Customs, Excise and Gold Tribunal - Tamil Nadu
Ashok Leyland Ltd. vs Cce on 11 October, 2002
Equivalent citations: 2003(85)ECC397, 2002(148)ELT453(TRI-CHENNAI)
JUDGMENT S.L. Peeran, Member (J)
1. In both these appeals, a common question of law and facts are involved; hence they are taken up together for disposal as per law. Appellant had availed modvat credit of duty on inputs under Rule 57G of Central Excise Rules. According to the department, in few of the cases as detailed in the show cause notice in tabulated form, they had not used inputs in the manner specified in chapter X (M) of Central Excise Tariff Act and their clearances of inputs/components as such without reversal of appropriate duty credit taken up appeared to be in violation of Rule 57F of CE Rules and done with an intention to evade payment of Central Excise duty. They were also alleged that they had misdeclared the credit availed inputs/components as "scrap" in their clearance documents and had paid duty only on the scrap instead of reversing the entire duty taken. It was alleged that this mis-declaration on the part of the appellants appeared to be with an intention to evade payment of appropriate duty on the same and appeared to have suppressed regarding disposal of inputs demand of appropriate credit taken and thereby proviso to Rule 57-1(1) (ii) of CE Rules, 1944 read with proviso to Section 11A (1) of CE Act was invoked for demand of duty for extended period of five years in both these appeals, besides invoking penal provisions.
2. The appellants submission in this matter had been that
(a) The credit has been availed on receipt of the components based on duty paying documents.
(b) Necessary declaration had been filed and credit had been availed only after the receipt of the components
(c) The components were eligible inputs in the manufacture of declared final products viz. Motor vehicle chassis falling under Chapter 87.
(d) The credit availed had been used for clearance of chassis falling under Chapter 87 of Central Excise Tariff Act, 1985.
(e) The components in question when issued to production line had been found defective and unfit for use in assembly by the manufacturing/production department in the course of manufacturing process.
(f) The components rejected had been fully accounted for in the rejection slip. The rejection slip also indicates the stage at which the components have been rejected as unfit for assembly.
(g) The rejected components have been mutilated/defaced and sent to scrap yard for disposal as waste and scrap of ferrous/non-ferrous metal.
(h) Necessary classification list/Price list have been filed for clearance of waste and scrap and goods had been cleared on payment of appropriate duty.
(i) The items have been purchased only by scrap dealer on weight basis.
(j) The market does not recognise these goods as components. These items cannot find use in the manufacture of chassis.
(k) No evidence had been given in the SCN to show that items have been accepted as components by the market.
(l) The use of these components in assembly line will endanger the life of human being and cattle on road.
(m) If for any reason these are still to be recognized as components for the purpose of discharging excise duty liability in terms of Rule 57F(1) (ii) then for the same reason remission under Rule 49 of Central Excise Rules, 1944 shall not be considered.
(n) There was no suppression of fact as the goods have been cleared on payment of duty and enough documents exists regard ing the nature of the Item cleared. It may be said what has been cleared In a matter of fact (i.e. waste & scrap) and therefore declaration in GP and RT 12 return that these are waste & scrap of ferrous/non-ferrous metal is correct and hence neither extended time limit under Section 11A could be invoked and nor penalty under Rule 173Q Central Excise Rules, 1944 may by invoked.
3. It is contended by the appellants that the various explanations will give an idea as to how there had been rejections and why at times there are also obsolete items rejected and cleared as waste and scrap; that they were engaged in manufacture of chassis which required 3,000 to 4,000 components (both sub-assemblies and major assemblies) and more than 60% of components/assemblies are bought out finished, these components/assemblies at times suffer duty in the hands of the manufacture and at times are received from exempted units. Ail these components/assembly have been received and duly accounted. Wherever input duty had been paid for such input, credit had been availed. Only then components that have become obsolete or in the course of manufacture found to be defective are rejected/scrapped. Such components have been sold as waste and scrap of ferrous and non-ferrous metals. There had been payment of duty on waste and scrap.
4. They have filed necessary RT 12 returns with the department enclosing relevant invoices. RT 12 returns are being filed not only to comply with the statutory requirement but also for the department to find out from such returns if there had been any infraction as regards payment/non-payment of duty;
5. That just because no action had been taken in respect of RT 12 returns filed showing payment of duty as waste and scrap there can be no allegation of suppression of fact with intention to evade payment of duty.
