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Union of India v. Hindustan Zinc Ltd.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 8621 of 2010)Decided 6 May 2014
Civil Appeal No. 8621 of 2010
Justice Anil R. Dave · Justice A.K. Sikri

Background

Metal manufacturers produced sulphuric acid as an unavoidable by-product while making zinc or copper. Some acid was supplied without excise duty to fertilizer plants, and the department demanded an amount equal to 8% of its sale price because separate input accounts had not been maintained. Similar demands concerned by-products generated in other manufacturing processes.

Decision Breakdown

The Court dismissed the revenue appeals with costs. It held that the rules governing common inputs for taxable and exempt final products did not apply in the same way to an inevitable by-product. The entire ore input was consumed in producing the metal, and separate accounts allocating some ore to sulphuric acid would be impossible. Reading the credit rules together and applying earlier decisions, the Court rejected the demand. It also accepted the High Court challenge at the notice stage because the manufacturers had questioned the validity of the governing rule.

Lesson Learnt

Under the excise-credit rules examined here, an unavoidable by-product did not automatically require surrendering credit taken on inputs wholly used to manufacture the main product. A manufacturer must establish the actual production process rather than rely only on the label "by-product".

Official source (sci.gov.in)View Judgment (PDF)

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