Judgment:
1. The Commissioner of Central Excise, Chandigarh has filed this appeal against order dated 23-4-1991 passed by the Commissioner of Central Excise (Appeals), Chandigarh. The dispute relates to the denial of Modvat credit on inputs hydrochloric acid, ferric alum, and activated carbon. The respondents manufacture soap falling under Sub-heading 3401.10 Central Excises and Salt Act, 1985. The process of manufacture of soap is that fat/oil is subjected to the process of alkalisation by reaction with alkali i.e. caustic soda lye, when crude fatty acid and sweet water are obtained. Thereafter crude fatty acid is further used for manufacture of soap. Sweet water which is not used for the manufacture of soap is separated for manufacture glycerine, for which purpose the sweet water containing glycerine in impure form is treated with hydrochloric acid and ferric alum to obtain glycerine. After further treatment with activated carbon refined glycerine is produced.
The Department has disallowed Modvat credit on these inputs on the ground that these have not been used in the manufacture of soap but in the manufacture of glycerine which is a distinct dutiable product for which the respondents have not filed any declaration as required under Rule 57G of Central Excise Rules. The respondents had included them in their declaration as inputs for the declared final product, soap. The Assistant Commissioner, Central Excise, Ludhiana ordered reversal of Modvat credit on these inputs. The Commissioner (Appeals) by the impugned order set aside the Assistant Commissioner's order holding glycerine as a by-product and hence Modvat cannot be denied in terms of Rule 57D and hence this appeal by the Revenue.
2. We have heard learned Departmental Representative Shri Jangir Singh who contended that the Commissioner (Appeals) had failed to consider the fact, that these inputs are used in the manufacture of final product, glycerine, which has not been declared at all, nor is it a by-product in the manufacture of soap so as to be covered by provisions of Rule 57D Central Excise Rules. Learned Counsel for respondents Shri J.P. Kaushik appearing along with learned Counsel Ms. Ginny Bedi submitted that they were under the impression that glycerine is a by-product hence had not separately declared it and that Modvat credit should not be denied for their lapse, which at worst, is only a technical irregularity as the goods are covered by Modvat Scheme.
3. The submissions made have been carefully considered. From the process of manufacture it is evident that glycerine is manufactured by using the 3 disputed inputs in conjunction with sweet water, which is the basic raw material for the manufacture of glycerine. It is a separate stream of manufacture and has no nexus with the manufacture of soap. It cannot be said to be a by-product arising during the manufacture of soap. Hence provisions of Rule 57D Central Excise Rules, which say that Modvat credit should not be denied on the ground that a part of the input is contained in a by-product arising during the manufacture of final product will not be attracted. The Commissioner (Appeals) reasoning is, therefore, unsustainable.
4. However, the fact remains that the three inputs in question and glycerine as final product are covered under Modvat Scheme. Admittedly the inputs have been used in the manufacture of glycerine which is cleared on payment of duty. The inputs had been included in the declaration, though mistakenly, against a different final product. In the context of these facts and circumstances of this case, it will be appropriate and reasonable to extend the Modvat credit facility to the respondents in respect of the inputs hydrochloric acid, ferric alum, and activated carbon used in the manufacture of glycerine. In this view of the matter we do not feel called upon to modify the impugned order of Commissioner (Appeals). The respondents are also directed to file a revised declaration before the jurisdictional Assistant Commissioner which, if otherwise in order, may be accepted to regularise the availment of credit. The appeal is disposed of in the above terms.