COMMISSIONER OF CENTRAL EXCISE AHMEDABAD-II vs MAIZE PRODUCTS

C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
(GJHC240408822009)
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 288 of 2009

FOR APPROVAL AND SIGNATURE:


HONOURABLE MR. JUSTICE BHARGAV D. KARIA

and
HONOURABLE MR. JUSTICE NIRZAR S. DESAI

==========================================================
Approved for Reporting Yes No
✔
==========================================================
COMMISSIONER OF CENTRAL EXCISE AHMEDABAD-II
Versus
MAIZE PRODUCTS
==========================================================
Appearance:
MR CB GUPTA(1685) for the Appellant(s) No. 1
MS ANUJA S NANAVATI(5229) for the Opponent(s) No. 1
==========================================================
CORAM: HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRZAR S. DESAI

Date : 21/10/2026

JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Standing Counsel Mr. C B Gupta
for the appellant and learned Senior Advocate Mr.
Kamal Trivedi and learned Senior Advocate Mr. Devang
Nanavati appearing with learned Advocates Mr. Jaimin
Dave and Ms. Yogita Verma appearing on behalf of Ms.
Anuja Nanavati for the respondent.
2. This appeal is filed under section 35G of the Central
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C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
(GJHC240408822009)
Excise Act, 1944 (for short “the Act” ) by appellant -
Revenue being aggrieved by the order dated
19.11.2008 passed by Customs, Central Excise and
Service Tax Appellate Tribunal, West Zonal Bench,
Ahmedabad (for short “ the CESTAT ”) in Excise Appeal
No. E/1067 of 2007.
3. This appeal is admitted by order dated 13.07.2009 for
consideration of the following substantial questions of
law:
“I. Whether an assessee is entitled to follow a
system different from the system provided under
the Rules and still entitled to a benefit of the Rules
de hors the Rules?
II. Whether the Tribunal is justified in holding
that the system followed by the assessee-
appellant for availing proportionate credit is in
order and accordingly allowed the appeal?”
4. The brief facts of the case are that the respondent –
assessee engaged in manufacture of dutiable and non-
dutiable products. For manufacturing process, the
respondent utilized two inputs namely Caustic Soda
and Hydraulic acid. The revenue took a view that in
view of the provisions of Rule 6(3)(b) of the CENVAT
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C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
(GJHC240408822009)
Credit Rules, 2004 (for short “the Rules” ) in respect of
non-dutiable products assessee was liable to pay 8% of
the value as duty since CENVAT credit was availed in
respect of the common inputs.
5. Accordingly, show cause notices were issued by the
Revenue proposing to recover the amount for the
period from April, 2005 to March, 2007 under the
provisions of Rule 14 of the Rules read with Section
11A of the Central Excise Act, 1944 with interest and
penalties, which are as under:
Value of
exempted
goods cleared
Amount @
10% of the
Sr.
No.
SCN No. and
Period involved
date
total price
V.17/15-13/
Dem/06
dated
24.03.2006
April, 2005 to
20,25,35,876 2,02,53,587
December, 2005
01
V.35/15-38/
Dem/06
dated
03.07.2006
January, 2006 to
6,67,69,613 66,76,961
March, 2006
02
V.17/15-86/
Dem/06
dated
09.02.2007
April, 2006 to
14,65,39,953 1,46,53,995
September, 2006
03
V.17/15-36/
Dem/07
dated
09.05.2007
October, 2006 to
16,87,45,281 1,68,74,528
March, 2007
04
TOTAL 58459071
6. Order-in-Original was passed on 03.08.2007 by the
adjudicating authority confirming the demand as per
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C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
(GJHC240408822009)
the show cause notices on the ground that the
assessee did not maintain separate accounts of receipt,
consumption and inventory of the inputs, which were
used in manufacturing of exempted products in
compliance of the provisions of Rule 6 of the Rules and
the methodology adopted was not compatible with the
requirements of provisions of statutory rules. The
adjudicating authority therefore levied duty at the rate
of 10% of the price of the exempted by-products i.e.,
Maize Gluten, Wet Bran, Corn Liquid, Maize Oil Cake,
Maize dust and Maize Oil as the assessee did not avail
credit in respect of such common inputs i.e.,
hydrochloric acid, caustic soda lye and furnace oil for
such by-products produced out of the manufacturing
process.
