Customs, Excise and Gold Tribunal - Bangalore
Rashtriya Ispat Nigam Ltd. vs Commissioner Of C. Ex. on 25 January, 2005
Equivalent citations: 2005(184)ELT57(TRI-BANG)
ORDER T.K. Jayaraman, Member (T)
1. Appellants filed an application for stay in respect of OIO 25/03-04, dated 19-9-2003 passed by the Commissioner of Central Excise, Visakhapatnam. Since the issue lies within a short compass we are deciding the appeal itself.
2. Shri G. Shivadas learned advocate appeared for the appellants and Shri L. Narasimha Murthy learned SDR appeared for the Department.
3. Revenue proceeded against the appellants on the ground that they removed scrap without payment of duty for the period from 26-2-94 to 6-2-97, on the grounds that the scrap which has arisen in the course of construction of sheds, manufacturing of capital goods for captive use and manufacture of spare parts for maintenance of the machinery. The adjudicating authority held that scrap which has arisen as a result of mechanical working is liable to duty. After going through the details given in the Annexure to the show cause notice he has identified certain items which have arisen due to mechanical working and has demanded duty on them. The duty demanded under Proviso to Section 11A(1) of the CE Act 1944 was Rs. 1,32,67,470/-. A penalty of Rs. 1,00,00,000/- was imposed under Rule 173Q. Further a penalty of Rs. 22,38,386/- was imposed under Section 11AC of the CE Act 1944 for the scrap cleared after 28-9-96. The appellants have challenged the findings of the adjudicating authority strongly on the following grounds.
(i) The scrap sold by the appellants is not manufactured by them and secondly the entire duty demand is unsustainable. The following case laws were relied :
(a) Elphinstone Metal Rolling Mills v. CCE Bombay [2004 (167) E.L.T. 481 (S.C.)].
(b) CCE, Chandigarh v. Markfed Vanaspati & Allied Industries [2003 (153) E.L.T. 491 (S.C.)].
(c) Union of India v. Ahmedabad Electricity Co. Ltd., [2003 (158) E.L.T. 3 (S.C.)].
(d) Deepak Fertilisers & Petrochem Corporation [2004 (174) E.L.T. 468].
(e) Kumbhi Kesari SSK Ltd. v. CCE & Cus, Pune [2004 (173) E.L.T. 61].
(ii) Mere mention of the item in the Central Excise Tariff is not sufficient to fasten duty liability . The product must be the result of a process of manufacture. The following case laws were relied on :
(a) Hyderabad Industries Ltd. v. Collr. [1995 (78) E.L.T. 641 (S.C.)].
(b) Hyderabad Industries Ltd. v. UOI [1999 (108) E.L.T. 321 (S.C.)].
(c) Markfed Vanaspati & Allied Industries v. CCE, Chandigarh [2000 (116) E.L.T. 204 (LB)].
(d) Hindalco Industries Ltd., v. CCE [2002 (144) E.L.T. 339 (Tri.) = 2002 (49) RLT 41].
(e) Hindustan Petroleum Corporation Ltd. v. CCE [2002 (144) E.L.T. 555].
(f) CCE v. Diamond Cement [2002 (52) RLT 659].
(g) Ranjeev Steels Ltd., v. CCE [2003 (154) E.L.T. 450 (Tri.) = 2002 (53) RLT 672].
(iii) Even the scrap generated as a result of machines that are worn out due to prolonged use is not liable to central excise duty even though modvat credit was taken on them. The following case law was relied on:
Rashtriya Ispat Nigam Ltd. v. CCE, Visakhapatnam [2002 (148) E.L.T. 41].
(iv) The scrap sold by the appellants had been generated out of construction materials and on which the appellants had not taken modvat credit. Most of the items were procured prior to 1-3-94 when the capital goods modvat scheme was not in existence. The scrap was not generated out of mechanical workings as alleged in the show cause notice and it had nothing to do with any manufacturing activity undertaken by the appellants.
(v) The show cause notice demanded duty on scrap classifiable under chapter 39, 40, 74, 76 & 81 which goods the appellants were not at all manufacturing.
(vi) The adjudicating authority without any basis arbitrarily picked up items made of iron and steel and has held that they have arisen from mechanical working. There is no evidence whatsoever to indicate that the scrap in question had been generated as a result of mechanical working associated with manufacturing activity or that the appellants had taken Modvat credit of duty paid on the items.
(vii) The onus is on the department to prove that the scrap was indeed generated as a result of manufacturing activity. The following case law was relied:
KM. Sugar Mills Ltd. v. CCE [2004 (164) E.L.T. 40].
(viii)The adjudicating authority picked up the following items to hold that they are scrap arising out of manufacturing activity.
(a) GC sheet/cut piece scrap
(b) MS angles cut piece scrap
(c) Melting scrap/MS cut piece scrap
(d) Roll scrap
(e) MS plate
(f) CI scrap
(g) SG roll scrap
(h) MS angles
(i) Ribbed bars/square bars/billets
(j) MS rounds
(k) Surplus rounds The above items are mostly structural items used for construction purposes and are not in the range of production of the appellants. The entire demand is barred by limitation. Central Excise Range Officers were posted within the premises of the plant and it cannot be said that the appellants were indulging in clandestine removal right under the nose of the Central Excise Officers. The longer period can be invoked only in cases of fraud, collusion or any wilful misstatement or suppression of facts. The following case laws were relied :
(a) CCE v. Chemphar Drugs & Linements [1989 (40) E.L.T. 276 (S.C.)]
(b) Padmini Products v. CCE [1989 (43) E.L.T. 195 (S.C.)]
4. The learned SDR urged that the Commissioner has given a clear finding that the scrap has arisen out of manufacturing activity and hence the appeal should be rejected.
5. We have gone through the records of the case carefully. There is no dispute that the scrap arising on account of mechanical working of metal is liable to duty. In the present appeal, the question is one of fact. The appellant strongly maintains that all the scrap has arisen out of materials purchased for construction. They have cited a plethora of case laws holding that scrap which has arisen on account of construction activity is not excisable. The adjudicating authority has not given a very detailed finding as to how he has concluded that the items listed by him in annexures have arisen on account of mechanical working of metal. In order to fasten a huge duty liability on the appellants, it is very necessary that the revenue produces clinching evidence to show that the scrap has arisen out of mechanical working of metal. Merely coming to a conclusion by going through the Annexures and showing that one is satisfied that the items are scrap or have arisen during the course of mechanical working of metal is not sufficient. In our view, Revenue has not discharged its onus in order to confirm duty and impose penalty. It is also seen that Central Excise Officers have been posted in the appellants unit. Under these circumstances it is very difficult to sustain that the appellants had been indulging in clandestine activity for a long time. Hence there are no grounds for invoking a longer period. Under these circumstances the OIO has no merit. We allow the appeal with consequential relief.