Anil Starch Products Ltd. Vs. Collector of Central Excise and - Court Judgment

Excerpt:
1. this is an appeal directed against the order of the collector of central excise (appeals) bearing no. gsm-1772/89ahd (file no. v-2(17) 31/ahd/89) dated 24.8.1989.2. brief facts for the purpose of disposal of the appeal can be stated as below: 3. the appellants are manufacturers of dextrose monohydrate. they bring certain duty-paid inputs used in the manufacture of the aforesaid product under the modvat scheme. in the manufacture of dextrose monohydrate, at the stage of centrifuging, crystals are separated and the. mother liquor, which is known by the trade name "redugent" otherwise known by the commercial name "hydrol is thrown out, which is not chargeable to duty. the department alleged that the inputs are used in the manufacture of this exempted hydrol and hence credit in respect of the inputs, which have gone into the manufacture of this exempted product, is not admissible to them and they have issueda demand accordingly. in the adjudication proceedings initiated by the assistant collector, the demand was confirmed on this ground. when the matter was taken up by way of appeal before the collector (appeals), he rejected the appeal. the appellants are before us against the aforesaid order.4. shri cs khambhaolja, the learned consultant, on behalf of the appellants contended that redugent (hydrol) is nothing but a by-product occurring in the process of manufacture of dextrose monohydrate: as per the provision of rule 57d, modvat credit is not to be denied to them 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, whether or not such waste, refuse or by-product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty or v not specified as a final product under rule 57a.to support his contention that redugent (hydrol is a by-product, he took us through the following technical books (i) riegel's handbook of industrial chemistry 7th edition, edited by james a. kent; (ii) encyclopaedia of chemical technology volume iv, edited by raymond e.kirk & donald f. othmer, 1st and 2nd edition. he read the relevant portions to establish that the molasses accruing at the time of centrifuging is known as by-product and is also recognised as such. he therefore pleaded that they are entitled to take credit and credit is not to be denied or varied notwithstanding the fact that an input may be utilised in the manufacture of the by-product. their case is therefore squarely covered by rule 57d. he also contended that the inputs are used for the manufacture of dextrose monohydrate and utilisation has taken place before centrifuging and further usage of inputs stops there. at the stage of centrifuging, the mother liquor comes into existence and crystals are separated and the liquor which comes out is a by-product. he also referred to the classification list approved by the department, wherein the redugent (hydrol) has been approved under tariff heading 1703.90 pertaining to molasses resulting from the extraction or refining of sugar and others.6. after hearing both the sides, we observe that the main issue to be decided in this appeal is whether hydrol is a by-product covered by rule 57d or a final product by itself covered by rule 57c. if it is a by-product carrying "nil" rate of duty, rule 57d is to be applied and duty credit taken on inputs used in the by-product cannot be varied or reduced. if it is the final product, because it is chargeable to nil rate, duty credit cannot be extended by virtue of rule 57c. while the appellants urge for application of rule 57d, the department insists on the denial in terms of rule 57c.7. after perusing the technical literatures cited by the appellants' learned consultant, we are satisfied that these literatures recognise "hydrol" - the mother liquor on hydrolisis of starch as a by-product.we also take note of the fact that dextrose crystals are separated on centrifuging and that is the main item of manufacture. mother liquor thrown out on separation of crystals is a by product, which is known as hydrol. the process of manufacture is carried out to obtain dextrose monohydrate crystals and that is the main product. mother liquor thrown out on centrifuging can only be by-product. we are unable to agree with the collector (appeals) that hydrol can be the main product and dextrose by-product. this is for the simple reason that the object of manufacture is [to] get dextrose crystals and not to get hydrol--the mother liquor. the technical literatures cited by the learned consultant also support the view that hydrol is a by-product. in this view of the matter, the appellants are entitled to the benefit of rule 57d and credit cannot be varied or curtailed on account of the fact that some part of the inputs would have gone into this by-product, which is chargeable to nil rate of duty. moreover, we observe that demand has been issued on the entire quantity of hydrol produced which is hardly sustainable.8. in the result, we allow the appeal and set aside the orders of the authorities below.

