The Principal Commissioner, Central GST And Central Excise vs. M/S. Reliance Industries LTD.

Facts

The Revenue (Principal Commissioner, Central GST and Central Excise) appealed an order of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) which had granted relief to M/s. Reliance Industries Ltd. (the respondent). The respondent, engaged in manufacturing excisable goods including LPG, had sought a refund of Rs. 8,31,32,211/-. This amount represented CENVAT credit reversed/paid under Rule 6(3) of the CENVAT Credit Rules, 2004, for the period April 2015 to March 2016, concerning LPG cleared under the Domestic Subsidy Scheme with end-use exemption. The Deputy Commissioner had rejected the refund claim, but the Commissioner allowed the appeal. The CESTAT's order, which is the subject of this appeal, further granted relief by exempting the application of Rule 6 of the CENVAT Rules to the clearance of LPG.

Held

The Court noted that the issue of whether LPG is a byproduct or not had become academic. The Court referred to Supreme Court judgments in CCE vs. National Organic Chemical Industries Limited and Swadeshi Polytex Ltd. vs. CCE. These judgments established that if a dutiable final product could not have been manufactured using a lesser quantity of inputs, then the entire input must be attributed to the manufacture of that dutiable product, even if an exempt final product emerges inevitably. The Court highlighted that the intention of the Government, as reflected in trade notices and exemption notifications, was to allow credit even when non-excisable goods arise as a part and parcel of a chemical reaction during the manufacture of excisable goods, provided the excisable goods were not wholly exempt or chargeable to a nil rate of duty. The Court found that the reasoning in these Supreme Court judgments applied to the present case. Therefore, the appeal filed by the Revenue failed.

Key Issues

1. Whether the Tribunal erred in exempting the application of Rule 6 of the CENVAT Credit Rules, 2004, to the clearance of LPG produced as a joint petroleum product from a common blend of raw material through chemical reaction/fractionation. (Revenue's contention: The Tribunal's order is improper.) 2. Whether the Tribunal was correct in holding that the respondent was not required to pay any amount under Rule 6(3) of the CENVAT Credit Rules, 2004, for LPG cleared under an end-use exemption. (Revenue's contention: The Tribunal was not right.) 3. Whether the Tribunal was correct in allowing additional grounds raised by the respondent that Liquefied Petroleum Gas (LPG) is a byproduct, rendering Rule 6 inapplicable. (Revenue's contention: The Tribunal was not right.) 4. Whether the Tribunal was correct in holding LPG as a byproduct of a petroleum refinery and not as a joint product with other petroleum products arising from a common blend of raw material. (Revenue's contention: The Tribunal was not right.) Arguments for the Revenue: The Revenue argued that Rule 6 of the CENVAT Credit Rules, 2004, should apply to the clearance of LPG, which they contend is a joint product. They challenged the Tribunal's findings on LPG being a byproduct and the subsequent exemption from Rule 6 obligations. Arguments for the Respondent: The respondent argued that Rule 6(1) of the CENVAT Credit Rules, 2004, is not applicable to LPG as it is leviable to excise duty. They contended that when LPG is removed under an end-use exemption, there is no prohibition in the rules restricting CENVAT credit on inputs and input services. They also argued that if credit is availed for excisable goods like LPG, there is no restriction on utilizing the credit, and thus no reversal under Rule 6(3) is required.