Nitta Gelatin India Ltd. Vs Commissioner of Central Excise (CESTAT Bangalore)
Summary: CESTAT Bangalore allowed three connected appeals filed by M/s. Nitta Gelatin India Ltd. against the common Order-in-Appeal dated 28.01.2016. The appellant manufactured Gelatin and availed CENVAT credit on inputs such as hydrochloric acid, furnace oil and acetic acid, as well as input services and capital goods. During manufacture of Gelatin, sludge arose as an inevitable waste product. The sludge was subsequently treated with acetic acid, washed with hot water and treated with caustic soda to produce fertilizer known as Nutri Gold, classifiable under CTH 3105 5900. Nutri Gold had earlier been exempt under Notification No. 4/2006 dated 01.03.2006. Thereafter, it was cleared at a concessional rate of duty subject to the condition that credit on inputs or input services used in manufacture of the product had not been taken.
Revenue alleged that because the appellant had availed CENVAT credit, the concessional notification was unavailable and differential Central Excise duty and equal penalties were consequently payable. The appellant contended that Gelatin was its only final product and sludge emerged as hazardous waste during its manufacture; no CENVAT credit had been availed on inputs or input services used for manufacture of Nutri Gold itself. It further argued that Rule 6 of the Cenvat Credit Rules, 2004 did not apply to waste generated during manufacture of Gelatin. The Tribunal examined the show-cause notice and the original authority’s findings and observed that the notice did not identify any inputs exclusively used in manufacturing Nutri Gold. Even the adjudication order did not categorically specify such inputs, but merely stated that some portion of inputs was used for manufacture of fertilizer.
The reference to HDPE bottles appeared for the first time in the impugned orders and was absent from the show-cause notice. CESTAT held that unless evidence was placed on record establishing that CENVAT credit had actually been availed on inputs used to manufacture Nutri Gold, denial of the benefit could not be sustained. The Tribunal relied materially on Union of India Versus Hindustan Zinc Ltd. 2014 (303) E.L.T. 321 (S.C.), where the Supreme Court distinguished a final product from a by-product emerging as a technological necessity and held that Rule 57CC could not be applied merely because a by-product emerged during manufacture. Applying that principle, CESTAT held that where inputs used in manufacture of the final product were also used for processing waste products to manufacture a dutiable product, CENVAT credit could not be denied. Since there was no evidence that inputs were purchased and used exclusively for manufacture of Nutri Gold, the impugned orders were unsustainable and all three appeals were allowed. 582295 582295 582295 582295
Cases Discussed
- Union of India Versus Hindustan Zinc Ltd. 2014 (303) E.L.T. 321 (S.C.) — Supreme Court held that Rule 57CC could not be applied to a by-product emerging as a technological necessity by equating it with the final product; the Tribunal applied this principle while allowing the appeals.
FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT BANGALORE
These three Appeal Nos. E/20558, 20559 & 20560/2016 are filed by the appellant against Order-in-Appeal No.COC-EXCUS-000-APP-321 to 323-15-16-CE dated 28.01.2016 passed by the Commissioner (Appeals-I), Cochin.
2. Briefly the facts are that the appellant M/s. Nitta Gelatin India Ltd. Kakkanad, Ernakulam manufactured Gelatin and availed cenvat credit on inputs such as hydrochloric acid, furnace oil, acetic acid etc.; input services and capital goods and the same was utilized for payment of Central Excise duty while clearing their final products Gelatin. In the process of manufacture, waste product sludge was generated, which is further treated with acetic acid to make fertilizer called Nutri Gold which was cleared on payment of concessional rate of duty in terms of Notification No. 1/2011-CE dated 01.03.2011 up to 16th March 2012 and Notification No. 12/2011-CE dated 17th March 2012 from 17.03.2012 onwards. The Notification being a conditional Notification which states that the concessional rate of duty is available only if no credit under Rule 3 or Rule 13 of the Cenvat Credit Rules, 2004 has been taken in respect of the inputs or input services used in the manufacture of these products. The Revenue’s allegation is that since the appellant had taken cenvat credit, they are not eligible for the benefit of the Notification; hence, demanded Central Excise duty denying the benefit of the Notifications and also imposed equal amount of penalties. Aggrieved by this order, the appellant is in appeal before this Bench.
