UNION OF INDIA & ORS. versus M/S. HINDUSTAN ZINC LTD.

Citation: [2014] 6 S.C.R. 287 · Decided: 06-05-2014 · Supreme Court of India · Bench: ANIL R. DAVE · Disposal: Appeal(s) allowed

Judgment (excerpt)

[2014] 6 S.C.R. 287 
UNION OF INDIA & ORS. 
v. 
MIS. HINDUSTAN ZINC LTD. 
(Civil Appeal No. 8621 of 2010) 
MAY 06, 2014 
[ANIL R. DAVE AND A.K. SIKRI, JJ.] 
Central Excise Rules, 1944: 
A 
B 
r.57CC r/w rr.57A, 578 and 570 -Adjustment of Modvatl C 
Cenvat credit on inputs used in exempted final products and 
maintenance of separate inventory and accounts of inputs by 
the manufacturer - Sulphuric acid, caustic soda, trichloro 
ethylene, Phosphofyl A and Phosphoryl B, cleared by 
assessees to fertilizer plants in terms of bonds executed by 
latter - Held: Technologically, commercially and in common D 
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 -The facts regarding caustic soda, 
trichloro ethylene, Phosphoryl A and Phosphoryl B are 
identical -
No doubt, r.57CC requires an assessee to 
E 
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 - But in the case of the 
respondents, the entire quantity of zinc concentrate has 
indeed been used in the production of zinc and no part can 
F 
be traced in the sulphuric acid -
It is for this reason, 
respondents maintained the inventory of zinc concentrate for 
the production of zinc and, therefore, there was no necessity 
and indeed it is impossible, to maintain separate records for 
zinc concentrate used in the production of sulphuric acid -
G 
Therefore, High Court has rightly held that requirements of 
r.57CC were fully met in the way in which respondents were 
maintaining records and inventory and the mischief of 
287 
H 
288 
SUPREME COURT REPORTS 
[2014] 6 S.C.R. 
A 
recovery of 8% under r. 57 CC on exempted sulphuric acid is 
not attracted - Notification No. 612002-CE. 
Constitution of India, 1950: 
Art. 226 - Alternative remedy and maintainability of writ 
B petition - Writ petition filed challenging show cause notice 
issued alleging violation of r. 57CC of Central Excise Rule -
Held: It was not merely the validity of show cause notice which 
was questioned - In the writ petition even the vires of r. 57 CC 
were challenged - That was a reason because of which the 
C writ petitions were entertained, and rightly so, it is a different 
matter that while interpreting the rule, the High Court chose 
to read down the said rule and to give an interpretation which 
would save it from the vice of unconstitutionality - Central 
D 
Excise Rules, 1944 -
r. 57CC. 
The instant appeals, filed by the revenue, arose out 
of the judgments of the High Court and the Trtbunal 
allowing the claim of the respondents-assessees that 
they were_entitled to Modvat/Cenvat Credit on inputs 
E 
used in producing sulphuric acid, caustic soda flakes, 
trichloro ethylene, Phosphory/ A and Phosphoryl B which 
they cleared to fertilizer plants under exemption in terms 
of bonds executed by fertilizer plants in terms of 
Notification No. 6/2002-CE. 
F 
The questions for consideration before the Court 
were: as to the entitlement of the respondents/ 
assessees to Modvat/Cenvat Credit for the use of inputs 
rn the· manufacture of final products which are exempt or 
subject to NIL rate of duty; and the requirement of the 
G 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. 
H 
Allowing the appeals, the Court 
UNION OF INDIA v. HINDUSTAN ZINC LTD. 
289 
HELD: 1.1. The respondent in CA Nos. 8621-8630/2010 
A 
'
1 claimeed Modvat Credit on duties paid on inputs used at 
smelter by it vis-a-vis the part of sulphuric acid produced 
by it in its sulphuric acid plant and sold to IFFCO, a 
manufacturer of fertilizer, entitled to avail concession of 
acquiring sulphuric acid used by it as an input in 
manufacture of fertilizers on payment of duties in terms 
of the exemption notifications issued from time to time. So 
far as the sulphuric acid is concerned; as an end product 
B 
it is chargeable to duty under tariff head 28. The rate of 
duty provided under the Tariff Act is 16% ad valorem. There c 
is no exemption as such to the manufacturer from the 
payment of duty on manufacture of sulphuric acid when 
removed. Under General Exemption No. 66 issued under 
sub-s. (1) of s.5A of the Central Excise Act the Central 
Government has exempted exciseable goods o

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