Excisability of Scrap Generated in course of Jobwork under Notification No. 10/97-CE

PJ/Case Laws/2011-12/1402

Case: TRACTORS AND FARM EQUIPMENTS LTD. v/s COMMISSIONER OF C.EX., BANGALORE

Citation: 2011 (269) E.L.T. 534 (Tri.-Bang.)

Issue:- Whether scrap generated in course of job work as prescribed under Notification No. 10/97-CE are exempted from the ambit of Excise duty?

Brief Facts:- Appellant are manufacturers of tractors and parts falling under Chapter 87 of Central Excise Tariff Act, 1985. Inspection of its records by the Audit party revealed that it had sent inputs for its final products to various job workers and that the job workers had not sent the excisable scrap generated in the course of job work to the assessee. Appellant had cleared a tractor of value Rs. 2,08,142/- wrongly availing complete exemption in terms of Notification No. 10/97-C.E., dt. 1-3-1997.

The Original Authority confirmed the demand of duty with applicable interest in terms of Section 11AB r/w Rule 57AH of the Central Excise Rules, 1944. The Original Authority confirmed demand of Rs. 33,303/- being the duty due on the tractor cleared availing inadmissible exemption under Notification No. 10/97-C.E. The Original Authority also imposed penalty equal to demands working out to Rs. 47,075/- under Section 11AC and Rule 57AH (2) of the CER. The Commissioner (Appeal) sustained the orders of the original authority. Hence, appeal has been filed before the Tribunal.

Appellant’s Contention:- Appellant contended that demand of duty on scrap not retuned to them by the jobworkers was barred by limitation. No finding was given regarding the existence of intention to evade payment of duty by the appellant, therefore, extended period could not have been invoked. It was submitted that the jobworker had categorically stated that the scrap so generated was not sold but was cleared alongwith industrial waste. The waste was in the form of fine dust particles which got invariably mixed in air or mud during the jobwork. No evidence adduced by Revenue to concluded that such scrap was exigible to duty nor the same being known in the market.

It was submitted that proviso to Section 11A could be invoked only where duty short paid was for the reasons for fraud, collusion or any willful mis-statement or suppression of facts or contravention of any of the provisions of the Act or the Rules made thereunder with intention to evade payment of duty. Reliance was placed on judgment of the Apex Court in Tamil Nadu Housing Board v/s Collector of CE, Madras [1994 (74) ELT 9 (SC)]; Pushpam Pharmaceuticals Company v/s Collector of CE, Bombay [1995 (78) ELT 401 (SC)] andCosmic Dye Chemical v/s Collector of C. E., Bombay [1995 (75) EL 721 (SC)].

On the basis of these judgments, it was submitted that where failure to pay duty is not willful/deliberate or with intention to evade payment of duty; then it is not a case falling within the proviso to Section 11A of the Act; such a case would not be one of suppression or willful failure to pay duty with intent to evade. It was submitted that failure to pay duty was due to a reasonable understanding of the law by the appellant. It was upto the Revenue to establish that the assessee had evaded the short paid duty willfully. This onus was not discharged by the department. It was submitted that penalty could not have been imposed under Section 11AC. The Department had not established the marketability and excisability of dust generated in the jobwork. Appellant submitted certificates from four jobworkers claiming that the scrap so generated was not marketable.

With regard to demand of duty on tractor cleared by availing benefit of Notification No. 10/97, it was submitted that benefit under this Notification was available as the goods were cleared to the autonomous institution which was so certified by the Central Government. The certificate was furnished by M/s National Aeronautics Ltd. It is submitted that the correctness of the certificate could not have been questioned by the Department. It was submitted that the Commissioner (Appeal) had failed to appreciate hat the tractor-cum-trailer was an apparatus used inter alia for carrying scientific instruments. It was submitted that he said Notification provided exemption o any apparatus as well as accessories of scientifical and technical instruments.

