ORDER
V.K. Agrawal, Member (T)
1. The issue involved in this Appeal filed by M/s. Rama Industries Ltd. is whether they are liable to pay an amount equal to 8% of the price of exempted product Calphor emerging during the process of manufacture of their final produce gelatin.
2. Shri Joy Kumar, Learned Advocate, that the Appellants are primarily engaged in the manufacture of gelatin; that during the course of manufacture of gelatin at the very first stage, a mother liquor emerges as a waste product while washing bones with caustic soda, zinc flux and HCL; that by treating said mother liquor with lime, the by-product namely Calphor (di calcium phosphate) emerges which attracts nil rate of duty mentioned in the Schedule to the Central Excise Tariff itself (Heading No. 23.02); that the Deputy Commissioner under Order-in-Original No. 94/DC/Offence/2002 dated 31.12.01 has confirmed the demand under Rule 57 CC/57 AD of the Central Excise Rules, 1944 and imposed penalty on the ground that the inputs have been used in the manufacture of both dutiable final products as well as exempted product; that the Appeal filed by them has also been rejected by the Commissioner (Appeals) under the impugned order. Learned Advocate, further, submitted that the jurisdictional Superintendent of Central Excise has accepted their product Calphor as by-product which is evident from the registration Certificate issued to them; that since it is admitted fact that Calphor is a by-product, they are entitled to the benefit of MODVAT credit on inputs in view of the provisions of Rule 57D of the Central Excise Rules and CENVAT Credit with effect from 1.4.2000 in view of the clarification issued by the Central Government vide letter F.No. B-4/7/2000-TRU dated 3.4.2000 ; that it has been clarified in the said letter that CENVAT Credit shall be admissible in respect of the amount of inputs contained in any of the waste, refuse or by-product since the basis idea is that CENVAT Credit is admissible so long as inputs are used in or in relation to the manufacture of final products, and whether directly or indirectly. Learned Advocate also contended that it has been held by the Appellate Tribunal in a number of cases that the provisions of Rule 57 CC would not apply to by-product which is covered under Rule 57D. Reliance has been placed on the decision in the case of Hi Tech Carbon Vs. CCE Allahabad[2003 (56) RLT 378].
3. Countering the arguments, Shri Kumar Santosh, learned Senior Departmental Representative, submitted that the impugned product calphor is not a by-product emerging in the process of manufacture of gelatin; that as the process of manufacture given by the Appellants themselves, the mother liquor is treated with lime which results into emergence of calphor; that thus calphor is manufactured by the appellants as a conscious act and, therefore, it cannot be termed as a by-product merely on the ground that in the Registration Certificate issued by the Superintendent the product is mentioned as by-product; that it has been held by the Supreme Court in the case of Commissioner of Sales Tax, Bombay vs. Bharat Petroleum Corpn. Ltd. [1995 (77) ELT 790 (SC)] that where the subsidiary product is turned out regularly and continuously in the course of manufacturing business and is also sold regularly from time to time, and intention can be attributed to the manufacturer to manufacture and sell not merely the main item manufactured but also the subsidiary products; that similar views have been expressed by the Appellate Tribunal in the case of CCE Vadodara Vs. India Gelatin the Chemical 1996 (88) ELT 425 (Tri) wherein it has been held that the frequency and regular intervals at which such sludge and dust was cleared does suggest that these products were not mere waste but were subsidiary products turned out regularly and continuously during the course of manufacture and were also sold regularly; that regularity and frequency also suggest that this sludge and dust were known to the market as distinct entities and were purchased by different buyers and therefore, the Collector was clearly wrong in holding that the impugned goods were not goods with a new name, character or use. The Learned Senior Departmental Representative, therefore, contended that the Appellants were manufacturing both the dutiable as well as exempted products and therefore in terms of provisions of Rule 57 CC of the Central Excise Rules, they were required to pay the amount equal to 8% of the price of the exempted products.