6. As the duty has been paid there had been no clandestine removal of the goods and it is contended that what is cleared is not waste and scrap, it is for the department to establish as to how the market understands the goods seen as waste and scrap to scrap dealers and therefore there was no question of their being identified as components that the invoices would very much say that the goods were sold on weight basis and in this view of the matter they contended that proviso to Section 11A(1) of Central Excise Act, 1944 read with Rule 57-I of Central Excise Rules, 1944 for reversal of credit availed in respect of such inputs cannot be invoked.
7. They further referred to SI. Nos.1 & 5 in respect of categories i.e. does not conform to specification/defective inspection and state that such inputs were removed from stores for the purpose of manufacture of final products and for each and every such removal from the store there is a work order issued by the concerned production line in the factory to the stores department and these work orders are being raised based on actual requirement of the components for production. They have stressed that it is necessary to note that Rule 57A/57F Central Excise Rules, 1944 would allow credit in respect of inputs used In or in relation to manufacture of final products and further credit can be availed in respect of Inputs intended to be used in the manufacture of final product. Therefore they strongly contended that there is no basis for seeking to reverse credit where inputs have been rejected and disposed of as waste & scrap In respect of categories 1 & 5 of the table.
8. Regarding other categories 2 to 4 & 6 they agree that they cannot be termed as used in manufacture because they have not been removed to the 3 assembly line from the stores. But they stated that the term "used in or in relation to manufacture" is wide enough to cover these categories also. After all, procurement of these components are for use in manufacture or in relation to manufacture and not procured for any other purpose. These are procured only for being used in the manufacture.
9. They have that the insertion Notification No. 8/93 dated 2.11.93 is shown within the brackets and it is apparent from these amendments that even after an input is scrapped as such, once it is declared as it has become waste in relation to manufacture of the final product, they shall be considered as waste arising in the course of manufacture of the final product. Therefore, it cannot be said that in respect of categories of SI. Nos. 2 to 4 & 6 there should be reversal of credit in terms of Rule 57F(1)(ii) of Central Excise Rules, 1944.
10. The Deputy Commissioner did not accept their pleas and therefore rejected them for the reasons given in the order-in-original. The Commissioner (Appeals) modified the order to some extent and rejected with regard to other claims. In both the appeals, the appellants have also not contested on few grounds on which duty has been confirmed but have contested on the following grounds which were taken up for confirming duty:
(1) does not conform to specifications (2) defective inspection (3) handling damage in transit The demand In respect of M/s. Salem Traders & Magnetic Enterprises to the extent of Rs. 1,13,828 and Rs. 3,10,230 respectively confirmed in the Order No. 30/97 dated 10.12.97 passed by the CCE, Chennai which is in Appeal E/824/98.
11. We have heard Learned Counsel Shri R. Raghavan and Ld. DR Shri A. Jayachandran.
12. Ld. Counsel submitted that with regard to first & second ground of confirmation i.e. does not conform to specification and defective inspection the items when removed from stores are against a specific work order issued by the concerned line in the factory and work orders are raised on the actual requirement of the components for production and it is only the production line in which it is ascertained that the inputs does not conform to specification. He submitted that this would go to prove the fact beyond doubt that the item had become waste only in the process of manufacture. Testing the components, undoubtedly, is an important process involved in the manufacture and in this view, the scraping of the item has to be accepted as having arisen during the course of the manufacture. He submitted that Rule 57D provides that credit of duty shall not be denied on the ground that the inputs have become waste and scrap during the course of manufacture of final product. In all cases, where the credit Is sought to be disallowed, the appellants had submitted that they had become waste only In the manufacturing process and this could be established through details of reports already available with the department. The data submitted and the work orders referred to have also not been considered by both the authorities. He contended that demand confirmed against Salem Traders and Magnetic Enterprises Is also not sustainable as in both the cases the chassis which had been received from them had become defective and the parts had been scrapped. Therefore, they had been removed as scrap and waste and hence demands cannot be raised at the rate as leviable on the final product. He contended that the benefit available to the item which are scrap and removed on payment of duty as scrap cannot be denied. He submitted that in all these matters the appellants had maintained all the records and registers and had been filing all the returns. The appellants are paying huge duty every year and there was no question of suppression of facts in these matters and there was no mis-declaration. There was no intention to evade duty and hence the question of invoking larger period in the matter does not arise. He contended that demands were time barred.
