Case Note & Summary
The Union of India, through the Commissioner of Central Excise, Raigad, filed a writ petition challenging an order of the Joint Secretary (Revision Application) dated 21/1/2011, which rejected the Commissioner's stay application against an order of the Commissioner of Central Excise (Appeals) dated 14/9/2010. The Commissioner (A) had held that the respondent-assessee, Sharp Menthol India Ltd., was entitled to claim rebate of duty paid on export of peppermint oil by debiting the credit of duty paid on inputs used in the manufacture of final products. The assessee is engaged in the manufacture and export of menthol crystals and flavouring materials such as peppermint oil, using menthol (liquid) or de-mentholised oil as raw materials. In the manufacturing process, peppermint oil emerges as a by-product containing impurities, which is then processed to remove impurities and exported. The Commissioner (A) allowed the rebate claim, and the assessee filed a writ petition (Writ Petition No.8068 of 2010) seeking implementation, leading to a direction by the High Court to deposit the rebate amount of Rs. 38,03,89,634/- in court. The Commissioner challenged the revisional authority's refusal to stay the order, but both sides agreed to argue the merits. The court considered whether the assessee could claim rebate on the export of peppermint oil by adjusting input credit availed on inputs used in manufacturing menthol crystals. The court held that the by-product peppermint oil, though not manufactured, emerges from the manufacturing process, and the duty paid on inputs can be adjusted against the rebate claim. The court dismissed the petition, upholding the assessee's entitlement to the rebate.
Headnote
A) Central Excise - Rebate on Export of By-Product - CENVAT Credit Rules, 2004, Rule 5 - The assessee manufactured menthol crystals using menthol (liquid) as raw material, and peppermint oil emerged as a by-product. The by-product was cleared for export after removal of impurities. The court held that the assessee is entitled to rebate of duty paid on inputs used in the manufacture of the final product, as the by-product is not a manufactured product but a result of the manufacturing process, and the duty paid on inputs can be adjusted against the rebate claim. (Paras 1-4)
Issue of Consideration
Whether the assessee is entitled to claim rebate of duty paid on export of peppermint oil (a by-product) by debiting the credit of duty paid on inputs used in the manufacture of menthol crystals, under the CENVAT Credit Rules, 2004.
Final Decision
The court dismissed the writ petition, holding that the assessee is entitled to claim rebate of duty paid on export of peppermint oil by debiting the credit of duty paid on inputs used in the manufacture of menthol crystals.
Law Points
- Rebate of duty on export of by-product is allowable under Rule 5 of CENVAT Credit Rules
- 2004
- even if the by-product is not manufactured but emerges as a result of the manufacturing process
- provided duty has been paid on inputs used in the manufacture of the final product and the by-product is cleared for export.