7. The adjudicating authority therefore relying on Rule
6(3)(b) read with Rule 14 of the Rules confirmed the
demand amounting to Rs.5,84,59,071/- as mentioned
in the show cause notices along with interest under
Section 11AB of the Act read with Rule 14 of the Rules
and a penalty of Rs.58,00,000/- as per Rule 15(1) of
the Rules.
8. Being aggrieved, the assessee preferred an appeal
before the CESTAT. The CESTAT, by the impugned
order, held that the issue is squarely covered by the
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C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
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decisions cited at bar of the co-ordinate Bench of the
CESTAT in case of Padmin Poylmers reported in
2003 (151) ELT.358 (Tri. Del.) , Ballarpur
Industries Ltd. reported in 2006 (201) ELT.146 (Tri.
Mum.) and Rochees Watches Ltd. reported in 2003
(152) ELT.420 (Tri. Deli) .
9. The CESTAT, in view of the above decisions, held that
there was no dispute that the assessee took the credit
proportionate to the dutiable products only which
would amount to not taking credit. Therefore, the
system followed by the assessee of availing only
proportionate credit was held to be in order and
accordingly the appeal was allowed.
10. Learned Senior Standing Counsel Mr. C B Gupta for
the appellant - revenue submitted that the
adjudicating authority, after verification of the records,
has found that the assessee availed credit of duty paid
on hydrochloric acid, caustic soda lye, and furnace oil,
which were common inputs and admittedly the
assessee has not maintained separate accounts for
receipt, consumption and inventory of inputs meant
for use in the manufacture of dutiable final products
and quantity of inputs meant for use in manufacture
of exempted goods, in compliance of the provisions of
Rule 6 of the Rules.
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C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
(GJHC240408822009)
11. It was further submitted that in the absence of
separate books of accounts, the assessee could not
have adopted its own methodology which is not
permitted by the Rules while utilizing credit of the duty
to the extent of 75% of the duty paid on inputs i.e.,
hydrochloric acid and caustic soda lye taking CENVAT
credit as per the certificate issued by the chartered
accountant and such a system was rightly rejected by
the adjudicating authority, is not permissible as per
the Rules and the same could not have been approved
by the CESTAT as the methodology adopted by the
assessee was not in lawful compliance of the
provisions of Rule 6 of the Rules. It was therefore
submitted that the CESTAT, without assigning any
reasons as to how adjudicating authority has
committed an error, has merely allowed the appeal by
recording its finding in two lines by stating that the
assessee took credit proportionate to dutiable products
only which would amount to not taking credit, without
analyzing that the methodology adopted by the
assesseee was not as per the Rule 6 of the Rules.
12. It was further submitted that reliance placed on the
decisions on behalf of the assessee before the CESTAT
which are followed by CESTAT, are for availing the
moderate credit as per the earlier provisions.
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C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
(GJHC240408822009)
13. It was therefore submitted that the CESTAT could not
have referred and relied upon the decisions pertaining
to the Rules which are not applicable in the facts of the
case.
14. Per contra learned Senior Advocate Mr. Kamal Trivedi
and learned Senior Advocate Mr. Devang Nanavati
appearing with learned Advocates Mr. Jaimin Dave
and Ms. Yogita Verma appearing on behalf of Ms.
Anuja Nanavati for the respondent submitted that the
issue is no more res integra in view of the decision of
this Court in case of the assessee reported in 2010 (8)
SCC Online Guj 467 , against which SLP is also
dismissed by the Hon'ble Apex Court by order dated
20.11.2009.
15. Reliance was also placed on a similar question
considered by this Court in Tax Appeal No. 49 of 2024
in the case of Commissioner of Central GST and
Central Excise, Bharuch vs. Hindalco Industries
Limited, reported in 2024 (9) TMI 837 , wherein in
similar facts, the appeal filed by the revenue was
dismissed.
