Customs, Excise and Gold Tribunal - Calcutta
Kesoram Rayon vs Commissioner Of Central Excise on 24 March, 2003
Equivalent citations: 2003(162)ELT620(TRI-KOLKATA)
ORDER Jeet Ram Kait, Member (T)
1. This appeal filed by Kesoram Rayon is directed against Order-in-Original No. 28/Ch.54/ Commissioner/CE/CAL-IV/Adjn/2002, dated 23-5-2002 passed by the Commissioner of Central Excise, Kolkata IV Commissionerate by which he has confirmed a demand of duty of Rs. 42,59,512/- on the assessee under the provisions of Section 11(A)(1) of the Central Excise Act, 1944. He has also imposed penalty equal to the duty amount under the provisions of Section 11AC besides ordering the assessee to pay interest under Section 11AB of the Act.
2. Brief facts of the case are that the appellants herein are engaged in the manufacture of excisable goods inter alia Viscose Filament Rayon and Film of Regenerated Cellulose. They were alleged to have availed benefit of Modvat credit on capital goods and spares etc. under Rule 57T with effect form 1-3-94 i.e. after the introduction of the scheme of availing credit on capital goods. The further allegation of the department is that the capital goods and spares after having been used in the factory premises became rejected/scrap/waste which were then cleared to different buyers in violation of the various provisions of the Rules without issuance of any statutory invoices as required under Rule 52A of the Central Excise Rules, 1944. It is in these circumstances show cause notice No. V.Ch-54(15)107-CE/Cal. IV/ Adjn/99/6287-T, dated 13-8-99 was issued to the assessee by the Commissioner of Central Excise, Calcutta-IV Commissionerate and after considering the reply to the Show cause notice and after granting personal hearing to the assessee-appellants, the Commissioner has passed the present impugned order as noted above against which the party has come in appeal. In the grounds of appeal they have inter alia stated that:
(a) Proviso to Section 11A(1) cannot be invoked in this case as none of the conditions precedent for invoking the proviso was satisfied.
(b) the demand for duty on the waste and scrap of capital goods cleared from the appellants factory is sought to be made from October, 1994 to July, 1998. The scheme itself came into force with effect from 1-3-94. The value of the capital goods which were purchased prior to the introduction of the scheme itself and which were already lying installed in the factory at the end of the financial year 1993 was to the tune of Rs. 25,24,21,238/-. There was therefore no scope for availing Modvat credit and consequently there was no liability on payment of duty on the scrap arising out of the machinery which were purchased prior to the introduction of the scheme.
(c) The Commissioner has proceeded to demand duty on the scrap and waste as if the entire scrap has been generated after the introduction of the scheme itself and that no waste and scrap had generated in respect of the capital goods which were purchased prior to the introduction of the scheme.
(d) In terms of Rule 57S of the Central Excise Rules, 1944 duty on the scrap and waste of the capital goods can be demanded if Modvat credit has been availed on the capital goods and not otherwise.
(e) Out of the disputed demand, demand for Rs. 15,98,383/- related to lead waste and scrap. Assessee has got 52 spinning mills and out of this, 46 spinning mills were installed prior to the introduction of the scheme. Overhauling is normally undertaken after a gap of about five years. During the overhauling of spinning machines, about 11.6 MT of lead waste and scrap arises and only part of the lead items are taken for use and the rest are discarded and disposed of as waste.
(e) They have filed certificate from the Chartered Engineer in support of their contention regarding installation of 52 spinning mills and the overhauling etc. They have also stated that the details submitted by them about the overhauling done to the machines, have not been taken into consideration by the adjudicating authority.
(f) They have also filed statement giving details of RG 23C Part II serial numbers and the dates, amount of credits, name of the item etc. in respect of various lead items on which Modvat credit was availed by them and they specifically stated that the amount of Modvat credit taken by them on this account was Rs. 12,64,827/- and these details were ignored by the adjudicating authority.
(g) Items relating to invoice No. B 156, 210 and 231 involving a duty of Rs. 3,833/- were taken twice and though the appellants had pointed out this lapse, vide Para 9 of their reply to the show cause notice, their request was not considered.
3. Shri S.K. Bagaria, learned Counsel appearing on behalf of the appellants reiterated the grounds of appeal and also referred to the synopsis of the case filed by them. He has also invited our attention to the following case laws in support of their plea for setting aside the impugned order:
(a) CCE v. Diamond Cement reported in 2002 (52) R.L.T. 659 wherein it was held that waste and scrap generated by dismantling of old and used machinery is not excisable goods.