Judgment:
1. This is an appeal directed against the order of the Collector of Central Excise (Appeals) bearing No. GSM-1772/89AHD (File No. V-2(17) 31/AHD/89) dated 24.8.1989.

2. Brief facts for the purpose of disposal of the appeal can be stated as below: 3. The appellants are manufacturers of dextrose monohydrate. They bring certain duty-paid inputs used in the manufacture of the aforesaid product under the MODVAT scheme. In the manufacture of dextrose monohydrate, at the stage of centrifuging, crystals are separated and the. mother liquor, which is known by the trade name "Redugent" otherwise known by the commercial name "hydrol is thrown out, which is not chargeable to duty. The department alleged that the inputs are used in the manufacture of this exempted hydrol and hence credit in respect of the inputs, which have gone into the manufacture of this exempted product, is not admissible to them and they have issueda demand accordingly. In the adjudication proceedings initiated by the Assistant Collector, the demand was confirmed on this ground. When the matter was taken up by way of appeal before the Collector (Appeals), he rejected the appeal. The appellants are before us against the aforesaid order.

4. Shri CS khambhaolja, the learned consultant, on behalf of the appellants contended that Redugent (hydrol) is nothing but a by-product occurring in the process of manufacture of dextrose monohydrate: As per the provision of Rule 57D, MODVAT credit is not to be denied to them 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, whether or not such waste, refuse or by-product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty or v not specified as a final product under Rule 57A.To support his contention that Redugent (hydrol is a by-product, he took us through the following technical books (i) Riegel's Handbook of Industrial Chemistry 7th Edition, edited by James A. Kent; (ii) Encyclopaedia of Chemical Technology Volume IV, edited by Raymond E.Kirk & Donald F. Othmer, 1st and 2nd Edition. He read the relevant portions to establish that the molasses accruing at the time of centrifuging is known as by-product and is also recognised as such. He therefore pleaded that they are entitled to take credit and credit is not to be denied or varied notwithstanding the fact that an input may be utilised in the manufacture of the by-product. Their case is therefore squarely covered by Rule 57D. He also contended that the inputs are used for the manufacture of dextrose monohydrate and utilisation has taken place before centrifuging and further usage of inputs stops there. At the stage of centrifuging, the mother liquor comes into existence and crystals are separated and the liquor which comes out is a by-product. He also referred to the classification list approved by the department, wherein the Redugent (hydrol) has been approved under Tariff Heading 1703.90 pertaining to molasses resulting from the extraction or refining of sugar and others.

6. After hearing both the sides, we observe that the main issue to be decided in this appeal is whether hydrol is a by-product covered by Rule 57D or a final product by itself covered by Rule 57C. If it is a by-product carrying "nil" rate of duty, Rule 57D is to be applied and duty credit taken on inputs used in the by-product cannot be varied or reduced. If it is the final product, because it is chargeable to nil rate, duty credit cannot be extended by virtue of Rule 57C. While the appellants urge for application of Rule 57D, the Department insists on the denial in terms of Rule 57C.7. After perusing the technical literatures cited by the appellants' learned consultant, we are satisfied that these literatures recognise "hydrol" - the mother liquor on hydrolisis of starch as a by-product.

We also take note of the fact that dextrose crystals are separated on centrifuging and that is the main item of manufacture. Mother liquor thrown out on separation of crystals is a by product, which is known as hydrol. The process of manufacture is carried out to obtain dextrose monohydrate crystals and that is the main product. Mother liquor thrown out on centrifuging can only be by-product. We are unable to agree with the Collector (Appeals) that hydrol can be the main product and dextrose by-product. This is for the simple reason that the object of manufacture is [to] get dextrose crystals and not to get hydrol--the mother liquor. The technical literatures cited by the learned consultant also support the view that hydrol is a by-product. In this view of the matter, the appellants are entitled to the benefit of Rule 57D and credit cannot be varied or curtailed on account of the fact that some part of the inputs would have gone into this by-product, which is chargeable to nil rate of duty. Moreover, we observe that demand has been issued on the entire quantity of hydrol produced which is hardly sustainable.

8. In the result, we allow the appeal and set aside the orders of the authorities below.