16. Learned Senior Advocate Mr. Trivedi also referred to
and relied upon the following decisions:
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C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
(GJHC240408822009)
I. Central GST and Central Excise, Vadodara –
II Vs. M/s. P.I. Industries dated 02.07.2024
passed in Tax Appeal No. 318 of 2024
II. Commissioner of Central Excise & Customs
Vadodara-I Vs. Sterling Gelatine reported in (2008)
SCC Online Guj 10182
III. Commissioner of Central & Excise Vs. M/s.
Sterling Gelatine dated 18.09.2014 passed in Civil
Appeal Nos. 3035-3036 of 2011 (SC)
IV. Principal Commissioner, Central GST and
Central Excise Vs. Reliance Industries reported in
(2008) SCC Online Guj 684
V. Union of India Vs. Hindustan Zinc reported in
(2015) 15 SCC 312
17. Referring to the above settled legal position, it was
submitted that when the assessee has availed only the
proportionate credit on the inputs meant for the
manufacture of the dutiable final products and the
quantity of inputs meant for manufacture of exempted
goods, there is no legal infirmity in the order passed by
the CESTAT.
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C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
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18. Having heard learned advocates for the respective
parties and considering the facts of the case, we are of
the opinion that the issue is squarely covered in favour
of the assessee in view of the decision of this Court in
the case of Hindalco Industries Limited (supra) ,
wherein it is held as under:
“[5] Having considered the impugned orders, we are
of the opinion that the Tribunal has rightly held that
the issue raised in the appeals are no more res integra
as the same has already been settled by the Hon’ble
Supreme Court in the case of Hindustan Zinc Ltd
(supra), which is followed by the Tribunal in the case
of Sterlite Industries India Ltd (supra). The Tribunal
has, extracted the relevant observations from the
decision in the case of Sterlite Industries India Ltd
(supra), wherein the decision of the Hon’ble Supreme
Court is also referred to, as under:
"6. After careful consideration of the submissions of
both sides and on perusal of records, we find the
short issue involved in the appeal relates to denial
of benefit of captive consumption Notification No.
67/95- C.E., dated 16-3-1995 on the oxygen gas
produced and captively consumed in the
manufacture of Copper Anode. The adjudicating
authority in his de novo order denied the exemption
only on the ground that Sulphuric Acid (H2SO4) is a
final product cleared at 'Nil' rate and held that since
oxygen is captively used in the manufacture of
Copper Anode (dutiable) and Sulphuric Acid
(exempted) they are not eligible for Notification No.
67/95. We find that H2SO4 was cleared at Nil rate
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C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
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the fertilizer plant claiming exemption under Sl. No.
28 of Notification No. 6/97, dated 1-3-1997.
7. On careful study of manufacturing process as
explained in the proceedings, we find that the
appellants have set up a plant only for manufacture
of final product copper anode from the imported
copper concentrate. It is seen that Oxygen is one of
the essential inputs for conversion of Copper
Concentrate into Copper Anode and it is used in the
furnace and in the smelter converter to remove
impurities contained in the copper concentrate. In
the process of purification, sulphur dioxide SO2
emerges out as waste gas. However, due to
stringent conditions imposed by the Environment
Ministry, the sulphur dioxide cannot be let off by the
industries. As per Environment (Protection) Rules,
1986, it is a mandatory requirement of appellant
unit to process the harmful gases without letting out
in the atmosphere. Further, as evident from their
reply to SCN before adjudicating authority that
oxygen is so generated in the plant is captively
consumed only in the process of conversion of
copper concentrate to copper anode and not in the
manufacture of Sulphuric Acid.
8. During the process of conversion of SO2 to SO3,
one more element of oxygen is added and this
additional element of oxygen is not taken from the
oxygen plant but from the atmosphere. The Sulphur
Dioxide (SO2) combines with atmospheric oxygen
and gets converted into Sulphur Trioxide (SO3). This
Sulphur Trioxide is absorbed in Sulphuric Acid to
form Oleum. This super-saturated Oleum is
dissolved in water to produce 98% pure Sulphuric
Acid (H2SO4) i.e. the fourth element of oxygen is
derived from water. This fact is easily verifiable
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C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
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from the manufacturing process. It is evident that
oxygen produced in their plant is captively
consumed and used only in the copper concentrate
for purification and not diverted elsewhere for
process of conversion of SO2 or SO3 or to Sulphuric
Acid. Therefore, on merit itself it is established that
oxygen produced captively is not used as an input
in the manufacture of Sulphuric Acid and appellant
is eligible for Notification No. 67/95 on oxygen on
merit.