3. The Learned Counsel submits that Gelatin is the only final product manufactured by the appellant and during the course of manufacture of Gelatin, sludge is generated as an inevitable waste product. The sludge so generated was a hazardous waste emerging in the process of manufacturing Gelatin which was disposed of in their factory and not shown in their monthly ER-1 returns as the said waste was not an excisable product. However, at a later date, the waste sludge was treated with acetic acid to convert the same into fertilizer called as Nutri Gold and further, it was washed with hot water to remove part of the acetic acid and caustic soda is added to correct the PH level. Since the product is a fertilizer falling under CTH 3105 5900 of Central Excise Tariff and the same was exempted from payment of Central Excise duty in terms of Notification No. 4/2006 dated 01.03.2006.
3.1 It is further submitted that the process of removing impurities is the mainstream of production for bringing the fertilizer/ by-product and no cenvat credit was availed on any inputs or inputs which are used in the said process, therefore the appellant was neither maintaining separate accounts nor reversing any credit in terms of Rule 6(3) of the Cenvat Credit Rules, 2004. This exemption was withdrawn with effect from 01.03.2011 vide Notification No. 1/2011-CE dated 01.03.2011 and the fertilizer was subjected to 1% duty subject to a condition of not claiming cenvat credit on inputs or input services; accordingly, the appellant availed this exemption. He further submits that the impugned order admitted the fact that the sludge emerged in the process of manufacture of Gelatin as a by-product and there was no need to declare the disposal of wastage in the ER-1 Returns as it arose at the intermediate stage and it is only when the waste is generated at intermediate stage, it is further processed into a new product called Nutri Gold Seed. It is also accepted that the provisions of Rule 6 of Cenvat Credit Rules, 2004 are not applicable in respect of waste generated in the process of manufacture of Gelatin, the final product. It is submitted that the cenvat credit on inputs and input services are not availed for the manufacture of Nutri gold but only part of the inputs that were used for the manufacture of Gelatin were used to clean the waste product sludge; therefore, the benefit of the Notification cannot be denied. It is also submitted that the observations of the original authority and the Commissioner (Appeals) are contrary to the allegations in the show-cause notice since nowhere, it is alleged that credit was availed on the inputs that went into the manufacture of Nurti Gold. Relied on the following decisions:
- Brinton Carpets Asia Pvt. Ltd. vs. CCE 2024 (21) CENTAX 95 (Bom.)
- Madura Coats Pvt. Ltd. vs. CESTAT, Chennai 2023 (7) CENTAX 144 (Mad.)
- Faiveley Transport Rail Trechnologies India Pvt. Ltd. Vs. CGST & CE 2025 (30) CENTAX 432 (Tri.-Mad.)
- Union of India vs. Hindustan Zinc Ltd. 2014 (303) ELT 321 (S.C.)
- CCE vs. Gas Authority of India Ltd. 2008 (232) ELT 7 (S.C.)
3.2 On limitation, it is submitted that the entire demand in the first show-cause notice dated 30.04.2012 is barred by limitation and without prejudice, it is submitted that since 1% duty has already been paid, the demand should have been restricted only to the differential amount.
4. The learned Authorized Representative (AR) submits that since the appellant has availed cenvat credit on the inputs, benefit of Notification cannot be extended to them and accordingly; the orders confirming the demand of duty needs to be sustained.
5. Heard both sides. The appellant was issued with three (3) show-cause notices and the one of the show-cause notice which was issued on 08.10.2012 reads as follows:
“2. Gelatin is manufactured from Ossein brought from their Ossein division at Koratty. During the course of extraction of Gelatin from Ossein, a sludge is generated which is further treated with acetic acid to make a manure called Nutri Gold /Seedaid. The Nutri gold/seedaid is a residue derived after OS-6 level extraction of Gelatin. The residue is then added with hot water of double the quantity and a portion of acetic acid. The liquor which emerges on processing is filtered to obtain the final product. Caustic soda lye is added for correcting the PH level. This product is classifiable under Tariff heading 3105 5900 and exempted from payment of duty under Notification No. 4/2006 CE dated 01.03.2006 (Serial No. 3). The above exemption on fertilizers falling under Chapter 31 has been withdrawn and imposed concessional @1% ad valorem without cenvat credit facility as per Notification No. 1/2011-CE dated 01.03.2011 or @5% ad valorem with cenvat credit facility as per Notification No.2/2011 CE dated 01.03.2011. The assessee has cleared the said product without payment of duty under Notification No. 4/2006 upto 01.03.2011 and thereafter at 1% duty under Notification No. 1/2011. Since the product is manufactured utilizing cenvat credit of inputs and input services, it is chargeable to duty at 5% adv w.e.f. 01.03.2011 under Notification No. 2/2011-CE dated 01.03.2011 and not at 1% ad valorem under Notification No. 1/2011, as proviso to the said Notification states that nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs or tax on input services has been taken under the provisions of the Cenvat Credit Rules, 2004.”