(b) Hindustan Petroleum Corporation Ltd. v. CCE reported in 2002 (144) E.L.T. 555 (T) = 2002 (52) R.L.T. 688 wherein it was held that worn out and damaged parts of the machinery and plant cut into pieces for the purposes of dismantling are not excisable metal scrap.
(c) Hindalco Industreis Ltd. v. CCE reported in 2002 (144) E.L.T. 339 (T) = 2002 (49) RLT 41 wherein it was held that metal waste and scrap arising from dismantling of building, structures and sheds, replaced old machine parts, electrical fittings etc. is not liable to any Central Excise duty.
(d) ACC Ltd, v. CCE reported in 2001 (138) E.L.T. 84 (T) = 2001 (46) RLT 896 wherein it has been held that scrap generated by dismantling old machinery or during repair of machinery are not dutiable as it is not a result of process of manufacture.
4. Shri N.K. Mishra, learned DR appearing for the Revenue defended the order impugned order and sought for dismissal of the appeal.
5. We have carefully considered the rival submissions and gone through the case records and perused the case laws cited by the party. We observe that the issues that arise for consideration in this appeal are:
(a) Whether duty on waste and scrap arising out the capital goods which were bought prior to the introduction of the Rule 57S, is demandable or not.
(b) Whether duty on waste and scrap arising out of the capital goods which were modvated can be demanded or not, even if the waste and scrap had not arisen during manufacture of the excisable products.
(c) Whether the demands are barred by time.
(d) Whether interest and penalty under Sections 11AB and 11AC respectively are sustainable in this case.
6. Before we proceed to answer the above questions, it is necessary to appreciate Rule 57S. The relevant portion of the said rule is extracted hereunder for convenience of reference:
"RULE 57S. Manner of utilisation of the capital goods and the credit allowed in respect of duty paid thereon. -- (1) The capital goods in respect of which credit of specified duty has been allowed under Rule 57Q may be -
(i) used in the factory of the manufacturer of the final products; or
(ii) removed, after intimating the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, having jurisdiction over the factory and after obtaining dated acknowledgment of the same, from the factory for home consumption or for export, on payment of appropriate duty of excise leviable thereon or for export under bond, as if such capital goods have been manufactured in the said factory.
(2) In a case, -
(a) where capital goods are removed without being used from the factory for home consumption, on payment of duty, or for export on payment of duty of excise, such duty of excise shall in no case be less than the amount of credit that has been allowed in respect of such capital goods under Rule 57Q;
(b) where capital goods are removed after being used in the factory for home consumption on payment of duty of excise or for export under rebate on payment of duty of excise, such duty of excise shall be calculated by allowing deduction of 2.5 per cent of credit taken for each quarter of a year of use or fraction thereof, from the date of availing credit under Rule 57Q; and
(c) where capital goods are sold as waste and scrap, the manufacturer shall pay the duty leviable on such waste and scrap."
On reading of the above rules, it will be seen that the opening sentence of the Rule itself says "The capital goods on which credit of specified duty has been allowed (emphasis supplied by us) under Rule 57Q may be.........". In other words, duty shall be required to be paid on the waste and scrap if the credit has been taken on the capital goods. Further, in terms of Para 2(b) thereto, even in respect of the capital goods which are removed after being used in the factory, for home consumption, etc. 2.5 per cent of the credit shall be allowed. We find that the Commissioner has proceeded to demand duty by reading Rule 2(c) in isolation instead of resorting to a harmonious reading of the rule.
