M/S Panel Board And Laminates Ltd vs Commissioner Of Central Excise, Nagpur

IN THE CUSTOMS, EXCISE AND SERVECE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT NO. IV

APPEAL NO. E/MA/ORS/96140/14 E/905/08

(Arising out of Order-in-Appeal No. AKD/72/NGP/2008 dated 21.05.2008 passed by the Commissioner of Customs & Central Excise (Appeals), Nagpur.)

For approval and signature: Honble Shri Anil Choudhary, Member (Judicial)

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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? =====================================================

M/s Panel Board and Laminates Ltd. (Formerly M/s Ballarshah Plywood)

: Appellant Versus

Commissioner of Central Excise, Nagpur : Respondent

Appearance Ms. L. Maithili, Advocate : For Appellant Shri Sanjay Hasija, Supdt. (A.R.) : For Respondent

CORAM: HONBLE SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL)

Date of Hearing : 28.04.2015 Date of Decision: 28.04.2015

ORDER NO.......................................................

Per: Anil Choudhary:

The appellant M/s Panel Board and Laminates Ltd. is engaged in manufacture of Wood Particle Board and Pre-laminated Particle Board falling under chapter Heading No. 4406.10 & 4406.90 of the Schedule to the CETA, 1985. The appellant was availing the benefit of CENVAT credit on various chemicals such as formaldehyde, caustic soda, Formic Acid, Resins etc. under the CENVAT Credit Rules, 2004. Saw Dust is generated during the manufacturing process of particle board and pre-laminated board. The manufacturing process involves chipping wooden waste/wooden blades/poles in chipper chipper machine. Then core and face chips are dried and stored in the Core and Face Bunkers. These chips are poured from Bunkers to Glue Mixer and mixed with synthetic resin, i.e. an aqueous chemical solution of phenol formaldehyde resin (44/45%) or solution of urea formaldehyde resins (55%) or solution of melamine Urea Formaldehyde Resin, as the case may be. The glued chips are formed into three layer mats with the help of spreading machine. The Central layer of the mat is of the core glued chips and the top and bottom layers are of face glued chips. These mats are ultimately pressed by Hydraulic Press under high pressure and temperature to manufacture plain particle boards. These boards are cut on the trimming machine into the standard size. Top and bottom surface of such boards are finally sanded. Thus during the trimming and sanding of plain particle boards the said wooden saw dust generated in the factory containing various chemicals as stated above. This wooden saw dust was being sold by the appellant from their factory on tax invoice to various parties without payment of Central Excise duty.

2. The Revenue in the course of scrutiny found that Saw Dust falling under Chapter Heading No. 44.01 of the Schedule to the CET Act, 1985 is exempted from Central Excise duty by tariff rate till 23/2/05 and thereafter exempted vide Notification No. 3/2005 dated 24.02.2005. The saw dust so manufactured was cleared from the factory of the appellant on commercial invoice to various parties without payment of Central duty. As the appellant have availed the facility of CENVAT credit of duty paid on the inputs/chemicals namely formaldehyde, caustic soda etc. used in the manufacture of dutiable goods, i.e., particle board and pre-laminated particle board as well as in the removal of exempted goods i.e. sawdust, the Revenue invoked the provisions of Rule 6(2) of the CENVAT Credit Rules, 2002 read with Rule 6(3) of the CENVAT Credit Rules, 2004, where the manufacturer availing CENVAT credit in respect of any inputs, except inputs intended to be used as fuel in the manufacture of such final products which are chargeable to duty as well as in the exempted goods, then the manufacturer shall maintain separate accounts for the receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs meant for using in the manufacture of exempted goods and take CENVAT credit on that quantity of inputs which is intended for use in the manufacture of dutiable goods. Accordingly, the revenue felt that the appellant was required to pay duty at the rate of 8%/10% on the removal of sawdust from the factory and accordingly show cause notice was issued for the period November 2001 to May 2006 for the extended period vide show-cause notice dated 4/12/2006 asking the appellant to show-cause as to why the amount of Rs. 13,04,746/- should not be recovered from it under Rule 6(3)(b) of the CENVAT credit Rules read with Rule 12 of the CENVAT Credit Rules, 2002 read with section 38A of the Central Excise Act and Rule 14 of CENVAT Credit Rules, 2004 read with Section 11A of the Act; and further as to why penalty should not be imposed under Section 11 AC of the Act and Rule 15 of CENVAT Credit Rules, 2004 read with Rule 25 of Central Excise Rules, 2001/2002 read with Section 38A of the Central Excise Act and further why not interest be demanded.

3. The show cause notice was adjudicated, rejecting the contention of the appellant that sawdust being a waste product and not a final product, no duty under Rule 6(3) is attracted. The Joint Commissioner relying on the ruling of the Larger Bench of this Tribunal in the case of Rallis India Limited Vs. Commissioner of Central Excise - 2007 (208) ELT 25 (TribunalLB), wherein the Tribunal dealing on a similar issue, namely whether the presumptive amount is payable on exempted by-products under Rule 57CC of the erstwhile CENVAT (MODVAT) Credit Rules, the CENVAT credit was availed on hydrochloric acid used in manufacture of gelatine in which by-products/waste mother liquor is generated. Accordingly the proposed demand was confirmed Rs. 13,04,746/- along with interest and also equal amount of penalty was imposed under section 11AC of the Act read with Rule 13 of CENVAT Credit Rules, 2002 and Rule 15 of CENVAT Credit Rules, 2004 read with Rule 25 of the Central Excise Rules, 2002.

