty @ 8% under Rule 57CC for the clearances of Ammonium Sulphate from 1997-98 to 2000-2001.
With effect from 01.04.2000, new Cenvat Rules have come into force. Earlier Modvat Rule 57CC is replaced by Cenvat Rule 57AD. Thus, it also appeared that the assessees have not paid the amount on the clearances of Ammonium Sulphate cleared at Nil rate of duty, as per the new provisions of Rule 57AD (2) and Sub-rule 2 (b) of Rules 57AD of Central Excise Rules, 1944 also. The assessee is required to pay@ 8% of the price (excluding sales tax and other taxes, if any, payable on such goods) of the final product cleared at Nil rate of duty as per the provisions of Rule 57AD(2)(b) of Central Excise Rules 1944 from 01.04.2000 also.
The assessees have cleared 15256.55 MT of Ammonium Sulphate valued at Rs. 5,40,10,836/- during the period 4/2000 to 12/2000.
9. In view of the above, it appeared that the assessee has to pay an amount @ 8% on the value of Rs. 21,19,90,326/- which comes to Rs. 1,69,59,226/- under Rule 57CC of Central Excise Rules, 1944 for the years 1997-98 to 1999-2000 and @ 8% of Rs. 5,40,10,836/- which comes to Rs. 43,20,867/- for the period from April 2000 to December 2000 under Rule 57AD. The assessee has failed to either observe the procedure under Rule 57C(9) or pay the amount @ 8% of the value of the exempted product. The assessee appeared to have suppressed the use of the chemically treated water in the manufacture of the exempted goods and thus they are required to pay the same in terms of Rule 57CC/57AD as the case may be and also the larger period of 5 years was applicable in this case.
2. The assessee’s contention as recorded in para 12 of the impugned order are reproduced herein below.
2. The Assessee has submitted replies vide their letters (a) VSP/FIN/SHOW CAUSE NOTICE/SCNAMMSU dated 2.3.2002 (b) VSP/FIN/SHOW CAUSE NOTICE/SCNAS2 dated 2.3.2002 and (c) VSP/FIN/SHOW CAUSE NOTICE/SCNAS3 dated 29.5.2002. Their reply is summarised as under:
(a) The amount: payable under Rule 57CC/57AD/Rule 6 is not excise duty but only an amount. This fact is very clearly stated in the show cause notice at para 4. That being the case, the Show cause notice contradicts it self, lacks clarity and need to be dropped.
(b) That the power exercised by the Central Government in framing the Rule 57CC/57AD/Rule 6 is beyond its competence, this rule is ultra vires the powers conferred on the Parliament, not to speak of its delegate, the Central Government.
(c) It is impossible to know at the time of production whether Ammonium Sulphate will be sold as a fertiliser or otherwise i.e., exempted from excise duty or not.
(d) In an Integrated Steel Plant, the final product is Iron and Steel and Ammonium Sulphate gets produced only because of the fact that the coke oven gas cannot be let-into air as it contains Ammonia which is very hazardous to the environment. The coke oven gas is recovered in the form of Ammonia gas which is highly corrosive in nature. Without extracting ammonia from the coke oven gas, the CO gas cannot be used in the manufacture of Iron and Steel products. Thus VSP is under compulsion to product Ammonium Sulphate. To a large extent it can also be stated as a pollution control unit.
(e) VSP wishes to submit that it is appropriate that the manufacturers are allowed to reverse the proportionate credit attributable to the inputs used in the manufacture of the exempted product. This is in line with the decision of the Supreme Court in the case of Chandrapur Magnets (1990 (81) ELT 3 SC) wherein it was held that reversal of credit amounts to non-availment.
(f) Under Rule 57CC(5)/57AD2(a)(iv)/ Rule 6(3) (applicable to items falling under specific tariff heading) a manufacturer using Modvat/Cenvat inputs in the manufacture of final product which is exempted from whole of duty or chargeable to nil rate of duty is only required to reverse the Modvat credit taken on inputs used in such products.
(g) VSP has reversed an amount of Rs. 3,588/- being the proportionate Modvat credit attributable to the water treatment chemicals used in the treatment of water which is used in the manufacture of Ammonium Sulphate for the period 1997 to February, 2001 and an amount of Rs. 946/- being the proportionate credit attributable to inputs for the period March, 2001 to Feb, 2002 and Rs. 937/- being the Cenvat credit attributable to the water treatment chemicals used in the treatment of water in the Thermal power plant to the extent of the electricity used in the Ammonium Sulphate plant for the period April, 2001 to March, 2002.
(h) VSP has also reversed an amount of Rs. 23,933/- being the Cenvat Credit attributable to the water treatment chemicals used in the treatment of water in the Thermal power plant to the extent of the electricity used in the Ammonium Sulphate Plant.
(i) VSP has also reversed an amount of Rs. 6,97,131/- availed on packing materials (HDPE bags) used for the purpose of packing Ammonium Sulphate.
(j) It is submitted that only “excise duty” can be recovered under Section 11A and Rule 57I/57AH and the amounts specified under Rule 57CC/57AD/Rule 6 cannot be recovered under the said rules.
(k) Rule 571/57AH/Rule 12 deals with recovery of the Modvat/Cenvat Credit amount equivalent to the amount of wrong credit availed or utilised by a manufacturer whereas the show cause notice proposes to recover the amount of 8% under Rule 57CC/57AD/Rule 6.
