IMPORTANT POINT
When by-product emerges as a technological necessity along with final product, Rule 57CC will not apply.

JUDGMENT

A.K. Sikri, J. –

1. All these appeals raise identical question of law, which has arisen in almost similar circumstances. In fact, the issue involved was decided by the High Court in a batch of Writ Petitions filed by M/s. Hindustan Zinc vide judgment dated 23.1.2007 against which SLP under Article 136 of the Constitution was filed in which leave has been granted. In other case, same issue is decided by the CESTAT against which statutory appeal is preferred. That is precisely the reason that all these appeals were bunched together and collectively heard.

2. At the outset, the controversy involved may be reflected by pointing out that the questions for consideration are as to the entitlement of the Respondents/ assessees to Modvat/ Cenvat Credit for the use of inputs in the manufacture of final products which are exempt or subject to nil rate of duty and the requirement of the assessee to maintain separate accounts with respect to inputs used in dutiable goods as well as exempted goods and the liability arising on the failure of the assessee to maintain such separate accounts. In Civil Appeal Nos. 8621-8630 of 2010, we are concerned with sulphuric acid. In Civil Appeal No. 8631 of 2010, it is caustic soda flakes and trichloro ethylene. In Civil Appeal No. 2337 of 2011, the product is again sulphuric acid and in the case of Civil Appeal No. 5322 of 2010 and the other connected matter of M/s Rallis India Ltd, it is Phosphoryl A and Phosphoryl B. The issue is as to whether the Assessees (respondents) are entitled to Modvat/ Cenvat Credit on inputs used in the manufacture of the aforementioned exempted (or subject to NIL rate of duty) final products.

3. In all these appeals filed by the Revenue, it has taken the position with the common contention as to whether the Respondents are liable to pay 8% excise duty as an amount under Rule 57CC of the Central Excise Rules, 1944 or 57AD of the Central Excise Rules, 2000 or Rule 6 of the Cenvat Credit Rules, 2004 (hereinafter referred to as 'Rules') on the value of by-product namely sulphuric acid which was cleared to fertilizer plants under exemption in terms of the bonds executed by the fertilizer plants.

4. At this stage we would describe the manufacturing process in all three cases and the facts leading to the filing of the present appeal.

Hindustan Zinc Ltd. (C.A. No. 8621-8630/2010)

i) Hindustan Zinc Ltd. obtained zinc ore concentrate from the mines on the payment of excise duty which is used as an input for the production of zinc. Zinc ore is predominantly available as Zinc Sulphide (ZnS).

ii) When ZnS is heated (calcined) at high temperature in the presence of oxygen, zinc oxide (ZnO) and sulphuric acid are produced. Zinc Oxide is further oxidised to produce zinc. Sulphur obtained as a technological necessity is a pollutant and is, therefore, converted into sulphur dioxide in the presence of catalysts like Vanadium Pentaoxide & Hydrogen Peroxide. Sulphuric acid is converted into sulphur and the respondent does not take any Cenvat Credit on the inputs used after the emergence of sulphur dioxide. The sulphuric acid produced as a by-product is sold on payment of excise duty to various industries. Some quantities of sulphuric acid are sold to fertilizer plants in terms of notification No. 6/2002-CE on the execution of bonds by the fertilizer plants to the satisfaction of the excise authorities. The said sulphuric acid is used for the production of zinc.

iii) The excise department took a view that in terms of Rule 57 CC of the Rules, the respondents were obliged to maintain separate accounts and records for the inputs used in the production of zinc and sulphuric acid and in the absence of the same the respondents were obliged to pay 8% as an amount on the sale price of sulphuric acid to the fertilizer plants in terms of Rule 57 CC. The respondent defended the more by contending that the very purpose of the grant of exemption to sulphuric acid was to keep the input costs at the lowest for