4. Being aggrieved the appellant preferred appeal before the Commissioner (Appeals), who by the impugned order, dismissed the appeal against the order of the Joint Commissioner. The Commissioner (appeals) held that the appellant manufactured both dutiable and exempted goods (saw dust) and the availment of CENVAT credit in regard to common inputs has to be governed by Rule 6(3) of CENVAT Credit Rules, 2004. As the appellant did not maintain separate accounts for the dutiable goods alone, since it may not be possible/practicable to do so, in such a situation provisions of Rule 6(3)(b) of CENVAT Credit Rules, 2004 should apply.

5. Being aggrieved the appellant is in appeal before this Tribunal. The learned Counsel for the appellant states that the issue is no longer res integra. The appellant relies on the Division Bench ruling of this Tribunal in the case of Shree Siddherman Sahakari Karkhana Ltd. Vs. CCE, Pune-III reported in 2014TIOL1804 (Tri.-Mum) wherein this Tribunal in the case of waste products which arise in the course of manufacture of sugar, such as bagasse and compost, the Tribunal has held that the same cannot be considered as final products and therefore payment of a sum equal to 5%/6% of the price of the exempted waste is not required to be made in terms of Rule 6(3) of the CENVAT Credit Rules, 2004. The appellant also relies on the ruling of the Honble Bombay High Court in the case of Rallis India Ltd. Vs. Union of India, 2009 to 33 ELT 301, wherein the Hon'ble High Court took notice of the question before the Larger bench of this Tribunal whether 8% of the amount as per the erstwhile Rule 57CC of CER 1944 (now Rule 6 of CCR 2002) is required to be discharged, before removal of the by-products/subsidiary products when such products are exempted from payment of duty, in light of the conflicting views in the above decisions.

The Honble High Court held that the Larger Bench committed a fundamental error in holding that HCL was not an input required in the manufacture of gelatin because, firstly that was not the question referred to it for the decision. Secondly the specific case of the Revenue as set out in the show-cause notice was that HCL was the common input used in the manufacture of two final products namely gelatin and phosphoryl A and B and since phophoryl A and B is exempted, Rule 57 CC is applicable. Therefore the finding given by Larger Bench that HCL was not an input required in the manufcture of gelatin is beyond the scope of reference and contrary to the facts of the case on record. The Honble High Court also took notice of the ruling of the Honble Apex Court in the case of CCE Vs. Gas Authority Limited 2008 (232) ELT 7 (SC) wherein the scope of Rule 57CC was considered. In that case duty paid natural gas was used as an input in the manufacture of dutiable LPG and in the manufacturing process, Lean Gas emerged as a by-product which was cleared without payment of duty. The Revenue claimed 8% of the price charged on the sale of Lean Gasas per Rule 57CC.

In that context the Honble Apex Court observed as under:- Therefore the short question which arises for determination before this Court is whether Lean Gas was a by-product or a final product. If it is a by-product, then the assessee would be entitled to the benefit of Rule 57D. On the other hand if Lean Gas is a final product, then the assessee would not be entitled to the benefit of Rule 57D in view of the provisions of Rule 57CC as it refers to set off/adjustment of duty payable. The Honble Supreme Court also took notice of the Larger Bench ruling of this Tribunal, wherein it was held that Rule 57D referred to waste, scrap and by-products which are not excisable at all. In this connection the Tribunal had referred to the instances of floor sweepings arising in the manufacture of biscuits, waste and scrap arising in the manufacture of iron products and hydrogen arising as a by-product in the manufacture of oxygen by the process of electrolysis of water. The Honble Apex Court found it difficult to accept this finding. Further what 57D provides is that where MODVAT input is used in the manufacture of dutiable final product and waste, refuse or by-product arise in the process, then, even if the MODVAT inputs are contained in the waste, refuse or by-product and whether or not Excise duty is payable on such waste, refuse or by-product, the manufacturer would not be denied full credit of duty paid on inputs used in the manufacture of dutiable final products.

Rule 57CC applies only if the MODVAT inputs are used in manufacture of both dutiable final products and exempted final products and the manufacturer has not maintained separate accounts so as to ascertain the quantum of inputs used in the manufacture of the final products. Therefore the floor sweepings/waste and scrap/hydrogen arising in the manufacture of biscuits/iron-products/oxygen, respectively will be governed by Rule 57CC if they are exempted final products and would be governed by Rule 57D if they are merely waste, refuse or by-product arising in the manufacture of dutiable final products and accordingly the Honble Bombay High Court allowed the writ petition of Rallis India Limited (supra) holding that no duty whatsoever is payable in the case of by-products, waste and scrap.

6. I find that in the present case also sawdust generated is waste and not a final product of the appellant. Accordingly I hold that no duty is payable under the provisions of Rule 6(3)(b) of the CENVAT Credit Rules, 2004 or in the earlier provisions of rule 57CC of the Central Excise Rules, 1944. Accordingly, the appeal is allowed. The appellant will be entitled to consequential benefit if any.

7. The miscellaneous application for amendment in the cause title (name of appellant) is also allowed in view of the certificate issued by the Registrar of Companies.

(Pronounced in open Court)

(Anil Choudhary)

Member (Judicial)

Sp

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