Whether Generation of waste and scrap during repair and maintenance of P&M amount to manufacture?

PJ/Case Law /2016-17/3433

Case- ULTRA TECH CEMENT LTD. Versus COMMISSIONER OF C. EX. & S.T., RAIPUR

Citation-2017 (345) E.L.T. 130 (Tri. - Del.)

Brief Facts--The brief facts of the case are that the appellant is engaged in manufacture of cement and clinker falling under Chapter Heading No. 2523 of Central Excise Tariff Act, 1985. During the period October, 2006 to June, 2007, the appellant had sold waste and scrap of various miscellaneous items arisen during the course of repair and maintenance of various plant and machinery within the factory including used capital goods, without payment of Central Excise duty. Non-payment of duty on those waste/scrap goods were disputed by the Central Excise Department and in the adjudication proceedings, Central Excise Duty demand of Rs. 6,77,418/- along with interest was confirmed and penalty of Rs. 1 lakh was imposed on the appellant. The appellant filed appeal against the adjudication order, which was upheld by the ld. Commissioner (Appeals) vide the impugned order dated 20-2-2009. Hence, the present appeal before this Tribunal

Appellant’s Contention-Shri B.L. Narasimhan, ld. Advocate appearing for the appellant submits that generation of waste and scrap out of metal goods are not conforming to the Section Note 8(a) of Section XV of Central Excise Tariff Act, 1985. To support his such stand, he relied on the judgment of Hon’ble Supreme Court in the case of Grasim Industries Ltd. v. Union of India [2011 (273)E.L.T.10 (S.C.)].He further submits that as a matter of practice, the appellant never takes any Cenvat credit on the iron and steel goods classified under Chapter 72/73 of CETA, 1985. Thus, according to him, since no credit has been taken, there is no question of payment of amount envisaged under Rule 3(5A) of the Cenvat Credit Rules, 2004. He further submits that the fact regarding non-availment of Cenvat credit on the disputed goods were known to the Department and that the authorities below were also aware of such facts through the submissions of the appellant. Thus, the submission of the appellant is that on both counts, the appellant has a good case on merits and the demand confirmed is liable to set aside.

Respondent’s Contention-. Shri G.R. Singh, ld. Departmental Representative, on the other hand, reiterates the findings recorded in the impugned order and further submits that Rule 3(5A) ibid mandates payment of equal amount of duty leviable on transaction value, irrespective of the fact, whether the credit has been taken on the initially procured capital goods or not. Thus, since the capital goods were removed from the factory without payment of duty, confirmation of duty demand is justified and is in conformity with the statutory provisions.

Reasoning Of Judgement-The bench has heard both sides and perused the records. It founded that so far as the definition of term “waste and scrap of metals” contained in Section Note 8(a) of Section XV of CETA, 1985, the Hon’ble Supreme Court in appellant’s own case has held that incorporation of Section Note 8(a) in Section XV is for the purpose of determining the applicable rate of duty and not concerning with the term “manufacture” defined in Section 2(f) of the Central Excise Act, 1944. The relevant paragraph in the said judgment is extracted hereinbelow :-
“Bench was of the opinion that Section Note has very limited purpose of extending coverage to the particular items to the relevant tariff entry in the Schedule for determining the applicable rate of duty and it cannot be readily construed to have any deeming effect in relation to the process of manufacture as contemplated by Section 2(f) of the Act, unless expressly mentioned in the said Section Note.”
Further, this Tribunal in the case of the appellant itself vide its Final Order No. 53712/2015, dated 2-12-2015 in identical set of facts, has set aside the demand confirmed in the adjudication/appellate order.
In view of the settled principles of law, the bench was not in agreement with the findings of the lower authority that prescription of Chapter Note in the tariff will create the duty liability on the waste and scrap of metal goods arisen during the course of repair and maintenance of plant and machinery. With regard to applicability of Rule 3(5A) of Cenvat Credit Rules, 2004 to the facts of the present case, bench find that on initial procurement of capital goods, the appellant had not taken any Cenvat credit and such facts were brought to the notice of both the lower authorities by the appellant. Therefore, the burden lies with the Department to prove availment of Cenvat credit on the disputed goods has not been satisfactorily discharged, and thus, confirmation of duty demand on this ground also is not tenable. Therefore, bench did not find any merits in the impugned order and allowed the appeal in favour of the appellant.

Decision-Appeal allowed
Comment-The kernel of the case is that the generation of waste and scrap of various miscellaneous items arisen during the course of repair and maintenance does not amount to manufacture, so excise duty will not be levied. Further the definition of waste and scrap only gives coverage of entry “waste & scrap” and it does not lead to conclusion that waste and scrap arising by the mechanical working of metal amounts to process of manufacture in terms of section 2(f). This is in support of Grasim Industries Ltd. v. Union of India [2011 (273) E.L.T. 10 (S.C.)].Hence the demand is unsustainable. Hence appeal allowed.

Prepared By-ARUNDHATI BAJPAI

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PJ/Case Law /2016-17/3433

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