In support of their submissions, they relied on the following decisions of the Tribunal:-

- P.L. Haulwel Trailers v. CCE, Chennai [2002 (142) E.L.T. 204 (Tn. Chennai)]
- Devi Ahilya Vishwavidyalaya v. CC (Sea), Chennai [2002 (146) E.L.T. 407 (Tn. Chennai)]
- Featherlite Products Pvt. Ltd. v. CCE, Bangalore-III [2007 (208) E.L.T. 143 (Tri. - Bang.)]
- Anupam Industries Ltd. v. CCE&C, Vadodara [2009 (245) E.L.T. 433(Tri.-Ahmd.)].

In rejoinder, the appellant submitted that they were not contesting the duty liability on scrap confirmed by the impugned order and were only challenging the penalty imposed under Section 11AC.

Respondent’s Contention:- Revenue argued that the scrap generated was classifiable under an appropriate entry in the tariff and duty demanded was payable. As regards the exemption to the tractor-cum-trailer cleared to NAL it was submitted that it was for the departmental authorities to decide whether the goods were entitled to exemption or otherwise. The notification did not authorize heads of various institutions specified in the said notification to decide and certify which of the equipments, apparatus or parts and accessories thereof were entitled to the exemption extended under the said notification. Revenue submitted that tractor with trailer cleared by appellant was not a scientific or technical instrument, apparatus, equipment or accessory of such an instrument or equipment and therefore, the same was not entitled to exemption. One of the conditions for allowing the exemption was that the institution receiving the goods was a public funded research institution under the administrative control of the Department of Space or Department of Atomic Energy or the Defense Research Development Organization of the Government of India and produced a certificate to that effect from an officer not below the rank of the Deputy Secretary to the Government of India in the concerned department at the time of clearance of the specified goods. If the institution was registered with the Government of India in the Department of Scientific and Industrial Research and the manufacturer had to produce at the time of clearance, a certificate from the Head of the Institution in each case, certifying that the said goods were required for research purposes only. Since the goods did not confirm to the description of the goods qualified for the exemption in terms of the Notification No. 10/97-C.E., the order demanding the exemption wrongly availed was sustainable. He further submitted that agricultural tractor could not be an accessory to a scientific and technical instrument. An accessory enhanced the efficiency of an instrument, apparatus or equipment. Therefore, the tractor involved was not entitled to the exemption.

Reasoning of Judgment:- The Tribunal noted that the assessee sent parts of machinery for machining work involving grinding, boring etc. There were 52 cases of such transfers of unfinished machine parts for job work. Every transfer involved several pieces ranging from 29 to 5370 in number. The scrap generated in respect of each lot ranged from 10 gms to 1.4 kgms and the value of the scrap varied from Rs. 2 to Rs. 16,000/-. The assessee's claim has been that the scrap generated in powder form is light & fine and gets absorbed in the atmosphere or gets mixed with the mud to form industrial waste. In either case, the scrap generated is not commercially marketable. The appellant have already discharged the duty due in dispute and did not contest the liability. It was noted that the appellant have produced an order of the Additional Commissioner of Central Excise dt. 22-9-1998 relating to their sister unit in Chennai dealing with duty liability of similar waste generated at the job workers' place. In the said order, the Additional Commissioner had held that such scrap generated at the premises of the job workers may not be recoverable or capable of re-melting or rolling. They being borings and sweepings, such scrap would merit exclusion from the purview of waste and scrap covered under Chapter Heading 72.04. Allowances were to be made in respect of irrecoverable scrap be-fore quantification and subjected to levy of duty.

Further, with regard to exemption availed, it was noted that the appellant submitted that the clearance of the tractor was made to NAL against the requisite certificate from the appropriate authority as envisaged in the notification. Therefore, the argument of the assessee that it was under the bona fide belief that the tractor was eligible for the exemption is difficult to reject. Moreover in the P. L. Haulwel Trailers case, the Tribunal had held that the exemption was available also for the apparatus and equipments required for using along with scientific and technical instruments. In that case, the trailer involved was used for carrying scientific equipment. As the subject agricultural tractor was otherwise entitled to the exemption in dispute, the Tribunal held that the impugned order is contrary to the settled interpretation of the notification. In the circumstances, they vacate the demand of duty, interest and penalty as regards the agricultural tractor.

Decision:- Appeal allowed accordingly.

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