9. Further, it is pertinent to state that so long as
Oxygen produced in their plant is used captively in
the manufacture of final product (i.e.) copper
concentrate and cleared on payment of duty, the
appellants are rightly eligible for exemption under
Notification No. 67/95 for oxygen. The case of the
department is that appellant used the inputs i.e.
oxygen in the manufacture of Sulphuric Acid which
is cleared at Nil rate under exemption notification.
As discussed in the preceding paragraphs and it is
established from the chemical process and from
manufacturing process there is no justification for
the revenue's view that O2 is used in the
manufacture of H2SO4. It is evident that oxygen so
produced in their captive plant is used only in the
purification of copper concentrate in the
manufacture of copper anode. Therefore, appellants
are eligible for captive consumption of Oxygen
under Notification No. 67/95 as the final product
copper anode is excisable which is cleared on
payment of duty.
10. Notwithstanding above, we find that Hon'ble
Supreme Court in the case of UOI v. Hindustan Zinc
Ltd. (supra) clearly held that what is manufactured
in the final product is only copper only. In that case,
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C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
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Sulphur Dioxide was converted into sulphuric acid
which cannot be considered as a final product but it
is only a by-product. In view of the above facts,
appellants are eligible for Modvat credit. The
relevant paragraph of the Apex Court judgment is
reproduced as under:-
"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.
.... .... .…
16. Before we advert to the interpretations of the
aforesaid provisions and to discuss the
argument of the Union of India as to whether
literal interpretation is to be given to Rule 57CC,
it would be necessary to understand the
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properties of sulphuric acid. From what is
explained above including the use of sulphuric
acid for the production of zinc, it becomes
apparent that sulphuric acid is indeed a by-
product. In fact, it is so treated by the
respondents in their balance sheet as well as
various other documents which were filed by the
respondents in the courts below. It is also a
common case of the parties that Hindustan Zinc
Limited and Birla Copper were established to
produce zinc and copper respectively and not for
the production of sulphuric acid. It was argued
by the learned Counsel for the respondents,
which could not be disputed by the learned
Solicitor General, that emergence of sulphur
dioxide in the calcination process of concentrated
ore is a technological necessity and then
conversion of the same into sulphuric acid as a
non- polluting measure cannot elevate the
sulphuric acid to the status of final product.
Technologically, commercially and in common
parlance, sulphuric acid is treated as a by-
product in extraction of non-ferrous metals by
companies not only in India but all over the
world. That is the reason why the department
accepted the position before the Tribunal that
sulphuric acid is a by-product.
.... ..... ..…
20. Let us now examine the position contained in
Rule 57CC on the touchstone of the aforesaid
position. No doubt, Rule 57CC requires an
assessee to maintain separate records for inputs
which are used in the manufacture of two or
more final products one of which is dutiable and
the other is non-dutiable. In that event, Rule
57CC will apply. For example, a tyre
manufacturer manufactures different kinds of
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tyres, one or more of which were exempt like tyre
used in animal carts and cycle tyre, where car
tyres and truck tyres attract excise duty. The
rubber, the accelerators, the retarders, the fillers,
sulphur, vulcanising agents which are used in
production of tyres are indeed common to both
dutiable and exempt tyres. Such assessees are
mandated to maintain separate records to avoid
the duty demand of 8% on exempted tyres. But
when we find that in the case of the
respondents, it is not as though some quantity of
zinc ore concentrate has gone into the production
of sulphuric acid, applicability of Rule 57CC can
be attracted. As pointed out above, the entire
quantity of zinc has indeed been used in the
production of zinc and no part can be traced in
the sulphuric acid. It is for this reason, the
respondents maintained the inventory of zinc
concentrate for the production of zinc and we
agree with the submission of the respondents
that there was no necessity and indeed it is
impossible, to maintain separate records for zinc
concentrate used in the production of sulphuric
acid. We, therefore, agree with the High Court
that the requirements of 57CC were fully met in
the way in which the Respondent was
maintaining records and inventory and the
mischief of recovery of 8% under Rule 57CC on
exempted sulphuric acid is not attracted.
