Gujarat High Court
Commissioner, Customs (Preventive) vs Monarch Overseas on 19 December, 2018
Author: Harsha Devani
Bench: Harsha Devani, A. P. Thaker
C/TAXAP/1345/2018 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 1345 of 2018
With
R/TAX APPEAL NO. 1346 of 2018
With
R/TAX APPEAL NO. 1348 of 2018
With
R/TAX APPEAL NO. 1350 of 2018
With
R/TAX APPEAL NO. 1351 of 2018
With
R/TAX APPEAL NO. 1352 of 2018
With
R/TAX APPEAL NO. 1355 of 2018
With
R/TAX APPEAL NO. 1356 of 2018
With
R/TAX APPEAL NO. 1357 of 2018
With
R/TAX APPEAL NO. 1358 of 2018
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COMMISSIONER, CUSTOMS (PREVENTIVE)
Versus
MONARCH OVERSEAS
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Appearance:
MR NIRZAR S DESAI(2117) for the APPELLANTS
for the RESPONDENT(s) No. 1
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CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI
and
HONOURABLE DR.JUSTICE A. P. THAKER
Date : 19/12/2018
ORAL ORDER
(PER : HONOURABLE MS.JUSTICE HARSHA DEVANI)
1. By these appeals under section 130 of the Customs Act, 1962, the appellant has challenged the common order dated 09.02.2018 passed by the Customs, Excise and Service Tax Page 1 of 12 C/TAXAP/1345/2018 ORDER Appellate Tribunal, West Zonal Bench, Ahmedabad (hereinafter referred to as the "Tribunal") in Order No.A/11068
- 11093/2018, by proposing the following common questions stated to be substantial questions of law:
"[a] Whether the Hon'ble CESTAT is justified in attributing the conclusion that the CBEC Circular No.62/2001-Cus dated 12.11.2001 is contrary to the principle of law laid down in relation to the meaning of "Manufacture" held by judiciary in a series of cases?
[b] Whether the Hon'ble CESTAT is correct and justified while holding that the CBEC Circular No.1029/17/2016-CX dated 10.05.2016 is relevant though the same has been issued in respect to Cenvat Credit Rules, 2004, especially when the facts and circumstances of the present case are identical and properly clarified and covered under the Circular No.62/2001-Cus dated 12.11.2001, which has been issued in respect to EOU/SEZ Units?
[c]Whether the Hon'ble CESTAT is correct in allowing the clearance of foundry scrap beyond the ratio/norms of scrap laid down by the Norms Committee and in contravention to the provisions of Notification No.52/2003-Cus dated 31.03.2003?"
Since all the appeals arise of a common order and the facts are also similar, the same were taken up for hearing together and are disposed of by this common judgment.
2. The respondents-assessees are 100% Export Oriented Units engaged in the manufacture of brass articles. During the relevant period, the assessees had imported brass metal scrap containing other impurities without payment of duty as per Notification No.52/2003-Cus dated 31.03.2003, as amended. Such scrap was later segregated into foundry and non-foundry scrap: foundry scrap was used in the manufacture of brass Page 2 of 12 C/TAXAP/1345/2018 ORDER products, whereas the non-foundry scrap containing other impurities like rubber, plastic, etc. was sold in the DTA on discharge of appropriate excise duty. Demand notices came to be issued to the assessees mainly on two grounds alleging that: (i) since segregation of imported brass scrap into foundry and non-foundry did not result into manufacture, as per CBEC Circular No.62 of 2001 dated 12.11.2001, the clearance of non-foundry scrap in DTA on payment of applicable excise duty is in contravention of Notification No.53/2003-Cus dated 31.03.2003 and, therefore, applicable import duty would be recoverable from the assessees; and/or (ii) the assessees had exceeded the use of laid down ratio/norms of scrap in the segregation activity and/or in the manufacture of brass articles, contrary to the norms fixed by the Norms Committee or limit prescribed under the said notification, consequently, the utilization/clearance of excess scrap, could be said to have been not used for the intended purpose and in contravention of the said Notification No.52/2003-Cus and, accordingly, applicable import duty foregone is recoverable on the said excess quantity.
