HIGH COURT OF MADRAS
Commissioner of Central Excise, Pondicherry, Commissionerate
Versus
EID Parry (I) Ltd.
C.M.A. NOS. 2071 OF 2005, 1352 OF 2008,
1122 OF 2009 AND 638 & 1087 OF 2010
MARCH 11, 2013
JUDGMENT
K. Ravichandrabaabu, J.
In all these appeals, the issue involved are one and the same and common. It is represented by the learned counsels appearing in all these matters that the decision to be rendered in C.M.A. No. 2071 of 2005 will cover the other appeals. Therefore, the first case, viz., C.M.A. No. 2071 of 2005 is taken up for consideration.
2. The Revenue is on appeal against the final order passed by the CESTAT, South Zonal Bench, Chennai in No.1040 dated 1.12.2003.
3. Case of the Revenue:-
The first respondent is the manufacturer of Sugar, Molasses and Denatured Ethyl Alcohol. It was noticed by the preventive Officers that the first respondent manufactured Bio-compost fertiliser falling under Chapter Heading 3105.00 of the Central Excise Tariff Act, 1985 and availed credit of duty on inputs viz., Molasses, Acetaldehyde, Benzene and Toluene, Tyridin, Light Taoutchocine, Sulphuric Acid, Chloroform and Methonol which are the common inputs for both Bio-compost fertiliser as well as Denatured Ethyl Alcohol. Bio-compost fertiliser is exempted from payment of duty vide Notification No. 8/96 dated 23.7.1996 etc., whereas Denatured Ethyl Alcohol is a dutiable product. During the course of manufacture of sugar, a waste product called Press mud emerged and during the manufacture of denatured ethyl alcohol, another bi-product viz., spent wash emerged. The press mud and spent wash were treated together for about 40 days and out of such treatment, an organic manure viz., Bio-compost emerged. The said organic manure is sold as “Farm boon” and “Garden bloom” by the first respondent. On further verification of the lab report, in respect of spent wash, it was noted that the same contained chemicals such as chlorides, sulphides, di-phosphates, potassium, sodium and nitrogen. Thus, from the lab report of the final product viz., “Farm boon” and “Garden bloom”, it was noted that the above said chemicals were present in those final products. The first respondent manufactured and cleared bio-compost fertiliser during the period from 21.8.1996 to 28.3.2000 without following the Central Excise Procedures.
4. As per the provisions of erstwhile Rule 57A of the Central Excise Rules, 1944, an amount at the rate of 8% of the price of the final product charged for the sale of bio-compost fertiliser, at the time of clearance from the factory, is payable by the first respondent. A show cause notice was issued to the first respondent demanding the amount at the rate of 8% as stated supra by invoking the extended period of limitation as the first respondent suppressed the fact of clearance with an intention to evade payment of the duty. The first respondent replied to the show cause notice and denied its liability. After due process of law, the adjudicating authority confirmed the demand vide its Order in original dated 20.9.2000
5. Aggrieved by the said order, the first respondent preferred an appeal before the CESTAT. By an order dated 1.12.2003, which is impugned in this appeal, the Tribunal allowed the appeal and set aside the demand. The Revenue by challenging the said order of the Tribunal, filed the above appeal and raised the following substantial questions of law:-
1. Whether the Tribunal is correct in holding that the inputs used in the manufacture of Denatured Ethyl alcohol are not used in the non-duty paying product (Bio-compost fertiliser) ?
2. Whether the Tribunal is correct in holding that the provisions of erstwhile Rule 57CC Central Excise Rules, 1944 is not applicable in this case ?
6. Mr. K. Ravi Anantha Padmanaban, learned Senior Central Government Standing Counsel appearing for the Revenue submitted as follows:-
(i) Credit of duty is permissible not only when the inputs are used directly in the manufacture of final product but also when the same is used in relation to the manufacture of final product.
(ii) The credit availed chemicals were used in the course of manufacture of sugar. Pursuant to its utilisation various final products emerged. These final products include sugar, ethyl alcohol, press-mud and spent wash. The said exempted final products viz., press-mud and spent wash are used in the manufacture of Bio-compost fertiliser, which is also exempted. Thus there is a common link/chain connecting the inputs used in the manufacture of Bio-compost fertiliser.
(iii) As per the provision of erstwhile Rule 57A of the Central Excise Rules, 1944 and Rule 6(3)(b) of CENVAT Credit Rules, 2002 credit is allowed on the inputs even if it is utilised indirectly or in relation to the manufacture of final product.