.... ..... ..…
25. These arguments may seem to be attractive.
However, having regard to the processes
involved, which is already explained above and
the reasons afforded by us, we express our
inability to be persuaded by these submissions.
We have already noticed above that in the case
of Birla Copper (C.A. No. 2337 of 2011) the
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Tribunal has decided the matter following the
judgment in the case of Swadeshi Limited
(supra). In that case, Ethylene Glycol was
reacted with DMT to produce polyester and
ethanol. Methanol was not excisable while
polyester fibre was liable to excise duty. Credit
was taken of duty paid on ethylene glycol wholly
for the payment of duty on polyester. The
department took a position that ethylene glycol
was used in the production of methanol and
proportionate credit taken on ethylene glycol was
to be reversed. This Court ruled that the
emergence of methanol was a technological
necessity and no part of ethylene glycol could be
said to have been used in production of methanol
and indeed it was held that the total quantity of
ethylene glycol was used for the production of
polyester. The fact in all these three appeals
appear to be identical to the facts and the law
laid down in Swadeshi Polytex (supra).
Therefore, this judgment is squarely applicable.
26. Furthermore, the provisions of Rule 57CC
cannot be read in isolation. In order to
understand the scheme of Modvat credit
contained in this Rule, a combined reading of
Rules 57A, 57B and 57D along with Rule 57CC
becomes inevitable. We have already reproduced
Rule 57D above. It can be easily discerned from
a combined reading of the aforesaid provisions
that the terms used are 'inputs', 'final products',
'byproduct', 'waste products', etc. We are of the
opinion that these terms have been used taking
into account commercial reality in trade. In that
context when we scan through Rule 57CC,
reference to final product being manufactured
with the same common inputs becomes
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understandable. This Rule did not talk about
emergence of final product and a by-product and
still said that Rule 57CC will apply. The
appellant seeks to apply Rule 57CC when Rule
57D does not talk about application of Rule
57CC to final product and by-product when the
byproduct emerged as a technological necessity.
Accepting the argument of the appellant would
amount to equating byproduct and final product
thereby obliterating the difference though
recognised by the legislation itself. Significantly
this interpretation by the Tribunal in Sterlite
(supra) was not appealed against by the
department."
The Hon'ble Apex Court is clearly applicable to the
facts of the case as in the present case the
sulphuric acid is cleared as byproduct as explained
in the preceding paragraphs and the final product is
only copper anode and not sulphuric acid. The
waste gas which emerges out out of process of
purification of copper concentrate in Sulphur Dioxide
which is further converted into Sulphur Trioxide
which is absorbed in Sulphuric Acid to form Oleum.
This Oleum is dissolved in water to get purest form
of Sulphuric Acid. It is pertinent to state that under
the Environment (Protection) Rules, 1986 vide sub-
rule (2) of Schedule I and as per Sl. No. 21 of the
Schedule I of the Environment Rules, it is
mandatory for the appellant to prevent emission of
oxides of sulphur in Smelter and Convertor of
copper and it stipulates that waste gases are to be
utilized in the manufacture of Sulphuric Acid so as
to prevent emission of Sulphur Dioxide. The Apex
Court decision cited supra dealt with the identical
issue of conversion of Sulphur Dioxide and Sulphur
Trioxide into sulphuric acid and held it is only a
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byproduct and not final product.
9. Further, we find this Tribunal Bench in an
identical issue of captive consumption Notification
No. 67/95 in the case of Ultratech Cement and
Others v. CCE – 2015- TIOL-2110-CESTAT-MAD
had allowed the benefit of Notification No. 67/95-
C.E.