13. Ld. DR agreed to the fact that the items are in thousands and it cannot be inspected before they are removed to the production line. Further it is his contention that the item could be returned back to the supplier and could not be treated as scrap. They have to pay duty or reverse the credit and not treat the item as scarp. He also submitted that the demands were not time barred and all facts had not been disclosed and it came to light only on detection made by the Preventive Officers.
14. In counter, the learned counsel submitted that it was not possible to identify the supplier as all the items were small parts run into thousands and wherever they identified the supplier, those items were returned and such items are not subject matter of dispute.
15. We have carefully considered the submissions made by both sides and have perused both the orders.
16. In Appeal E/672/2000, the Order-in-Appeal passed by Commissioner of Central Excise (Appeals) Chennal is in question. The Commissioner has not accepted the plea to treat the item under which the demands have been confirmed. Six categories under which the components were categorised for claiming benefit has now been reduced to only two grounds i.e. (1) does not conform to specification, (2) found defective on inspection,
17. It is the contention of the appellants that the parts have become obsolete/scrap and are not in a position to be used as said items and they were found such during the course of production and they had been scrapped. It is their contention that so long as the items is scrap then in terms of Rule 57D the benefit cannot be denied. On perusal of Rule 57D, we notice that credit of duty cannot be denied or varied on the ground that part of the inputs is contained in any waste, refuse, or by-product arising during the manufacture of the final product, whether or not such waste, refuse or by-product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty or is not specified as a final product under Rule 57A. In terms of this rule, appellants are required to show that the Items have become scrap. They have clearly demonstrated that these Items were categorised as scrap for the reasons given by them as not having conformed to the specification and that it has been found to be defective also. They did not wish to clear the items in the market or returned it back to the supplier as the supplier cannot be identified. Further, they apprehend that if they are cleared then it would go to the spare parts market and it would spoil their reputation. They have to be necessarily scrapped as it does not have a use as an Input in the manufacture of the final product. Therefore, their plea has got force and once it is scrapped by the experts on the production line, it is not for the department to claim ft as not a scrap item but usable input requiring the same to reverse or pay duty at the rate as applicable to the final product. They had paid duty on the scrap and the issue pertained to confirmation of duty as short levy which is unsustainable.
18. We have considered the prayer pertaining to demand being barred by time. We notice that appellants have declared all these items and entered it in the registers and categorized the reason for claiming relief as scrap. The question of mis-declaration or suppression with intention to evade duty does not arise. Therefore in both the cases the defence taken by appellants that demands are time-barred have got force and is required to be upheld.
19. We notice that in Appeal E/824/1998 the demands have been confirmed by the Commissioner on the same grounds on which it is not contested in the present case. With regard to item not conforming to specification and also having been found to be defective, while the same being put in the manufacture; we have already answered that once the item has been found to be defective and unusable, it is a scrap and it cannot be treated as an input for reversing the credit or paying duty at the rate leviable on final product. Therefore, the pleas taken in E/624/98 on this ground is required to be accepted and demands on these grounds are set aside.
20. With regard to confirmation of demands on the chassis which were scrapped in respect of M/s. Salem Traders & Magnetic Enterprises, we find force In the appellant's contention that only In respect of chassis found to be having no use they were scrapped and all defective parts were disposed of after dismantling. Even in this case once the item has been found to be scrapped and not usable, the department's contention that they are usable goods requiring the duty to be paid on the final product cannot be accepted. It does not bear sense and hence it is required to be set aside. We order accordingly. We allow the appeals both on merits as well as on time-bar and set aside the demands, in so far as the demands on these two grounds alone. Appellants have not contested with regard to reversal of duty in respect of grounds in Sl. Nos. 2, 3 & 4 in the respective orders except the ground on which it is noted herein. Therefore the order confirming on the above grounds are set aside both on merits and on limitation also. Thus both the appeals are allowed.