(iv) What is manufactured and marketed by the first respondent is not mere press-mud, but enriched press mud. The Tribunal failed to differentiate the issue involved in the case of CCE v. Titawi Sugar Complex 2003 (152) ELT 21 (SC) with the issue on hand since the marketability of the press mud alone was the issue in that case. As no evidence on the marketability of press mud was placed by the Revenue before the Apex Court, it was held therein that the press mud was a non-excisable item. In this case, the first respondent assessee marketed the enriched press mud under the brand name “Farm Boon” and “Garden Bloom”.
(v) As “Farm Boon” and “Garden Boom” are final products, it only shows that Bio-compost is a manufactured excisable item. Only the payment of duty on such excisable item is exempted by virtue of several notifications till March 2011 and therefore the exempted product is an excisable product attracting nil rate of duty.
(vi) Bio-compost is an excisable item cleared on sale. Therefore, it is one of the final products manufactured by the assessee and when the inputs mentioned above are used in or in relation to the manufacture of the said final product, the first respondent is liable to pay the demand of duty.
(vii) The excisable item Bio-compost is a product manufactured from sugarcane along with excisable goods viz., sugar, molasses, denatured spirit by using various MODVAT credit availed inputs. Therefore, it is an exempted final product manufactured out of the usage of said inputs. Consequently, as held by the Apex Court in the case of Collector of Central Excise v. Solaris Chemtech Ltd. [2007] 9 STT 412 the relationship with the credit availed inputs is established resulting the liability on the assessee to pay the demand of duty.
Thus, the learned counsel for the Revenue strongly relied on the decision of the Apex Court in the Solaris Chemtech Ltd., case and submitted that the first respondent assessee is liable to pay an amount of 8% on the price of the bio-compost under Rule 57CC of the Modvat Credit Rules, 1944.
Case of the Assessee:-
7. Per contra, the learned counsel appearing for the first respondent assessee submitted as follows:-
(i) The first respondent assessee is the manufacturer of Sugar, molasses, de-natured Ethyl Alcohol.
(ii) Rule 57C read with Rule 57CC has been wrongly invoked by the Revenue as there is no allegation in the notice that factory where Bio-compost fertiliser was manufactured was part of registered premises wherein sugar was manufactured .
(iii) When the first respondent initiated the activity of manufacturing of Bio-compost fertiliser, the department was intimated about the same and also about the fact that no registration is required under under Rule 174.
(iv) The requirement to pay 8% of price of exempted products would arise only at the time of removal of goods from factory. Both dutiable and exempted goods must have been produced in the same factory. Since the fertiliser was not manufactured within the factory, the provision of Rule 57C read with Rule 57CC is not attracted.
(v) Press mud was removed to compost yard where it was mixed with spent wash, to finally get the product viz., bio-compost fertiliser. Both press mud and spent wash are waste products emerged in the process of manufacture of sugar.
(vi) Rule 57C read with Rule 57CC contemplates payment of 8% of price of exempted products only when the manufacturer took credit of specific duty on any input which was used in or in relation to manufacture of final product. The mixture of press mud and spent wash did not derive their characteristics of manure from any of the modvatted or cenvated item, but from the characteristics of sugar cane, water and natural organic substances contained in them.
(vii) None of the credit availed input had been used in or in relation to manufacture of Bio-compost fertiliser as contemplated under Rule 57C(2). The inputs were brought into factory for manufacture of sugar.
(viii) Sugar cane itself contained chemicals such as potassium, Fluoride, Calcium, Magnesium, Phosphorous, Phosphatic, Iron, Carbonite Ash etc., and therefore the characteristics of press mud were relatable to sugar cane only and not to any modvatted input.
(ix) No cenvated inputs or chemicals have been used in such a process of conversion of press mud and effluent waste (spent wash).
(x) Admittedly, both press mud and spent wash are wastes emerged during the process of manufacturing sugar. So long as bio-compost is not the final product of the sugar industry and so long as it is not produced out of cenvated inputs, it does not come under the description of final products for the purpose of invoking Rule 57CC.
(xi) When two waste materials arise, inevitably, during the process of manufacture of final product viz., sugar, the mixture of such waste materials cannot be said to have been produced or manufactured from the cenvated inputs.
8. By contending so, the learned counsel for the first respondent assessee relied on the following decisions:-