10. Further, we find that as per Notification No.
67/95, both input oxygen and the final products are
rightly covered in the Table of the Notification.
Proviso (vi) of the notification stipulates that this
notification is applicable provided appellant
complied with Rule (6) of CCR, 2001. The only
condition is that sub-rule (2) of Rule 6 of CCR is
required to be complied with. In the present case, as
per sub-rule (2), appellant manufactured oxygen
used in the manufacture of excisable product and
they had no obligation to maintain separate
accounts for oxygen used in the manufacture of
Sulphuric Acid. It is established that appellant did
not use oxygen produced in the manufacture of
Sulphuric Acid. Accordingly, conditions of
Notification No. 67/95 are complied. By respectfully
following the Apex Court decision in the case of UOI
v. Hindustan Zinc Ltd. (supra), we hold that
appellants are eligible for benefit of Notification No.
67/95 and the duty demand on the quantity of
oxygen so used in the manufacture of sulphuric
acid, is liable to be set aside. Consequently, no
penalty survives and it is set aside. Impugned order
is set aside and the appeal is allowed."
[6] Thus, considering the observations made by the
Hon’ble Apex Court in the case of Hindustan Zinc Ltd
(supra) which are applied in similar facts in the case of
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Sterlite Industries India Ltd (supra), the Tribunal has
set aside the order passed by the adjudicating
authority as the byproduct and the final product is
only Copper Cathodes and not a Sulphuric Acid. The
Tribunal, in the case of Sterlite Industries India Ltd
(supra) has considered that the waste gas which
emerges out of process of purification of copper
concentrate in Sulphur Dioxide which is further
converted into Sulphur Trioxide which is absorbed in
Sulphuric Acid to form Oleum and this Oleum is
dissolved in water to get purest form of Sulphuric Acid.
The Tribunal has also referred to the various
provisions of the Environment (Protection) Rules, 1986
which provides that it is mandatory for the respondent
to prevent emission of oxides of sulphur in Smelter and
Convertor of copper and it stipulates that waste gases
are to be utilized in the manufacture of Sulphuric Acid
so as to prevent emission of Sulphur Dioxide. The
Hon’ble Apex Court has dealt with the similar issue in
the case of Hindustan Zinc Ltd (supra). Therefore, in
the facts of the case and Sulphuric Acid is not a final
product, but is a byproduct and the Tribunal relying
upon the aforesaid decisions has held that the
respondent is entitled to the benefit of Notification
No.67/1995.
[7] For the foregoing reasons, we are of the view that
the findings of fact recorded by the Tribunal in the
impugned order cannot be termed as perverse or
contrary to the evidence on record. In the overall view
of the matter, we are convinced that the decision of the
Tribunal is correct and requires no interference.”
19. In view of the above settled legal position, we are of the
opinion that there is no legal infirmity in the impugned
order of the CESTAT in as much as the Hon'ble
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C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
(GJHC240408822009)
Supreme Court in the case of Union of India vs.
Hindustan Zinc Limited, reported in 2014 (303)
ELT 321 , as well as the decision in the case of
Sterlite Industries India Ltd Vs. CCE, Tirunelveli
reported in 2015 (331) ELT 255 (Tri. Chennai) ,
which is considered by this Court in the case of
Hindalco Industries Limited(supra) , to hold that the
manufactured final product was subjected to
proportionate CENVAT credit and accordingly, the by-
product which is produced as a manufacturing process
of the final product cannot be considered for utilizing
the inputs for such exempted by-products.
20. Rule 6(3)(b) of the Rules reads as under:
“ 6. Obligation of manufacturer of dutiable
and exempted goods and provider of taxable
and exempted services.-
(3) Notwithstanding anything contained in sub-
rules (1) and (2), the manufacturer or the provider
of output service, opting not to maintain separate
accounts, shall follow either of the following
conditions, as applicable to him, namely:-
(b) if the exempted goods are other than those
described in condition (a), the manufacturer
shall pay an amount equal to ten per cent. of
the total price, excluding sales tax and other
taxes, if any, paid on such goods, of the
exempted final product charged by the
manufacturer for the sale of such goods at
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C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
(GJHC240408822009)
the time of their clearance from the factory;”
21. In the case of Sterling Gelatin (supra) , this Court
while considering the similar facts has held as under:
“8. Thus, on a plain reading sub-rule (1) of rule 6, it is
apparent that CENVAT credit is admissible in respect
of the inputs used in the manufacture of dutiable
goods and is inadmissible on such quantity of inputs
which is used in the manufacture of exempted goods.