4. We have considered the submissions of both the sides. We observe that the Appellants are manufacturing gelatin. When bones are washed with caustic soda lye/flakes and HCL, a product known as mother liquor emerges which is a by-products in the process of manufacture of gelatin. Subsequently, this mother liquor is treated with lime which results into manufacture of Calphor which is di-calcium phosphate attracting nil rate of duty under Heading No. 23.02 of the tariff. From the process of manufacture, which has not been controverted by the Revenue, it is apparent that mother liquor emerges as a by-product and as a conscious act of the Appellants mother liquor is treated with lime to procure di-calcium phosphate, i.e. Calphor. Rule 57 D of the Central Excise Rules clearly provides that credit of duty shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse, or by-product arising during the course of manufacture of the final product. In the present matter, Calphor is not a by-product which is emerging during the process of manufacture of gelatin, it is mother liquor which emerges in the process of manufacture of Appellant’s final product gelatin. The inputs, in respect of which MODVAT credit has been availed of, are used in the manufacture of gelatin and the credit can not be varied or denied on account of emergence of by-product namely mother liquor. Rule 57 CC of the Central Excise Rules will be applicable only where the manufacturer simultaneously manufacturers any final product which is chargeable to duty as well as any other final product which is exempted from the whole of the duty of excise or is chargeable to nil rate of duty and the manufacturer takes credit of the duty on inputs which is used in or in relation to process of manufacture of both the categories of final products. it is not the case of the Revenue that the inputs which are brought for the manufacture of gelatin are also used simultaneously in the manufacture of both gelatin the Calphor. It is only buy-product mother liquor which arises in the course of manufacturer of gelatin is used separately for manufacturing Calphor. It therefore, can not be stated that the inputs are used in the manufacture of both dutiable and exempted products. Similar situation was considered by the Tribunal in the case Hitech Carbon relied upon by the learned Advocate. In the said case the final product of the Appellant was carbon black for the manufacture of which they were bringing inputs namely carbon black feed stock which subjected to process of thermal cracking which result in generation of carbon black in particle form and off gases or lean gases. The Appellants therein were burning carbon monoxide content, which as a result generate the said off gases, which have been used for reason of anti pollution laws, which result in generation of heat which was used further in the manufacturing process or was utilized for generation of high pressure steam as a by product in the factory. The Revenue has denied the MODVAT credit on the inputs used in the manufacture of steam as steam was exempted from payment of duty. The Tribunal has held that the generation of off gases is nothing but a by-product in the process of manufacture of carbon black and no doubt the steam has been generated by the Appellant as conscious act but it cannot be claimed by the Revenue that any part of the inputs, that is Carbon black feed stock, has been used in the manufacture of steam. The Tribunal further held that “for the purpose of applying the provisions of Rule 57C Rule 57CC it is the pre-requisite that the inputs are used in the process of manufacture of final product which is exempted from the hole of the duty or is chargeable to nil rate of duty. The mere fact of using the off gages in the generation of steam will not tantamount to using the modvatable inputs in the manufacture of exempted product that is steam.” The Tribunal also had referred to the decision in the case of Aarti Drugs Ltd. Vs. Commissioner of Central Excise Mumbai III [2001 (45) RLT 213] wherein it has been held that the provisions of Rule 57CC would not apply in the case of by-product. The Tribunal also observed that “by insertion of Rule 57CC, there was not intention to eliminate the benefit available under Rule 57D(1) to a by-product ….. The marketability or otherwise of by-product is not really an issue.” Both the decision in the case of Bharat Petroleum Corporation Ltd. and India Gelatin and Chemical, relied upon by the Learned Senior Departmental Representative, do not advance the case of the Revenue. The issue involved in the present Appeal is not whether Calphor is an excisable product or not, the issue involved is whether the inputs in respect of which MODVAT credit has been availed of has been used in the manufacture of Calphor and whether the Appellants are liable to pay an amount equal to 8% of the price of Calphor under Rule 57CC. We, therefore, hold that inputs, in respect of which MODVAT credit has been taken, have not been used by the Appellants in the manufacture of a product which attracts nil rate of duty. We, therefore set aside the impugned order and allow the Appeal.
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