ORDER
Moheb Ali M., Member (T)
1. The appellants import zinc concentrate and manufacture Zinc from it and avail Modvat credit of the CVD paid on the zinc concentrate. During the course of manufacture of zinc, sulphur which is present in the concentrate gets converted into Sulphur Di-oxide. Being conscious of environment, pollution etc. that is likely to be caused by emission of Sulphuric Di-oxide, the appellants converts it into Sulphuric acid. Such acid is cleared on payment of duty and some times without depending on who the end-user is (End-use exemption for Sulphuric acid exists). When inputs on which credit is availed are used both in dutiable and non-dutiable products Rule 57CC/R6 comes into play which stipulates that the assessee in such a situation is required to reverse 8% of the price of exempted goods (Sulphuric acid in the case) before he clears such exempted goods. It is the Departments’ contention that the appellants have not done so.
2. In all four appeals are taken up arising out of Commissioner (Appeals) order No. 5/2003 dated 8-1-2003, 6/2003 dated 8-1-2003, 160/2002, dated 19-3-2002 and 215/03 dated 16-7-2003. In the first mentioned order he confirmed the demand for Rs. 2,52,145/-, in the second Rs. 2,79,165/- in the third Rs. 5,95,789/- and in the fourth Rs. 2,75,170/-. In addition the Commissioner confirmed a penalty of Rs. 5,000/- imposed by the lower authority while disposing off appeal Nos. 5/03 and 6/03. All the demands arose out of non-observance of provisions of Rule 57CC of the erstwhile Central Excise Rules.
3. The ld. Advocate Shri A.R.J. Nambiar for the appellant argued that as the appellant pays the foreign supplier only for zinc component of the zinc concentrate it cannot be said that the CVD paid by the appellant was for sulphur present in the zinc concentrate. Consequently it cannot be said that the appellant has availed Modvat credit in respect of duty paid on the input (Sulphur) which went into the manufacture of sulphuric acid which was cleared without payment of duty. Rule 57CC does not therefore get attracted; that Sulphuric acid generated during the process of manufacture of zinc is a by-product. Rule 57CC/R6 does not apply in respect of clearances of by-products [2002 (49) RLT 934], [2002 (144) E.L.T. 447 (Tri.) = 2002 (50) RLT 657], [2001 (136) E.L.T. 1019], [2002 (141) E.L.T. 695] etc. relied upon; that during the relevant period there was no provisions to recover amounts under Rule 57CC/R6 if such amounts have not been paid/short paid. It is only in 2002 machinery provisions were introduced and such provisions cannot be used for collecting amounts which were due prior to their introduction; that for the period prior to 19-8-2002 the Circular of 2001 governed the field and hence a reversal of the credit attributable to the exempted final products was sufficient compliance with the Rule ; [2003 (153) E.L.T. A89 (S.C.)], [2002 (149) E.L.T. 490] relied upon.
4. The ld. DR Shri Hitesh Shah argued that the appellants availed of credit of duty paid on zinc concentrate which had been used in the production of Sulphuric acid on which no duty was paid thus attracting provisions of Rule 57CC/R6; that the plea that CVD was paid only on zinc and not on the other ingredients of the zinc such as sulphur at the time of import is incorrect; that for the purpose of Rule 57CC the term final product includes a by-product; that sulphuric acid which the appellant calls a by-product is a final product covered under Rule 57A; that after 1-4-2000 Modvat scheme talks of only final products and exempted products and does not make a distinction between waste, refuse or byproduct; that Rule 57AD(1) denies credit on inputs used in the manufacture of exempted goods; that in the present case sulphuric acid is exempted goods and the provisions of Rule 57AD applies when it is cleared; that this position continues even after introduction of Cenvat credit Rules; that the absence of a specific recovery provisions prior to 1-3-2002 does not mean that accounts determined under Rule 57CC cannot be recovered even after introduction of recovery mechanism; that liability to pay 8% of the sale price of exempted goods shall remain intact uptil specific recovery provisions are made [Pushpaman Forgings v. CCE, 2002 (149) E.L.T. 490 relied upon]; that the Supreme Court in the case of Mysore Rolling Mills Pvt. Ltd. supports this view; that such recovery is legal and proper as held by the Tribunal in the case of CCE v. Maa Kamakhya Marbles (P) Ltd. and in Binani Cement Ltd. v. CCE ; that the appellants’ reliance on Boards’ Circular dated 16-10-2001 in support of their contention that sums due under Rule 57CC/R6 cannot be recovered is misplaced in view of the decision contained in Maa Kamakhya Marbles (P) Ltd. case supra; that the Supreme Court in the case of Kalyani Packaging v. UOI held that circulars cannot grant relief from recovery of duties etc. if demands have been confirmed and are under litigation and that the Supreme Court in the case of CCE v. Eswaran and Sons [2005 (179) E.L.T. 272 held that if a show cause notice is issued prior to a circular, the latter circular cannot stand in the way of enforcement of the demand.
