- (1.) The petitioner is engaged in the manufacture of acid slurry. It is not disputed that for the manufacture of acid slurry, sulphuric acid is used as 'input'. During the process of manufacture of the acid slurry, contends the petitioner, a by-product is obtained known as 'spent sulphuric acid'. On duty-paid input from May to October, 1991, the MODVAT Credit was taken in full by the petitioner while clearing the final product, that is, the acid slurry.
(2.) Taking recourse to Rule 57-I of the Central Excise Rules, 1944 (briefly 'the Rules'), impugned notice dated 28-11-1991 (Annexure '6' to the writ petition) was served on the petitioner calling upon it to show cause why MODVAT credit to the extent of Rs. 36,798/- should not be recovered from it. Brief reason for demanding the aforesaid amount given in the said notice, is that duty-paid input was not consumed in full in the manufacture of final product and that "the differential quantity is neither waste nor a product other than the said input except that it gets diluted and known as 'SPENT ACID'." The stand taken in the impugned notice is that the entire duty-paid input during the relevant period was not actually consumed in the final product and, therefore, the petitioner was not entitled to take MODVAT credit in respect of the spent acid, that is, the input which according to the respondents was not actually consumed in the final product. The notice further states that "The percentage of consumption of the said input as compared to the quantity issued on an average works out to 41.76% and that remaining 58.24% spent acid remained unconsumed, on which MODVAT credit was erroneously allowed to the petitioner. It is this mistake which is sought to be rectified by respondents under Rule 57-I of the Rules.
(3.) It is not disputed that the entire duty-paid input relevant for the purpose of this case was subjected to and applied in the manufacturing process. It is also not denied by the petitioner that during the manufacturing process of detergent, which the petitioner is manufacturing, when water is added to the mass, sulphuric acid layer is separated from the acid slurry and that results in what is called as the spent sulphuric acid or the spent acid.;