Gujarat State Fertilisers Co. Vs. Commr. of C. Ex. and Cus. - Court Judgment

Excerpt:
1. the appellant manufactures in its polymer units methyl methacrylate monomer (mma). one of the raw materials for the manufacture of mma is concentrated sulphuric acid. after manufacture of mma, a residue remains in the vessel in which a final reaction takes place, which is called 'kettle residue'. it is stated that this residue contains sulphuric acid to the extent of about 15%. the appellant transferred this residue which is in the form of spent acid to a different section of its unit, where it was converted into ammonium sulphate used as fertilizer. it was not disputed that the department has not demanded duty on the kettle residue.2. notice was issued to the appellant in april, 1995 proposing reversal of the modvat credit taken on the duty paid on sulphuric acid used for the manufacture of mma to the extent of the acid contained in the kettle residue. the reason advanced was that since kettle residue is used in the manufacture of ammonium sulphate, which is exempted from duty as fertilizer, the kettle residue was an intermediate product arising in the course of manufacture of ammonium sulphate from sulphuric acid. therefore, by application of rule 57c, the credit would not be available on the quantity of sulphuric acid used for the manufacture of exempted product, ammonium sulphate. after considering the issues raised in the show cause notice and after personal hearing, the commissioner passed the impugned order. in this order, he has confirmed the proposal in the notice that kettle residue is an intermediate product arising in the course of manufacture of exempted product.3. rule 57d provides that credit shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse, or by-product arising during the manufacture of the final product. it also provides that credit shall not be denied or varied on the ground that any intermediate products have come into existence during the course of manufacture of final products and such intermediate products are exempted from duty. we are not concerned with the proviso to the sub-rule. the issue, therefore, is whether kettle residue is an intermediate product or by-product. it is the commissioner's view, which is reiterated by the departmental representative, that it is such an intermediate product. the departmental representative points out that in the course of fertilizer, raw material goes through a stage at which the kettle residue emerges as an intermediate product and subsequently treated to become a fertilizer. this argument would have relevance if the appellant set out to manufacture fertiliser. however, there is no serious dispute that the appellant was predominantly the manufacturer of mma. it is in the course of manufacture of such mma, that kettle residue emerges. the issue is covered by the judgment of the supreme court in the case of swadeshi polytex ltd v. collector of cen. excise - 1989 (44) e.l.t. 794 (s.c.). in that case the appellant manufactured polyester fibre and used it for its manufacture ethylene glycol and d.m.t. in the course of manufacture of polyester fibre methanol came into existence and the department was of the view that credit was not available on the quantity of ethylene glycol contained in methanol as it was not excisable. the court did not accept this contention, which was upheld by this tribunal. it noted that methanol arose as a part of chemical reaction during the course of manufacture of polyester fibre and that it was not possible to prevent methanol arising in the course of production of fibre. it therefore, held that credit cannot be denied on the quantity of methanol contained in ethylene glycol.4. the position before us is very similar. kettle residue arises in the course of manufacture of mma and it is not possible to prevent its coming into existence in the course of process. kettle residue item inevitably comes into existence in the manufacture of mma. the fact that it is subsequently used for manufacture of ammonium sulphate, does not disentitle it to be considered among the goods listed in rule 57d - waste, refuse or by-product. the credit, therefore, could not be denied on the quantity of acid contained in the residue.

Judgment:
1. The appellant manufactures in its polymer units methyl methacrylate monomer (MMA). One of the raw materials for the manufacture of MMA is concentrated sulphuric acid. After manufacture of MMA, a residue remains in the vessel in which a final reaction takes place, which is called 'kettle residue'. It is stated that this residue contains sulphuric acid to the extent of about 15%. The appellant transferred this residue which is in the form of spent acid to a different section of its unit, where it was converted into ammonium sulphate used as fertilizer. It was not disputed that the department has not demanded duty on the kettle residue.

2. Notice was issued to the appellant in April, 1995 proposing reversal of the Modvat credit taken on the duty paid on sulphuric acid used for the manufacture of MMA to the extent of the acid contained in the kettle residue. The reason advanced was that since kettle residue is used in the manufacture of ammonium sulphate, which is exempted from duty as fertilizer, the kettle residue was an intermediate product arising in the course of manufacture of ammonium sulphate from sulphuric acid. Therefore, by application of Rule 57C, the credit would not be available on the quantity of sulphuric acid used for the manufacture of exempted product, ammonium sulphate. After considering the issues raised in the show cause notice and after personal hearing, the Commissioner passed the impugned order. In this order, he has confirmed the proposal in the notice that kettle residue is an intermediate product arising in the course of manufacture of exempted product.

3. Rule 57D provides that credit shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse, or by-product arising during the manufacture of the final product. It also provides that credit shall not be denied or varied on the ground that any intermediate products have come into existence during the course of manufacture of final products and such intermediate products are exempted from duty. We are not concerned with the proviso to the Sub-rule. The issue, therefore, is whether kettle residue is an intermediate product or by-product. It is the Commissioner's view, which is reiterated by the departmental representative, that it is such an intermediate product. The departmental representative points out that in the course of fertilizer, raw material goes through a stage at which the kettle residue emerges as an intermediate product and subsequently treated to become a fertilizer. This argument would have relevance if the appellant set out to manufacture fertiliser. However, there is no serious dispute that the appellant was predominantly the manufacturer of MMA. It is in the course of manufacture of such MMA, that kettle residue emerges. The issue is covered by the judgment of the Supreme Court in the case of Swadeshi Polytex Ltd v. Collector of Cen. Excise - 1989 (44) E.L.T. 794 (S.C.). In that case the appellant manufactured polyester fibre and used it for its manufacture ethylene glycol and D.M.T. In the course of manufacture of polyester fibre methanol came into existence and the department was of the view that credit was not available on the quantity of ethylene glycol contained in methanol as it was not excisable. The Court did not accept this contention, which was upheld by this Tribunal. It noted that methanol arose as a part of chemical reaction during the course of manufacture of polyester fibre and that it was not possible to prevent methanol arising in the course of production of fibre. It therefore, held that credit cannot be denied on the quantity of methanol contained in ethylene glycol.

4. The position before us is very similar. Kettle residue arises in the course of manufacture of MMA and it is not possible to prevent its coming into existence in the course of process. Kettle residue item inevitably comes into existence in the manufacture of MMA. The fact that it is subsequently used for manufacture of ammonium sulphate, does not disentitle it to be considered among the goods listed in Rule 57D - waste, refuse or by-product. The credit, therefore, could not be denied on the quantity of acid contained in the residue.