Jsw Steel Ltd vs Commissioner Of Central Excise

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI

COURT No. II

APPEAL No.E/85489/15

(Arising out of Order-in-Appeal No.CD/83/RGD/2014 dated 26/11/2014 passed by Commissioner of Central Excise (Appeals), Navi Mumbai)

For approval and signature:

Honble Mr. Anil Choudhary, Member (Judicial) Honble Mr. Raju, Member (Technical)

1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy :Seen of the Order?

4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================

JSW Steel Ltd., Appellant Vs. Commissioner of Central Excise, Respondent Navi Mumbai

Appearance: Shri.Vishal Agarwal, Advocate for appellant Shri.Ajay Kumar, Jt. Comm. (AR), for respondent

CORAM: Honble Mr.Anil Choudhary, Member (Judicial) Honble Mr. Raju, Member (Technical)

Date of Hearing : 04/09/2015 Date of Decision : 04/09/2015

ORDER NO

Per: Raju

1. The appellants are manufacturers of steel products and use blast furnace for manufacture of steel. During the process of Manufacturer of steel due to reactions in the furnace certain gases are released. These gases usually consist of carbon monoxide, carbon dioxide etc. These gases are at very high temperature and it is possible to recover the heat from these gases and use the same. Therefore, these gases called blast furnace gases can be sold. The appellants are selling these gases to the neighbouring unit which manufacturers cement.

2. Rule 6 of the Cenvat Credit Rules,2004,(CCR) prescribes the obligations of Manufacturer of dutiable and exempted goods and provider of taxable and exempted services. It prescribes how a manufacturer of dutiable and exempted goods will take credit of input duties. This rule restricts the availability of credit under certain circumstances.

3. The appellants are manufacturing steel products which are excisable products. They are also clearing blast furnace gases to the neighbouring unit which are exempt from the Central Excise duty by virtue of Notification No.76/86CE, dated 10.2.1986 and later by Notification No.17/2011-C.E., dated 1-3-2011. In view of the fact that the appellants are manufacturing excisable goods and also clearing blast furnace gases availing full exemption it was alleged that they are hit by the mischief of said rule 6. Twelve demands show cause notices were issued to the appellants demanding reversal of credit in terms of sub rule (3) of rule 6 of CCR. In terms of said sub rule it was alleged that the appellants shouldve paid an amount equivalent to a certain percentage of the value of blast furnace gases sold to the neighbouring unit availing full exemption from Central Excise duty. The said demand notices were confirmed by the additional Commissioner vide order dated 30.9.2013. The appellants preferred appeal before Commissioner appeals who also upheld the demands vide his order dated to 6.11.2014. The appellants are in appeal before us against the said order of Commissioner (Appeals).

4. The appellants argued that the issue is settled in their favour by large number of judgements including those of the Apex Court. The particularly relied on the decision of Honble Supreme Court in the case of Hindustan Zinc Limited 2014 (303) E.L.T. 321 (S.C.). The applicants claimed that the Apex Court has laid down the principal that so long as the quantity of input required for the manufacture of dutiable final products does not change and production of by product is inevitable, it cannot be said that the inputs have been used for the production of the byproducts. In other words it was claimed that byproducts are manufacturered as a unintentional consequence of manufacture of dutiable final products, the quantity of inputs consumed for the manufacture of final products does not change as a result of the manufacture of the exempted byproducts. The particularly relied on the paragraph 25 of the said decision of the Apex Court, which reads as under

25.?These arguments may seem to be attractive. However, having regard to the processes involved, which is already explained above and the reasons afforded by us, we express our inability to be persuaded by these submissions. We have already noticed above that in the case of Birla Copper (C.A. No. 2337 of 2011) the Tribunal has decided the matter following the judgment in the case of Swadeshi Limited (supra). In that case, Ethylene Glycol was reacted with DMT to produce polyester and ethanol. Methanol was not excisable while polyester fibre was liable to excise duty. Credit was taken of duty paid on ethylene glycol wholly for the payment of duty on polyester. The department took a position that ethylene glycol was used in the production of methanol and proportionate credit taken on ethylene glycol was to be reversed. This Court ruled that the emergence of methanol was a technological necessity and no part of ethylene glycol could be said to have been used in production of methanol and indeed it was held that the total quantity of ethylene glycol was used for the production of polyester. The fact in all these three appeals appear to be identical to the facts and the law laid down in Swadeshi Polytex (supra). Therefore, this judgment is squarely applicable.

