The Gujarat High Court bench of Justice J.B. Pardiwala (as then was) and Justice Nisha M. Thankore has held that methanol is not excisable as it is a result of a chemical reaction and not as a result of any by-product.
The respondent-assessee, Reliance Industries, is in the business of manufacturing excisable goods like Motor Spirit, High Speed Diesel, LPG etc. It is the case of the appellant that the respondent has been availing credit of duty paid on the input and capital goods and input services in terms of the provisions of the CENVAT Credit Rules, 2004. The refund claim was made in respect of the CENVAT Credit Reversed or Paid under Rule 6(3) of the CENVAT Credit Rules, 2004 for the period between April, 2015 and March, 2016 on the removal of the LPG under the Domestic Subsidy Scheme.
The department filed a Tax Appeal under Section 35G of the Central Excise Act, 1944, challenging the order passed by the Customs Excise and Service Tax. The tribunal has granted relief to the respondent, Reliance Industries, by exempting the application of Rule 6 of the CENVAT Rules to the clearance of LPG, which was produced as a joint petroleum product with other dutiable petroleum products by chemical reaction/fraction of a common blend of raw material.
The department issued a notice to Reliance Industries calling upon them to show cause as to why the refund claim towards the excise duty of Rs.8,31,32,211/- filed should not be rejected.
The issue raised was whether Reliance Industries was entitled to the refund of the CENVAT Credit Reversed or Paid for the inputs attributable to the LPG in terms of Rule 6(3A) of the Rules, 2004.
The department contended that the Tribunal had erred in holding that LPG emerges as a by-product and hence the provisions of Rule 6 of CCR have no application.
The department contended that the provisions of Rule 6(1) of the Cenvat Credit Rules, 2004 are not applicable to the product LPG, which is eligible for excise duty at the rate of 8%. LPG is not an exempted goods. Rule 6(1) prohibits allowing Cenvat Credit on inputs or input services which are used in the manufacture of exempted goods.
The department submitted that whenever ready LPG is removed from PSU Oil companies under the Domestic LPG Subsidy Scheme, an end-use exemption of duty was claimed. There was no prohibition in the Cenvat Credit Rules restricting availment of credit on input and input services when exemption was claimed under End Use Notification at the time of removal of goods. The prohibition was only for the availment of credit for input and input services for the manufacture of exempted goods.
The department urged that when input and input services credit are available for excisable goods, which is the case of LPG, there is no restriction in the Cenvat Credit Rules, 2004 for utilising the credit thus availed. They are not required to reverse the input and input services credit under Rule 6(3) of the Cenvat Credit Rules, 2004, for removing LPG under End Use exemption Notification to PSU Oil companies under the Domestic LPG Subsidy Scheme.
The court relied on the decision of the Supreme Court in the case of CCE vs. National Organic Chemical Industries Limited, in which it was held that if the dutiable final product could not have been manufactured using a lesser quantity of inputs, then the entire input must be attributed to having been used in the manufacture of the said dutiable final product, even if some other exempt final product emerges, inevitably.
The court held that methanol arises as a result of a chemical reaction and not as a result of any by- product. In the instant case, the methanol was non-excisable. Just because methanol arises as a part and parcel of the chemical reaction during the process of manufacture, it cannot be said that methanol is not used in the manufacture of polyester fibre.
Case Title: Principal Commissioner Versus Reliance Industries
Citation: 2022 LiveLaw (Guj) 159
Counsel For Appellant: Advocate Nikunt K Raval
Counsel For Respondent: Advocate Mihir Joshi