(l) The quantity of treated water attributable to Ammonium Sulphate works out to 0.09375% of water treated at Pump House 18 which is very very negligible.
(m) Similarly a very small quantity of electricity generated in Thermal power plant is used in Ammonium Sulphate Plant.
(n) VSP had filed a detailed Modvat declaration way back in the year 1997 clearly declaring the fact that water treatment chemicals are used in the treatment of water in the water treatment plant. The format of the declaration does not require VSP to indicate the places where water is used inside the plant because in the instant case water treatment chemical is an input and it is not directly used in the Ammonium Sulphate Plant. Hence, VSP has not suppressed any fact.
3. The Commissioner did not accept their plea and recorded the findings in para 14 and 15 as follows.
14. I have carefully gone through the case records. On facts, there is no dispute that water treated with chemicals on which Modvat/Cenvat credit had been taken, has been used in the manufacture of Ammonium Sulphate cleared at nil rate of duty under exemption. The issue is, however, disputed on merits. Their contention is that the total credit of Rs. 4,534/- availed on chemicals used in the treatment of water which was used in the manufacture of Ammonium Sulphate during the period 1997-98 to 2001-2002 was already reversed by them. Similarly, the total credit attributable to use of electricity in the manufacture of Ammonium Sulphate during the same period, is Rs. 23,939/- which has also been reversed. Their contention, in short, is that there is no case for demand under Rule 57CC/57AD of the Central Excise Rules and under Rule 6 of the Cenvat Credit Rules, 2001/2002.
15. The assesses, in this case, has admitted that they are not maintaining separate records for the inputs. They have stated that Ammonium Sulphate is produced by tapping oven gas which contains ammonia as a pollution control measure. Without extracting Ammonia from the oven gas, the Carbon Monoxide cannot be used in the manufacture of Iron & Steel Products. They have referred to the Circular dated 16.10.2001 under which the assessee are given the discretion to reverse the entire credit. On merits, it is seen that Ammonium Sulphate is removed at Nil rate of duty. Even though, they have reversed proportionate credit, it is seen that the circular dated 16.10.01 refers to the reversal of entire credit in a case where the assessee has filed to maintain separate accounts. The law, however, prevails when the assessee neither maintains separate account of inputs norhas paid the amount@ 8% of the value of the exempted products. In this case, therefore, the assessee is bound to pay8% of the value of Ammonium Sulphate as I am of the opinion that it is mandatory for the manufacturer to pay an amount equivalent to 8% of the value of the exempted product incase he fails to maintain separate records for receipt and issue of the inputs used in the manufacture of exempted products. Maintenance of separate records is materially important in this case if the assesses wants to avoid paying 8% of the value of the exempted goods. When the procedure is prescribed, they are required to follow the procedure. Failure to do so will make them liable to pay 8% of the value of the exempted product in terms of Rule 57CC/57AD and Rule 6 of the Cenvat Credit Rules.
4. The learned Counsel submits that once the appropriation credit of 8% has been reversed then, in such a circumstance confirming demand is not sustainable in law. He submits that this very issue was subject matter of dispute in the case of Sterlite Industries (India) Ltd. v. CCE and vice versa reported in 2004 (63) RLT 841 and in the case of Kerala Chemicals and Proteins Ltd. v. CCE and Vice versa by Final order No. 257-259/06 dated 1.2.2006. The Tribunal after due consideration upheld the assessee’s contention that once the credit of 8% has been reversed, in such a circumstance, the demands cannot be confirmed. He filed the copy of both the orders. He pointed out that the Tribunal being satisfied with the applicability of the ratio of both these judgments granted unconditional waiver of pre-deposit of amounts. He also relied on the ruling of the following judgments CCE v. Keshorai Patan Sahkari Sugar Mills Ltd. reported ; CCE v. Laxmi Agro Industrial Consultants and Exporters Ltd. reported 2004 (178) ELT 924; CCE v. Rama Industries Ltd. reported 2004 (178) ELT 720; Hindustan Zinc Limited v. CCE reported 2004 (178) ELT 255.
5. The learned DR contended that the Commissioner had taken a view that Ammonium Sulphate was removed at nil rate of duty. Although they reversed appropriate credit, they are required to reverse the entire credit in a case where the assessee has failed to maintain separate accounts, therefore, the confirmation of demand is justified.
6. On a careful consideration, we notice that the assessee was using common inputs. The Ammonium Sulphate is only a byproduct and the same was produced as a pollution control norms and in an integrated plant, the final product is iron and steel on which duty has been discharged. Rule 57CC/57AD/Rule 6 which prescribes maintenance of separate accounts of the receipt and use of inputs or payment of 8% would not arise in the present case as contended by the assessee, as it would arise only to the final products, where records are maintainable but not applicable to the byproducts. This view has been confirmed by the Tribunal in all the noted cases. Therefore, the view taken by the Commissioner that the credit has to be reversed in respect of the entire quantity of goods manufactured is incorrect. The reversal of credit on appropriation basis as done by the assessee is justified in law and is in terms of the cited judgments. Therefore, there is no merit in the commissioner’s findings. We also notice that the issue is covered by Board’s Circular No. 591/28/2001 Cx. dated 16.10.2001 which permits reversal of credit availed instead of paying an amount equal to 8% of the duty. This circular has been followed consistently in various judgments already cited supra. Respectfully following the ratio of the Tribunal ruling the impugned order is set aside and the appeal is allowed.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)