2.1 It appears that the orders passed by the adjudicating authority came to be challenged before the Commissioner (Appeals), which resulted into inconsistent orders. In one bunch of orders passed in the year 2013, the Commissioner (Appeals) confirmed the demand on the excess quantity of brass scrap consumed in the manufacture of finished brass articles, whereas in another batch of appeals, wherein orders came to be passed in the year 2014, the Commissioner (Appeals) observed that since the excess quantity of scrap both at the segregation stage and also during manufacturing Page 3 of 12 C/TAXAP/1345/2018 ORDER of brass article, was cleared in DTA on payment of appropriate excise duty with the permission of the Development Commissioner, therefore, it would fall within the scope of clause (3) of Notification No.50/2003-Cus dated 31.03.2003, as amended and, accordingly, no further customs duty would be recoverable on the excess quantity of scrap.
2.2 Both, the assessees as well as the revenue went in appeal before the Tribunal. According to the revenue, since the activity of segregation of imported scrap does not result into manufacture, in view of CBEC Circular No.62 of 2001 dated 12.11.2001, the customs duty foregone is required to be paid on that quantity of non-foundry scrap, cleared in DTA applying, CIF value of the scrap at the time of its import.
2.3 The assessee challenged the orders passed by the Commissioner (Appeals) contending that the input output ratio fixed by the Norms Committee cannot be made applicable in view of clause (3) of Notification No.50/2003-Cus dated 31.03.2003, since the scrap had been cleared on payment of appropriate excise duty in DTA after obtaining necessary permission from the Development Commissioner.
2.4 The Tribunal, by the impugned order, found that the question as to whether the activity of segregation of imported mixed brass scrap into foundry and non-foundry grade amounts to manufacture is more or less covered by the recent circular of the Board dated 10.05.2016 and accordingly, held that the non-foundry scrap cleared in DTA on payment of excise duty, cannot be construed as clearance of imported scrap "as such".
Page 4 of 12C/TAXAP/1345/2018 ORDER 2.5 On the issue of payment of duty on the excess use/consumption of scrap material in the activity of
segregation/manufacture of finished goods, the Tribunal was of the view that the Commissioner (Appeals) had rightly relied upon clause (3) of Notification No.52/2003-Cus dated 31.03.2003 and hence, the demand of customs duty foregone on the excess quantity of imported scrap worked out on the basis of the norms fixed by the Committee, is not sustainable in law.
3. Mr. Nirzar Desai, learned Senior Standing Counsel for the appellant in each of the appeals, submitted that the Tribunal was not justified in holding that the segregation activity is a part of manufacturing of brass articles from imported mixed brass scrap. It was submitted that the respondents are liable to pay customs duty on the imported scrap cleared "as such"
on the clearance of segregated non-foundry scrap in DTA. Reference was made to the Circular No.62/2001-Cus dated 12.11.2001, which has been issued regarding valuation of certain variety of plastic waste and scrap which is not generated out of the manufacturing operations, but emerges during segregation of such plastic waste and scrap after import, to point out that it has been provided therein that for the purpose of charging duty, such plastic waste and scrap will have to be treated as unutilised material and valuation of such waste and scrap will have to be done on the basis of their CIF value at the time of import. It was submitted that it is this circular which would be applicable to the facts of the present case and hence, the plastic waste which is cleared after segregation is liable to customs duty on goods imported "as Page 5 of 12 C/TAXAP/1345/2018 ORDER such". It was submitted that the Tribunal has wrongly placed reliance upon the CBEC Circular No.1029/2016-CX dated 10.05.2016 despite the fact that the same has been issued in respect of Cenvat Credit Rules, 2004, more so, when the facts and circumstances of this case are identical and properly clarified and covered under Circular No.62/2001-Cus dated 12.11.2001, which has been issued in respect of the EOU/SEZ Units. It was submitted that the maximum waste permitted in case of brass scrap is 2% and, therefore, any waste in excess thereof is required to be cleared by payment of customs duty on import of such articles "as such".
4. In the backdrop of the facts and contentions noted hereinabove, two questions arise for consideration:
(i) Whether clearance of imported scrap after segregation can be said to be clearance "as such"? and
(ii) Whether clearance of such scrap upon payment of excise duty would fall within the ambit of paragraph 3 of Notification No.52/2003-Cus dated 31.03.2003?
