RALLIES INDIA LTD. Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) THE issue referred to the Larger Bench is as under: Whether 8% of the amount as per erstwhile Rule 57CC of Central Excise Rules, 1944 (now Rule 6 of Cenvat Credit Rules, 2002) is required to be discharged, before removal of by products/subsidiary products when such products are exempted from whole of duty, therein in light of the conflicting view in the above two decisions. The above issue came to be referred to the Larger Bench by noticing two streams of views regarding interpretation of the provisions of Rule 57CC by different precedent decisions of the Bench.

(2.) BEFORE we proceed to decide the issue it is worth referring to the manufacturing process of the appellant, who are engaged in the manufacture of gelatin. For the said purpose the initial raw material is animal bones and hydrochloric acid. The appellants were availing benefit of modvat credit in respect of HCL. The animal bones were treated with HCL. As a result inorganic material in the animal bones react with the HCL to form water -soluble compound. This inorganic material in the form of water -soluble compound are removed from the process undertaken by the Appellant to manufacture Gelatin. The water soluble compound so removed from the manufacturing process is called Phosphoryl Liquor/Mother Liquor. The other material which remained in the process i.e. Organic material is known as Ossien and further processed to manufacture Gelatin falling under Chapter 35 Heading 3503 of the Central Excise Tariff Act, 1985. Phosphoryl Liquor/Mother Liquor removed from the process undertaken to manufacture Gelatin is a hazardous chemical waste. This Phosphoryl liquor i.e. waste obtained in the process of manufacturing Gelatin is processed by the Appellant with lime to form Dye -Calcium Phosphate (also known as Calphor). This Calphor is further processed to obtain Phosphoryl A and Phosphoryl B which are classifiable under Heading 2302 of the Central Excise Tariff Act, 1985 attracting nil rate of Central Excise Duty.

(3.) THE modvat credit availed by the appellant on HCL was being used by them for discharge of duty leviable on Gelatin. However, Revenue was of the view that inasmuch as, the said HCL is being used for manufacture of gelatin as also for manufacture of phosphoryl, which is an exempted product, the appellants are liable to reverse an amount of 8% of the value of the said exempted goods. Accordingly, proceedings were initiated by way of issuance of different show cause notices, which culminated into the impugned order passed by Commissioner of Central Excise confirming demands and imposing penalties. On hearing the appeal against above order, Referral Bench noticed conflicting views of the Tribunal and accordingly referred the matter to Larger Bench.