6. The original authority vide Order-in-Original No.03/2013-CE dated 28.01.2013 observed as follows:
“11. ……………I find that, assessee utilized some portion of cenvat credit which exclusively pertains to the manufacture of Nutri Gold which is cleared at 1% duty. These inputs have no role in the manufacture of dutiable product named Gelatin. Once the sludge is generated at the intermediate stage the assessee is utilizing various inputs like 2:1 acetic acid, caustic soda, HDPE bottles etc. which are exclusively related to manufacture of Nutri Gold.”
This order has been upheld by the Commissioner (Appeals).
7. As seen from the show-cause notice, there is no mention as to which are the inputs that have been exclusively used in the manufacture of Nutri Gold and also in the order of the original authority, there is nothing specific that is mentioned categorically which inputs are used in the manufacture of Nutri Gold but it states some portion of the inputs are used for the manufacture of fertilizer, this implies that the inputs that were used in the manufacture of Gelatin were also used to generate Nutri Gold, the question of the inputs received and used for Nutri Gold cannot be justified. Moreover, the HDPE bottles find place for the first time in the impugned orders and no mention in the show-cause notice; hence, as rightly pointed out by the appellant unless evidences are placed on record that cenvat credit was availed on the inputs to manufacture Nutri Gold, the same cannot be sustained.
8. In the case of Union of India Versus Hindustan Zinc Ltd. 2014 (303) E.L.T. 321 (S.C.) dated 06.05.2014, the Hon’ble Supreme Court observed as follows:
“26. Furthermore, the provisions of Rule 57CC cannot be read in isolation. In order to understand the scheme of Modvat credit contained in this Rule, a combined reading of Rules 57A, 57B and 57D along with Rule 57CC becomes inevitable. We have already reproduced Rule 57D above. It can be easily discerned from a combined reading of the aforesaid provisions that the terms used are ‘inputs’, ‘final products’, ‘by-product’, ‘waste products’, etc. We are of the opinion that these terms have been used taking into account commercial reality in trade. In that context when we scan through Rule 57CC, reference to final product being manufactured with the same common inputs becomes understandable. This Rule did not talk about emergence of final product and a by-product and still said that Rule 57CC will apply. The appellant seeks to apply Rule 57CC when Rule 57D does not talk about application of Rule 57CC to final product and by-product when the by-product emerged as a technological necessity. Accepting the argument of the appellant would amount to equating by-product and final product thereby obliterating the difference though recognised by the legislation itself. Significantly this interpretation by the Tribunal in Sterlite (supra) was not appealed against by the department.
27. We are also unable to agree with the submission of the learned Solicitor General that judgment in GAIL’s case is not applicable. Significantly, the question as to whether Rule 57CC will apply when by-products are cleared without payment of duty came for discussion in that case. It was held that so long as the lean gas was obtained as a by-product and not as a final product, Rule 57CC will not apply. We are, therefore, of the view that the respondent’s case is squarely covered by the judgment in GAIL’s case.”
9. In view of the above, if inputs used in the manufacture of the final product are also used for processing the waste products to manufacture a dutiable product, then cenvat credit cannot be denied. The Notifications, in the instant case, extended concessional rate of duty only on the ground that no cenvat credit was availed on input or input services. In the present case, there is no evidence on record to state that inputs were purchased and used exclusively for the manufacture of Nutri Gold. Accordingly, the impugned orders cannot be sustained.
Appeals are allowed.
(Order pronounced in Open Court on 11.09.2026.)