5. As can be seen from the impugned order, the Tribunal has held that after segregation of the mixed imported scrap, the segregated scrap, if cleared, cannot be considered as clearance of inputs "as such". The facts reveal that what was imported was brass scrap. The brass scrap was segregated into brass and foundry and non foundry scrap. The brass and foundry items came to be used for the manufacture of brass articles for which purpose the scrap had been imported. The non foundry scrap obtained as a result of such segregation came to be cleared in DTA. In the opinion of this court, such non foundry scrap can by no means be said to be articles Page 6 of 12 C/TAXAP/1345/2018 ORDER imported "as such" inasmuch as it was brass scrap which was imported for the purpose of manufacture of brass articles. The non foundry waste derived as a result of segregation cannot be used for the purpose of manufacture of brass articles and hence, cannot be said to be articles imported "as such", since the essential character of the scrap, viz. brass is absent. The Tribunal was therefore, wholly justified in holding that the segregated scrap, if cleared, cannot be considered to be clearance of inputs "as such".
6. The Tribunal has further held that the segregation of the mixed imported scrap is a part of the manufacturing of brass articles from the imported mixed brass scrap and therefore, the demand of customs duty on the clearance of segregated non-foundry scrap in DTA considering the same as imported scrap and clearance "as such" is unsustainable in law.
7. In this regard, as noted hereinabove, what the respondent has imported is brass scrap for the purpose of manufacturing brass articles. For this purpose, the scrap has to be segregated to first remove the brass and foundry items which are then used for manufacturing purpose. Unless the plastic and other waste is removed, it would not be possible to use the brass for manufacture. Therefore, the segregation of the brass and foundry from the scrap is the first step in the manufacturing process and the plastic and other material generated on account of such segregation, which cannot be used for manufacturing brass articles do not retain the character of the item which was imported, viz., brass scrap. Therefore, the question of charging customs duty on such goods by considering them to be articles imported "as such"
Page 7 of 12C/TAXAP/1345/2018 ORDER would not arise. The order of the Tribunal is, therefore, unexceptionable.
8. The appellant has placed reliance upon the CBEC Circular No.62/2001-Cus dated 12.11.2001, which relates to valuation of plastic waste and scrap. In terms of the said circular, plastic waste and scrap reprocessors operating under EOU/EPZ/SEZ Scheme, who are producing plastic agglomerates out of imported plastic waste and scrap, use only a portion of such plastic waste for manufacture of plastic agglomerates and the balance quantity is sought to be cleared in DTA or to other EOU/EPZ/SEZ units. Evidently therefore, insofar as the said circular is concerned, it relates to imported plastic waste being cleared "as such" and not after segregation. Besides, insofar is imported plastic waste is concerned, part of the same is used for the manufacture of plastic agglomerates and the remaining plastic waste is cleared in the DTA. Therefore, the identity of the goods imported and the goods cleared into DTA is the same, namely plastic waste. Evidently, therefore, the plastic waste cleared into DTA is clearance of plastic waste "as such". Whereas in the facts of the present case, what is imported is brass scrap and what is cleared into DTA is waste other than brass and foundry items, the identity whereof is different from the goods imported. The said circular would, therefore, have no applicability to the facts of this case.
9. The appellant has also challenged the impugned order passed by the Tribunal on the ground that the Tribunal has wrongly placed reliance upon the Circular No.1029/2016-CX dated 10.05.2016. Insofar as the said Circular is concerned, it clarifies regarding segregation of impurities, viz., iron, steel, Page 8 of 12 C/TAXAP/1345/2018 ORDER rubber, plastic, dust etc. from honey grade plastic scrap. The issue was when the category of waste, viz., foreign material segregated initially and not fed into the furnace is cleared by the brass manufacturers can be treated as inputs "as such"
and accordingly were the manufacturers required to pay an amount equal to the credit availed in respect of such inputs in terms of rule 3(5) of the CENVAT Credit Rules, 2004. The Central Board of Excise and Customs has clarified thus:
"3. The issue has been examined. Segregation from honey grade brass scrap in order to weed out other foreign materials before the process of melting in the furnace is an essential process relating to manufacture of brass articles. The foreign materials, emerging during the process of segregation have to be treated as process waste and cannot be treated like removal of inputs as such. The segregated foreign material has an altogether different character and use vis-à-vis brass scrap. Value per unit and classification of the segregated foreign materials is also different from that of imported brass scrap. Accordingly, clearance of foreign material such as iron, steel, rubber, plastic, dust etc., cannot be treated as clearance of inputs as such. It may be noted that Circular No.62/2001 does not apply to the issue at hand as the facts at hand are different.
