ORDER
V.K. Agrawal, Member (T)
1. This is an application by M/s. Narmada Gelatines Ltd. for waiver of pre-deposit of duty amount of Rs. 2,35,87,876/- under Rule 57AD of Central Excise Rules, 1944 or Rule 6 of Cenvat Credit Rules, 2002 and penalty of Rs. 5 lakhs.
2. Shri B.L. Narasimhan, learned Advocate submitted that the applicants manufacture gelatin out of crushed bones of animals; that they availed Modvat credit of duty paid on hydrochloric acid; that the crushed bones are demineralised using hydrochloric acid by which the calcium and phosphorus present in the bones are removed in the form of Mono Calcium Phosphate, Mother Liquor, a ‘Spent Acid’ and the bones are converted into Ossein, which is further used for manufacture of gelatin; that Spent Acid is a hazardous item, contains mono calcium phosphate which is treated with milk of lime solution and Di-calcium Phosphate is obtained; that Di-calcium Phosphate is exempted from payment of duty; that the Department has, therefore, demanded an amount equal to 8% of the price of Di-calcium Phosphate on the ground that the input has been used in the manufacture of both dutiable and exempted products without maintaining the record separately. He further submitted that the Di-calcium Phosphate emerges as a by-product out of Mono Calcium Phosphate in the process of manufacturing of gelatin; that no modvatable inputs are used in or in relation to the manufacture of Di-calcium Phosphate. He relied upon the judgment in the case of Rama Industries Ltd. v. C.C.E., Chandigarh – 2004 (178) E.L.T. 720 (T) = 2004 (65) RLT 47 (CESTAT – Del.) wherein the same issue was involved and the Tribunal has held that inputs in respect of which Modvat credit has been availed of are used in the manufacture of gelatin and the credit cannot be varied or denied on emergence of by-product, namely, Mother Liquor.
3. Opposing the prayer Shri D.N. Chaudhary, learned SDR submitted that under Cenvat Credit Rules, there is no provision similar to Rule 57D of the Central Excise Rules, 1944 which provided that no credit shall be denied or varied on the ground that inputs are contained in arty waste, by-product or rejects; that in the absence of similar provision in Cenvat Credit Rules, the by-product obtained during the process of manufacture is also a special product to which the provisions of Cenvat Credit Rules will apply; that as Di-calcium Phosphate is exempted from payment of duty and the procedure prescribed in Rule 6(2) of the Cenvat Credit Rules has not been followed. He, therefore, submitted that the applicants have to pay an amount equal to 8% of the price of the exempted goods.
4. We have considered the submissions of both the sides. Rule 6(1) of Cenvat Credit Rules, 2002 provides that the CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in Sub-rule (2). This is not the case of the Revenue that inputs in the present case that is hydrochloric acid is brought to manufacture Di-calcium Phosphate. The applicants are bringing Hydrochloric acid to manufacture gelatin and in the process of manufacture of gelatin, they get Spent Acid containing Mono Calcium Phosphate which is subsequently used by them to manufacture Di-calcium Phosphate by treating it with milk of lime. Prima facie, it cannot, therefore, be claimed that the inputs are used in the manufacture of final products which are chargeable to duty as well as any other final product which is exempted from the whole of duty of excise. This was the view expressed by the Tribunal in the case of Rama Industries Ltd. (supra). Further, the absence of Rule 57D will not make a by-product, a main product. Moreover, the Central Board of Excise & Customs has clarified vide Circular F. No. B-4/7/2000-TRU dated 3-4-2000 that CENVAT credit is admissible in respect of the amount of input contained in any of the waste, refuse or by-product. Accordingly, the applicants have made out a strong prima facie case in their favour. We stay the recovery of the entire duty demanded from them and penalty imposed on the applicants during the pendency of the appeal which posted for regular hearing on 14-2-2005.