5. We have considered the rival submissions carefully.
6. Rule 57CC comes into play when an input on which duty is paid (CVD in the present case) is used in the production of both dutiable and exempted final products. When separate accounts are not maintained to indicate how much of the inputs is used in the manufacture of each of the types of final products (dutiable and exempted) an assessee is required to pay an amount equal to 8% of the price of the exempted product when such product is cleared. It is an admitted fact that Sulphuric Acid cleared by the appellant attracted Nil rate of duty, when it is cleared for certain specific purposes. The modvatable input used in the manufacture of exempted goods is zinc concentrate. The appellants argument that they paid duty on the zinc component of this concentrate and not on the sulphur that it contained and therefore Rule 57CC is not attracted when Sulphuric Acid is cleared without payment of duty is not acceptable. In the present case the input that has gone into the production of Sulphuric Acid in zinc concentrate. The fact that the appellant has paid the foreign supplier only for the zinc component of that concentrate cannot lead to a conclusion that the concentrate in question is not the input which has gone into the manufacture of sulphuric acid. We therefore hold that the zinc concentrate is the input used in the manufacture of sulphuric acid on which no duty is paid. Rule 57CC/R6 is attracted.
7. The alternate plea is that sulphuric acid is at best a by-product, the main product being zinc itself and that Rule 57CC/R6 is not attracted when such a by-product is cleared without payment of duty. The appellants relied on the case of CCE, Madurai v. Dharani Sugars & Chemicals [2002 (49) RLT 934] wherein the Tribunal held that Rule 57CC is not applicable in cases where the by-product attracting Nil rate of duty emerges in the process of manufacture of final product which is dutiable. The same view is held in the case of Keshorai Patan Sahkari Sugar Mills Ltd. [2002 (144) E.L.T. 447 (Tri.) = 2002 (50) RLT 657]. The Tribunal held that Rule 57CC is not attracted on clearance of press mud without payment of duty as press mud arising during the manufacturing process is a residue and not a final product. In Gas Authority of India Ltd. [2001 (136) E.L.T. 1019] relying on an earlier decision of the Tribunal it was held that dutiability of the byproduct was not the issue but the issue was whether the product was a byproduct. The Tribunal in the case of GAIL supra was referring to provisions of Rule 57D which says that credit of duty is not to be denied or varied on the ground that part of the inputs is contained in any waste, refuse or by-product arising during the manufacture of the final product.
8. The appellants have relied on several other decisions as recorded by us earlier in this order. The ratio of all these decisions and their applicability to the present case has been considered by us.
9. We note that Rule 57CC itself does not make distinction between exempted final product and exempted by-product. The Central Excise Act provides for levy of duty on all goods manufactured or produced whether they are byproducts or otherwise. The expression ‘by-product’ occurring in Rule 57D has to be read in the context in which it is used and in line with the other words such as ‘waste, refuse’ mentioned therein. This Rule merely says that credit shall not be varied on the grounds mentioned therein. The Department is not attempting to vary the credit. It is only interpreting Rule 57CC, which provides for collection of certain amount at a certain percentage under the circumstances mentioned therein. As the DR rightly points out that the provisions of Rule 57D cannot negate the provisions of the preceding Rule 57CC.
10. That apart, the appellants’ contention that Sulphuric Acid produced by them is only a by-product and therefore the various decisions of the Tribunal are applicable has to be carefully examined. The appellants consciously exploit sulphur dioxide, that emanates during the process of manufacture of zinc by converting it into sulphuric acid for commercial purposes. It is more of a subsidiary product then a by-product. The Supreme Court in the case of Commissioner of Sales Tax Bombay v. Bharat Petroleum Corporation Ltd. held that where a subsidiary product is turned out regularly and continuously in the course of a manufacturing business and is also sold regularly from time to time, an intention can be attributed to the manufacturer to manufacture and sell not merely the main item manufactured but also subsidiary products. It is difficult to accept the contention that Sulphuric Acid is a by-product. The rigours of case law cited by the appellant are not applicable. The difference between a by-product and a subsidiary product is not mere semantics. It is very real. In the production of zinc several products emerge, silver for instance, all such products, at best are subsidiary products. A product like press mud such as in the case of Patan. Sahkari Sugal Mills cited supra may be a by-product but the same cannot be said of sulphuric acid.
11. The next issue pertain to the absence of machinery provisions to recover sums payable under Rule 57CC. The appellants argue that the machinery provisions for recovery of such sums were brought in for the first time only in 2002 and do not have retrospective provisions. The period of dispute in the four appeals is August 1999 to June 2002. Cenvat Credit Rules, 2002 came into effect 1-3-2002. Rule 6 under explanation II makes a provisions for collection of 8% amount by recourse to Rule 12. There is no gainsaying the fact that most of the period of dispute is prior to the introduction of these machinery provision. But we observe that the Tribunal in the case of Pushpaman Forgings v. CCE [2002 (149) E.L.T. 490] held that an assessee’s liability to pay 8% of the sale price of exempted goods shall remain intact uptil specific recovery provisions are made. If such recovery provisions are made the department shall be able to recover the amounts. We observe that the appellants do not dispute the amounts involved. In other words they do not question the way the sums due are calculated. One could take a view that since at the time when the sums were demanded there were no provisions to recover them, the matter should be remanded to start recovery proceedings under Rule 6 read with Rule 12 of Cenvat Credit Rules, 2002. Such a views at best is pedantic and does not serve the ends of justice. We are of the opinion that the ends of justice are better served if the impugned orders of the Commissioner are upheld, in view of the fact that the liability exists and the machinery provisions are brought into force w.e.f. 1-3-2002. Nobody would be the gainer if another round of fruitless proceedings are started to confirm the same amounts as indicated in the impugned orders. The matter would have been entirely different had the appellants questioned the quantum of amounts. In the absence of such a plea we uphold the demands but set aside the penalty.
12. The appeals are thus partly allowed the following terms.
The orders of the Commissioner are upheld to the extent of demands indicated therein. Penalty is set aside. Appeals are thus partly allowed.
Pronounced in open Court on 19-4-2005)