For direct clearance of waste & scrap by Jobworker - whether principle manufacturer can be made liable to pay excise duty?

PJ/Case Law/2011-12/1144

Case: FAG Engineering (I) Ltd v/s Commissioner of C. Ex., Vadodara

Citation: 2011 (266) ELT 193 (Tri-Ahmd)

Issue: - Direct clearance of waste & scrap by the jobworker – principle manufacturer not liable to pay duty on the said clearance as he was not manufacturing the waste & scrap.

Brief Facts: - Appellant is engaged in the manufacture of various types of balls and roller bearings falling under chapter 84. They were taking cenvat credit on the inputs namely seamless tubes and steel bars. The said inputs were cleared to the premises of jobworkfor carrying the requisite intermediate processes. The waste and scrap generated during the course of intermediate processes at the end of jobworker were being sold by the jobworker and was not being sent back to the principal manufacturer i.e. appellant. The appellant was paying duty on such waste and scrap by considering the generation at 15%.

During investigation, it was found that generation of scrap in respect of DTA unit was to the tune of around 44.3% of the quantity of seamless tubes supplied by the appellant and in respect of 100% EOU, the same was to the tune of around 22.4% of the quantity of steel bars supplied by the appellant.

Revenue issued show cause notice dated 28.11.08 demanding differential duty with interest and proposed to impose penalty under Section 11A of CEA, 1944 for the period 01.11.03 to 31.12.07.

The Commissioner relied upon the provisions of Rule 4 and Rule 4(5)(a) of CCR, 2002/2004 and held that waste and scrap generated at the jobworker’s end was required to be returned to the appellant’s factory, who were duty bound to clear the same on the payment of duty. Reliance was placed on the judgment of the Supreme Court in the case of M/s Maruti Suzuki Ltd [2009 (240) ELT 641 (SC)] wherein the Supreme Court had considered the issue of eligibility of various inputs to the cenvat credit and has held that for any goods to be sold as eligible input, all the 3 parts of the definition as compared in Rule 2 (G) in CCR, 2002 are required to be satisfied. Demand was confirmed with interest and penalty of equal amount was imposed.

Hence, appellant is in appeal before the Tribunal.

Appellant’s Contention: - Appellant contended that they are not the manufacturer of waste and scrap and in terms of provisions of Section 3 of the Central Excise Act, 1944, duty could not be demanded from the manufacturer i.e. one who has actually manufactured the excisable goods. As the waste and scrap had arisen in the hands of the job worker who is the manufacturer, duty liability, if any, can be demanded from the job worker only. Reliance was placed on the judgment given in M/s Rocket Engg Corpn Ltd v/s CCE, Pune [2006 (193) ELT 33 (Tri-Mum)]. Plea of limitation was also raised.

Reasoning of Judgment: - The Tribunal held that the duty is being demanded from the appellant by treating them as manufacturer of waste and scrap, which is factually incorrect situation. The present Rule 4 (5)(a) nowhere requires the return of waste and scrap generated at the jobworker’s end. The issue has been settled in the case of M/s Rocket Engg Corpn Ltd v/s CCE, Pune. In this judgment reliance was placed on judgment in M/s International Tobacco Co. Ltd v/s CCE, Ghaziabad [2004 (165) ELT 314 (Tri-Delhi)] it was held that when no process of manufacture of waste and scrap has taken place at the end of principle manufacturer, duty cannot be demanded from the principle manufacturer. It was noted that the said decision was confirmed by the Bombay High Court as reported in 2008 (223) ELT 347 (Bom), when the appeal filed by CCE was rejected.

The Tribunal noted that the Adjudicating Authority had no relied upon the said decision but has wrongly relied upon the judgment of the Supreme Court in M/s Maruti Suzuki’s case which was entirely different from the issue to be decided in the present case.

In the end, it was held that appellant was under no obligation to pay the duty on waste and scrap used at the job worker’s end and sold by him. Impugned order set aside. However, no order passed on the duty already paid by the appellant treating the generation of waste & scrap as 15% as it is not the subject matter of the present appeal.

Decision:- Appeal allowed accordingly.

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PJ/Case Law/2011-12/1144

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