CESTAT | Whether a by-product from a factory be considered as manufactured goods and should it fall under ‘excisable goods’ or ‘exempted goods’ as provided in R. 2(d) of Cenvat Credit Rules, 2004; Tribunal answers while dismissing appeal  

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of Dilip Gupta (President) and P. Anjani Kumar (Technical Member) dismissed an appeal filed by the Department aggrieved against the order of Commissioner (Appeals).

The respondent was engaged in the manufacture of lead and zinc and is also availing CENVAT credit of duty paid on inputs and input services in terms of the provisions of the Credit Rules prevailing during the relevant period from December 2015 to March 2016. The respondent claimed to be clearing the finished goods (zinc and lead) on payment of duty and further claimed that during the relevant period, sulphuric acid was also cleared on payment of duty but some quantity of sulphuric acid was cleared to fertilizer manufacturers, after claiming exemption from payment of duty, under Entry No. 86 of the Notification dated March 17, 2012.

The Department entertained a view that sulphuric acid, cleared to the fertilizer units without payment of duty, was an exempted product and hence the respondent was liable to pay an amount in terms of rule 6(3)(i) of the Credit Rules, accordingly a show cause notice was issued proposing to recover an amount @6% of the value of sulphuric acid, in terms of Rule 6(3)(i) of the Credit Rules. The Joint Commissioner had confirmed the demand raised under rule 6(3) of the CENVAT Credit Rules 2004 for clearance of sulphuric acid from the factory of the respondent during the period from December, 2015 to March, 2016 for Rs 72,93,931. After which the respondent had filed an appeal before the Commissioner (Appeals) which had allowed the appeal relying on the Supreme Court judgment of Union of India v. Hindustan Zinc Ltd., (2015) 15 SCC 312 setting aside the order of the Joint Commissioner. Thus, the instant appeal was filed.

The Tribunal reproduced the relevant portion of the order passed by Commissioner (Appeals),

“8. I have carefully gone through the case records, grounds of appeal as well as submission made during the course of personal hearing. I find that main issue to be decided in this case are whether by product namely sulphuric acid emerges in appellant factory is covered under the definition of „excisable goods‟ as per provisions of Section 2(d) of CEA, 1944, (ii) whether the „sulphuric acid‟ qualifies as exempted goods under Rule 2(d) of Cenvat Credit Rules, 2004 and whether Rule 6 of the Cenvat Credit Rules, 2004 is applicable in the instant case or not?

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As per the above definition of exempted goods, goods should be excisable goods. In this regard, the adjudicating authority observed in OIO that in the budget of 2018, the definition of „excisable goods‟ in clause (d) of Section 2 of the Central Excise Act, 1944 was amended by adding an explanation that for the purposes of this clause, “goods” include any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.

In view of the above, the adjudicating authority found that any by-product, though emerges due to technological necessity would be included in the definition of „goods‟, hence fall within the ambit of term „final product‟. Therefore, Rule 6 would become applicable automatically.

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In the light of above, I find that from decision of the Hon‟ble Supreme Court and above circular, it is clear that sulphuric acid emerged in factory of appellant was not a manufactured product and the judgment applies to both periods before and after the insertion of explanation in Section 2(d) of Central Excise Act, 1944 by Finance Act, 2008.

Since sulphuric acid emerged in factory of appellant was not a manufactured product as discussed above even after 01.03.2008, the same is not covered under definition of „excisable goods‟ as provided in Section 2(d) of CEA, 2004 accordingly it was not covered under the definition of „exempted goods‟ as provided in Rule 2(d) of Cenvat Credit Rules, 2004.

  1. I find that the adjudicating authority also tried to differentiate the case dealt by the Hon’ble Supreme Court in the case of UOI vs HZL reported at 2014 (303) ELT 321 (SC), by deciding that the Sulphuric acid is a distinct product and manufacture from the by product i.e sulphur dioxide as such the same is neither a waste product nor a by product, and the appellant have separate plant and process to manufactured the Sulphuric acid. In this regard, I observe that the Hon‟ble Supreme Court in the above-cited case and after examining the manufacture process of the appellant held that Sulphuric acid is a by-product….” I, therefore, find that there is no dispute left regarding treating the Sulphuric acid as a by-product, hence finding of adjudicating authority on this account is not correct and same is set aside.”

The Tribunal dismissed the appeal holding that there was no error in the order passed by the Commissioner (Appeals).[CCE v. Hindustan Zinc Ltd.,  2020 SCC OnLine CESTAT 336, decided on 09-12-2020]


Suchita Shukla, Editorial Assistant has put this story together

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