4. In view of above, it is clarified that the clearance of segregated foreign materials, namely, iron, steel, rubber, plastic, dust etc. from honey grade brass scrap before feeding in the furnace cannot be treated as removal of "inputs as such" as envisaged under Rule Page 9 of 12 C/TAXAP/1345/2018 ORDER 3(5) of CENVAT Credit Rules, 2004. The segregated foreign material in such situation, as has been explained above, shall be cleared on payment of Central Excise duty on transaction value as per its appropriate classification and rate of duty determined on merits."
10. Thus, while the above circular clarifies whether segregated foreign materials from imported honey grade brass scrap can be treated as "inputs as such" as contemplated in rule 3(5) of the CENVAT Credit Rules, 2004, the principle involved is the same. In this case also, the segregated material has an altogether different character and use vis-à-vis the brass scrap. The value per unit and classification of the segregated foreign materials is also different from that of the imported brass scrap. As a necessary corollary therefore, the segregated foreign material cannot be treated as input "as such" for the purpose of levy of customs duty. The Tribunal, therefore, did not commit any error in placing reliance upon Circular No.1029/2016-/CX dated 10th May, 2016.
11. That brings us to the second question, as to whether clearance of such scrap upon payment of excise duty would fall within the ambit of paragraph 3 of Notification No.52/2003- Cus dated 31.03.2003? On behalf of the appellant it has been contended that the clearance of foundry scrap beyond the ratio/norms of scrap laid down by the Norms Committee is in contravention of the provisions of Notification No.52/2003-Cus dated 31.03.2003. In this regard, reference may be made to the provisions of the said notification. Clause (3) of the said notification to the extent the same is relevant for the present purpose provides that notwithstanding anything contained in Page 10 of 12 C/TAXAP/1345/2018 ORDER that notification, the exemption therewith shall also apply to goods which on importation into India or procurement, are used for the purpose of manufacture of finished goods or services and such finished goods and services, (including by- products, rejects, waste and scrap arising in the course of production, manufacture, processing or packaging of such goods) even if not exported, are allowed to be sold in Domestic Tariff Area in accordance with the Export and Import Policy and subject to such other limitations and conditions as may be specified in this behalf by Development Commissioner, or Board of Approval or the Inter Ministerial Standing Committee, as the case may be, on payment of appropriate duty of excise leviable thereon under section 3 of the Central Excise Act, 1944. Thus, waste and scrap arising in the course of production or manufacture of finished goods are also exempt from the duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 and the additional duty, if any, leviable thereon under section 3 of the said Customs Tariff Act. Reverting to the facts of the present case, as noticed hereinabove, the segregated waste has arisen in the course of production/manufacture of the finished goods viz. brass articles; the Commissioner of Customs has recorded that the segregated waste had in fact been cleared on payment of duty after being duly permitted by the Development Commissioner in accordance with the provisions of the EXIM Policy. The requirements of clause (3) of Notification: 52/2003-Cus dated 31st March, 2003 are therefore, wholly satisfied. Under the circumstances, there does not appear to be any legal infirmity in the view adopted by the Tribunal.
Page 11 of 12C/TAXAP/1345/2018 ORDER
12. In the light of the above discussion, it is not possible to state that the impugned order passed by the Tribunal suffers from any legal infirmity so as to give rise to any question of law, much less, a substantial question of law, warranting interference. The appeals, therefore, fail and are accordingly summarily dismissed.
(HARSHA DEVANI, J) (A. P. THAKER, J) B.U. PARMAR Page 12 of 12