4.1 The appellants also relied on the circular dated 03.04.2000 issued from F.No. B-4/7/2000-TRU. In paragraph 5 of the said circular the following has been clarified:

Subject : CENVAT Rules - Clarifications - Regarding.

5.?Some doubts have been raised whether CENVAT credit would be admissible on the part of input that is contained in any waste, refuse or by-product. In this context it is clarified that CENVAT credit shall be admissible in respect of the amount of inputs contained in any of the aforesaid waste, refuse or by-product. Similarly, CENVAT should not be denied if the inputs are used in any intermediate of the final product even if such intermediate is exempt from payment of duty. The basic idea is that CENVAT credit is admissible so long as the inputs are used in or in relation to the manufacture of final products, and whether directly or indirectly.

4.2 The appellant asserted that even the revenue recognises that no credit needs to be reversed then exempted byproducts, waste or refuse comes into existence.

5. Learned AR argued that the law laid down is very clear. The appellants are in fact manufacturing dutiable final products as well as exempted byproducts. There is no doubt in the language of rule 6 of CCR that in such a case mischief of the said rule is attracted. He also relied on the decision of the Apex Court in the case of the Commissioner of sales tax versus Bharat petroleum Corporation Limited 1995 (77) ELT 790 (SC). In the said decision the Apex Court has held that sales tax is attracted subsidiary products also.

6. We considered the submissions of the appellants as well as the learned AR. The issue that needs were decided is if they mischief of rule 6 of CCR is attracted in case an exempted byproduct is sold by the appellants. According to the appellants these are not covered by the sub rule (1) of the rule 6 of CCR. They assert that all the inputs on which they have taken credit are used for the manufacture of the dutiable final products namely the steel products. For manufacture of the intended quantity of steel products they could not have possibly reduced the quantity of inputs used. The blast furnace gases are just byproduct and no amount of inputs have been used to manufacture the blast furnace gases. According to the revenue the language of rule 6 of CCR is clear and if the appellants are taking credit of inputs and are manufacturing dutiable final products as well as exempted byproducts they are hit by the mischief of rule 6. Sub rule (1) of the rule 6 of CCR reads as under

6.?Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services. - (1) The CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or exempted services, except in the circumstances mentioned in sub-rule (2).

7. We have gone through the argument on both sides. The arguments of revenue are largely based on the plain reading of the provisions of rule 6. The argument of the revenue is that a part of the inputs on which credit has been claimed are used in production of the byproduct namely blast furnace gases. It has therefore been argued that credit of such quantity of inputs as are used in the production of the byproduct need to be reversed, and if that has not been done in terms of sub-rule 3 of rule 6 of CCR a certain amount needs to be reversed. The reliance placed by the revenue on the decision of Honble Apex Court in case of Commissioner of sales tax versus Bharat petroleum Corporation Limited 1995 (77) ELT 790 (SC), is misplaced as the issue in the said case was leviability of sales tax on byproduct sold. In the instant case the issue is substantially different from that.

8. The thrust of the argument of the appellants is that the Honble Apex Court has interpreted the sub-rule (1) of rule 6 to mean that credit of that quantity of inputs which are necessary to manufacture the intended quantity of final product will be allowed. If in that process certain unintended byproducts emerge as a technical necessity then it cannot be said that part of the said inputs have been used in Manufacturer of the byproducts. In other words the credit of that quantity of raw materials shall be allowed which is required for manufacture of the intended quantity of final products, irrespective of the fact that certain byproducts emerge as technical necessity. To support this proposition the appellants have relied on the decision of the Apex Court in the case of Hindustan zinc Limited (supra). It is seen that Honble Apex Court has laid down the ratio that when a byproduct emerges as a technical necessity, it cannot be said that any inputs have been used for the Manufacturer of the byproduct. The ratio of this judgement clearly applies to the facts of the impugned case. Moreover on perusal of the clarification dated 3.4.2000, it is seen that CBEC Circular also agrees with the said ratio laid down by the Honble Apex Court.

9. In view of above the appeal is allowed (Pronounced in Court)

(Anil Choudhary) Member (Judicial) (Raju) Member (Technical)

pj 1 7

Appeal No.E/85489/15