Sub-rule (2) imposes an obligation on the manufacturer
who manufactures final products and exempted goods
from the common input to maintain separate accounts
for receipt, consumption and inventory of inputs.
Examining the applicability of the aforesaid rules to
the facts of the present case, as noted hereinabove, it
is not as if more quantity of Hydrochloric Acid is used
than that required for manufacturing Gelatin or that by
using a smaller amount of Hydrochloric Acid, the
production of Mother Liquor could be averted. In the
manufacturing process adopted by the assessee, it is
not possible to manufacture Gelatin without Mother
Liquor coming into existence. Thus, when the entire
quantity of input viz. Hydrochloric Acid is used in the
manufacture of the final product being Gelatin which is
a dutiable product, the mere fact that a by-product
emerges during the process would not bring the by-
product within the ambit of Rule 6 of the Rules so as to
call for maintaining separate accounts in respect of the
same. When the entire quantity of input is used in the
manufacture of Gelatin, the question of maintaining
separate accounts or of paying a percentage of the
total price of the exempted goods would not arise. In
the peculiar facts of the present case, sub-rule (1) of
rule 6, itself would not come into play inasmuch the
manufacturer does not deliberately use any quantity of
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C/TAXAP/288/2009 JUDGMENT DATED: 21/10/2026
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the inputs, viz. Hydrochloric Acid for manufacturing
Mother Liquor, the entire Hydrochloric Acid is used in
the manufacture of Gelatin. Thus, when no input is
specifically used for the purpose of manufacturing Di-
Calcium Phosphate, there would be no question of
maintaining separate accounts for receipt,
consumption and inventory of input.
12. On behalf of the appellant it has been submitted
that common input Hydrochloric Acid was used in the
manufacture of both Gelatin as well as Di-Calcium
Phosphate hence, in the light of the provisions of rule
6(2) of the Cenvat Credit Rules, 2002, the respondent
was required to maintain separate accounts for
receipt, consumption and inventory of input meant for
use in the manufacture of dutiable final products and
the quantity of input meant for use in the manufacture
of exempted products and take cenvat credit only on
that quantity of input which was intended for use in
the manufacture of dutiable goods. In the present case,
the assessee has taken cenvat credit only on that
quantity of input, which was intended for use in the
manufacture of dutiable goods, therefore, also the
question of invoking sub-rule (2) of Rule 6 of the Rules
would not arise.
14. In the light of the view taken by the Court, it is
immaterial as to whether or not the new applicable
rules, viz., Cenvat Credit Rules, 2002/2004 contain
any provisions akin to Rule 57CC and Rule 57D of the
erstwhile Central Excise Rules, 1944.”
22. SLP against the decision in the case of Sterling Gelatin
has also been dismissed.
23. The decision of Sterling Gelatin (supra) was also
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followed by this Court in the case of Reliance
Industries Limited (supra) in similar facts, where it
was held that the issue whether the LPG is a by-
product or otherwise was academic and was not
decided.
24. In view of the above conspectus of law and applying to
the facts of the present case, we are of the opinion that
the CESTAT though has not given elaborate reasons,
but has arrived at a conclusion as per the settled legal
position. Therefore, instead of remanding the matter
back to the CESTAT for giving elaborate reasons and
considering the pendency of this appeal since 2009
and in view of the subsequent decisions which are of
this Court as well as Hon’ble Apex Court, we answer
the questions in favour of the assessee and against the
revenue as the CESTAT was justified in holding that
the system followed by the assessee for availing
proportionate credit is in order and has rightly allowed
the appeals.
25. This appeal preferred by the revenue is accordingly
dismissed .
(BHARGAV D. KARIA, J)
(NIRZAR S. DESAI,J)
Anuj
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