CCE Vs. HABIB REFINED OILS PVT. LTD.

JUDGEMENT

(1.) THIS application filed by the Revenue (Appellant) is for stay of operation of the impugned order, wherein learned Commissioner (Appeals) set aside the order of the lower authority demanding an amount of over Rs. 47.00 lacs from the assessee under Rule 12 of the CENVAT Credit Rules, 2002 read with the proviso to Section 11A(1) of the Central Excise Act. The demand raised by the original authority was in terms of Rule 6(3)(b) of the CENVAT Credit Rules 2002. Under that Rule, a manufacturer of dutiable and exempted final products, who had not maintained separate inventory in respect of inputs used in the manufacture of dutiable product and those used in the manufacture of the exempted product, was required to pay 8% of the price (excluding tax) of the exempted goods. The original authority raised such a demand on the assessee in adjudication of a show -cause notice. The appellate Commissioner set it aside after holding that Rule 6(3)(b) ibid was not attracted in the case. Hence the Revenue's appeal before us. After examining the records and hearing both sides, we are of the view that the appeal itself requires to be finally disposed of at this stage. Accordingly, after dismissing the stay application, we proceed to deal with the appeal.

(2.) THE respondents are manufacturers of refined vegetable oils, which were dutiable during the period of dispute. During such period, their by -product viz. de -oiled cake, which arose during the course of manufacture of refined oil, was chargeable to nil rate of duty. Hexane was the solvent used in the Solvent Extraction Plant of the assessee, for extracting vegetable oil in pure form from crude oil. The materials which were insoluble in Hexane would remain as a residue which was processed out as 'de -oiled cake'. It appears from the records that, though the assessee had initially taken CENVAT credit on the entire quantity of Hexane used for the said purpose, they later on reversed the entire credit. Nevertheless, the department wanted to invoke Rule 6(3) ibid and accordingly the show -cause notice was issued and eventually the case has come up before us.

(3.) AFTER considering the submissions, we find that Hexane was, admittedly, used as the solvent for extracting vegetable oil in pure form from crude oil in the Solvent Extraction Plant of the assessee. Vegetable oil is soluble in Hexane and hence gets so extracted, and we call that product "refined vegetable oil". In the process, the insoluble materials remain as a residue, which is processed out as what is called "de -oiled cake". On these facts, it is clear that Hexane is common to the main product and the by -product. However, it is also a fact that the solvent is recovered and reused for refining fresh quantities of crude oil in the Solvent Extraction Plant. In the nature of this process, one cannot say as to how much quantity of Hexane was used for manufacturing refined vegetable oil and how much quantity used for manufacturing the by -product. In other words, maintenance of separate accounts with reference to dutiable and exempted products becomes impossible. This was, perhaps, the reason why the assessee chose not to maintain separate accounts. In other words, they did not opt to operate under Rule 6(2) of the CENVAT Credit Rules. But now, can it be said that they should necessarily pay 8% of the price of the exempted product under Rule 6(3)? This provision would come into play only where a manufacturer of dutiable and exempted final products is capable of maintaining separate accounts in respect of common inputs used in the manufacture of such products but has not maintained such accounts. Here is a case where the manufacturer (respondents) was not capable of maintaining separate accounts in respect of Hexane.