Custom, Excise & Service Tax Tribunal
M/S. Sundram Fasteners Ltd vs Cce, Chennai Iii on 23 May, 2017
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
E/191/2007
(Arising out of Order-in-Original No. 28/2006 dated 4.10.2006 passed by the Commissioner of Central Excise, Chennai III)
M/s. Sundram Fasteners Ltd.
(Metal Forms Division) Appellant
Vs.
CCE, Chennai III Respondent
Appearance Shri R. Raghavan, Advocate for the Appellant Shri S. Govindarajan, AC (AR) for the Respondent CORAM Honble Ms. Sulekha Beevi C.S., Member (Judicial) Honble Shri Madhu Mohan Damodhar, Member (Technical) Date of Hearing : 18.05.2017 Date of Pronouncement: 23.05.2017 Final Order No. 40753 / 2017 Per Madhu Mohan Damodhar, Appellants are manufactures of components for automotive and non-automotive sector. They send forged components to their job workers for machining operations under Rule 4(5)(a) of CENVAT Credit Rules under delivery advice and receive back the machined components. As per the understanding, scrap generated at the job workers end should have been returned to appellant, but the same was retained by job workers who sell the same directly, for which value at Rs.4/- per kg is predetermined and adjusted for calculating and paying machined rates to the job workers. Appellants then discharge excise duty on the quantum of the scrap generated at the premises of the job worker on monthly basis. From the investigations conducted by the department, it appeared that during 1.4.2002 to 28.2.2003, against total scrap of 68,70,352.470 Kgs. generated at the job workers end, duty was discharged only on quantity of 43,45,088.370 Kgs. Thus duty was not paid on 36.75%, i.e., more than one-third of the scrap generated, involving duty amount of Rs.23,43,799/-. A show cause notice dated 2.5.2005 was issued to the appellants proposing recovery of the said differential duty amount along with interest thereon and imposition of penalties under various provisions of the Central Excise Act. In adjudication, the Commissioner vide impugned order dated 4.10.2006 confirmed the proposals, however, redetermined the duty liability to Rs.21,73,538/- (on account of duty for February 2003 having been demanded twice), along with interest thereon and imposition of equal penalty under section 11AC of the Central Excise Act, 1944 r/w Rule 25 of Central Excise Rules, 2002.. Aggrieved, the appellants are before this forum.
2. Today, when the matter came up for hearing, learned counsel Shri R. Raghavan maintained the correctness of discharge of duty liability on scrap value of Rs.4/- per kg. adopted for discharge of duty liability thereon. He submits that the said liability has already been discharged by the appellants to the extent of the scrap that has been generated. With regard to the remaining portion, with respect to burning loss / irrecoverable scrap for which also duty liability has been demanded, learned Advocate concedes the said liability but prays for cum-duty benefit on the ground that the duty liability thereon has not been recovered from anybody.
3. On the other hand, learned AR for the department supports the adjudication order and in particular, maintains that for discharge of duty liability on the scrap, value of Rs.5.80 per kg alone should be adopted.
4. Heard both sides and have gone through the facts.
5.1 By mutual arrangement, for every kilogram of scrap generated at the job workers end and retained by them, i.e., not returned to the appellant, the latter has adjusted the value thereof by way of deducting the corresponding job charges by Rs.4/- per Kg. This is the value that has been adopted by the appellant for discharging duty liability on scrap that has emerged at the job workers end. Duty liability has also been discharged on the quantum of scrap so generated, but at a rate of Rs.4/- per kg, at the end of every month.
5.2 However, such discharge of duty liability was only with respect to the quantum of scrap physically available and retained by the job worker, duty liability on irrecoverable scrap or processed loss was not taken into account for discharge by the appellant. As per the investigations of the department, excise duty was not so paid on 25,25,264.110 Kgs. of scrap which accounts for 36.75% of the total scrap generated at the premises of the job workers. Appellants in their adjudication proceedings have contended that 20% of the said quantity arrived at by the department will have to be adjusted to be irrecoverable scrap.
5.3 Department however wants the appellant to adopt higher assessable value for the said scrap at Rs.5.80 per kg. which is the price charged by the appellant for their own scrap generated at their premises and cleared by them.
5.4 We find that no coherent reasons or grounds have been put forth for adopting the higher value for the scrap generated at the job workers end, at the time of machining. Scrap generated at the appellants own factory during other process cannot in any way be compared with that generated at the job workers premises. Besides, no evidence has been adduced by department that the job worker has indeed sold the scrap at more than Rs.4/- per kg or for that matter at Rs.5.80 per kg.
5.5 In the circumstances, the adoption of assessable value of Rs.4/- per kg by the appellant for calculating their duty liability on the scrap generated at the job workers end cannot be then disputed by the department. There can be no further demand of duty on the generated physically available scrap other than that discharged by appellant on value of Rs.4/- per kg. In consequence, there will also be no penalty in respect of the duty liability discharged by this manner. So ordered 5.6 Coming to the duty liability on burning / transportation loss, irrecovable scrap, we find that the learned counsel has conceded the same. However, he prays for cum-duty benefit. We find merit in the submission of the learned counsel, since for the quantum in processing loss etc. there is obviously no sale is involved for that matter, no duty liability thereon has been collected by the appellant. Hence, while maintaining the notional value of the quantum involved on such process loss etc. at Rs.4/- per kg., the appellants are extended cum-duty benefit for purposes of calculating their duty liability thereon. So ordered.
6. For this limited purpose, the matter is remanded back to the adjudicating authority for revised calculation of duty liability.
7. Coming to the penalty aspect, it is not in dispute that the appellants have paid the entire duty liability at the rate of Rs.4/- per kg even before issue of show cause notice, hence, in our considered opinion, the beneficiary provisions of Section 11AC can be applied and the appellants will have to pay penalty equal to only 25% of the duty liability, that too, only on the quantum of duty liability redetermined in respect of quantum of scrap found irrecoverable on account of burning loss etc. (Pronounced in open court on 23.05.2017) (MADHU MOHAN DAMODHAR) (SULEKHA BEEVI C.S.) Member (Technical) Member (Judicial) Rex 5 E/191/2007