7. We further find that the Commissioner has adverted to the reply dated 10-1-2002 filed by the appellants but has not discussed the detailed reply furnished by them and the documents annexed thereto. In the reply to the show cause notice they have very clearly brought out the details with facts and figures of the overhauling done to 52 Spinning Mills indicating the dates, the details of the lead waste and scrap, details of Modvat credit availed during the period April, 1994 to July, 1998 showing the serial numbers of the entry in the RG 23 Part II/RG 23C Part I with invoice number etc., the period to which the machinery belonged with supporting documents. There is nothing in the impugned order to show that these enormous documents made available by the appellants in reply to the show cause notice have been got verified. It is not understandable what prevented the adjudicating authority from verifying the details and supporting documents relied upon by the appellants in support of their plea canvassed in reply to the show cause notice. We have gone through the reply to the show cause notice and find that the appellants have stated "overhauling of each of spinning mills is undertaken after a gap of about five years. We have also gone through the certificate given by the Chartered Engineer wherein it is stated that overhauling is carried out at an interval of about six years. However, the adjudicating authority has chosen to heavily rely on the reply given by the appellants that overhauling of the machine is done after a gap of five years whereas the certificate given by the Chartered Engineer states that overhauling is done at an interval of six years. It would thus be seen that neither the appellants nor the Chartered Engineer has specifically stated overhauling is done at an interval of five years or six years as held by the adjudicating authority. The conclusion reached by the adjudicating authority that "it is very hard to swallow this argument that all the 52 spinning machine are working round the clock, through out the year, without even a single break down, without replacement of any part, during the entire period of 5/6 years appears to be impossible" deserves to be rejected as it is based on conjecture, without discussing the detailed reply and the facts and figures furnished by the appellants in reply to the show cause notice. In the absence of the detailed and thorough discussion of the various points given by the appellants, the order impugned cannot be considered a speaking order. Now we proceed to answer the issues framed above:
(a) The first issue is whether the duty can be demanded on the waste and scrap of capital goods which were not modvated. We find that the appellants have asserted that they have got 52 Spinning Mills (capital goods) in their factory and most of the capital goods i.e. 46 spinning mills had been bought by them prior to the introduction of Rule 57S itself with effect from 1-3-1994. Out of these 46 spinning machines 39 were overhauled during the period March, 1994 to July, 1998 and the remaining 7 machines were overhauled even prior to 1-3-94 i.e. the date of introduction of the rule and hence no duty can be demanded in respect of such waste and scrap which had arisen out of capital goods which were bought prior to the introduction of the rule itself. We are of the considered opinion that no duty can be demanded on the waste and scrap of the capital goods on which the benefit of Modvat credit was not availed. This question is therefore answered in favour of the appellants.
(b) Whether duty can be demanded on the waste and scrap of the capital goods on which the benefit of Modvat credit was availed of. We observe that in terms of Rule 57S(2)(c) where capital goods are sold as waste and scrap the manufacturer shall pay the duty leviable on such waste and scrap. We find that there is no ambiguity in the rule in regard to duty liability on the waste and scrap of the capital goods on which the benefit of Modvat credit was availed of, after the introduction of the said rule w.e.f. 1-3-1994. Appellants have relied upon various case laws as noted under Para 3 above. None of the case laws deal with Rule 57S. This point is therefore answered in favour of the Revenue.
(c) As regards the question whether the demands are time barred or not, we find that the period of dispute relate to 10/94 to 7/98 and the show cause notice was issued on 13-8-99. Appellants have taken the plea that the demands are hit by bar of limitation since the conditions precedent for invoking the proviso to Section 11A(1) have not been satisfied. As already noted under sub-para (b) above, duty on waste and scrap of the capital goods on which the benefit of Modvat credit was availed, is liable to be paid by assessee. The appellants themselves admitted that certain of the waste and scrap which had arisen out of the capital goods which were modvated, were cleared by them without payment of duty. Since clearance of those waste and scrap were effected without bringing it to the notice of the department, it cannot be said that there was no suppression of fact on the part of the appellants in regard to those waste and scrap of the capital goods which were modvated and which were cleared without the knowledge of the department. Therefore, longer period of limitation is applicable in this case in relation to part of the clearances.
(d) As regards imposition of mandatory penalty under Section 11AC and demand of interest under Section 11AB, it is well settled proposition of law that these provisions cannot be invoked prior to their enactment. These provisions were introduced with effect from 28-9-1996 and can be applied only prospectively and not retrospectively. Further, the assessing authority has the discretion to levy lesser amount of penalty depending upon the facts and circumstances of each case in terms of the judgment handed down by the Hon'ble Apex Court in the case of State of Madhya Pradesh v. BHEL reported in 1998 (99) E.L.T. 33 (S.C).
8. In view of the above, the adjudicating authority is directed to re-determine the duty liability of the appellants in respect of the waste andscrap which arose out of the capital goods on which the benefit of Modvat credit was availed of after causing verification of the documents submitted by the appellants. He shall also re-fix the quantum of penalty if it is decided to levy the same, in terms of Section 11AC depending upon the quantum of duty that would be adjudged. Interest is also demandable, on the duty that would be ultimately payable in terms of Section 11AB. In the circumstances the order impugned is set aside and the matter remanded for de novo consideration after affording effective opportunity of hearing to the appellants in accordance with law. The appellants are at liberty to put forth all their pleas with evidence in support of their claim, in the de novo proceedings. The appeal is thus allowed by remand in the above terms.