Customs, Excise and Gold Tribunal - Tamil Nadu
M/S Andhra Pradesh Paper Mills Ltd. vs Commissioner Of Customs And Central ... on 4 September, 2001
ORDER
Shri S.L. Peeran
1. By this stay application, appellant is seeking waiver of pre deposit of duty amount of Rs. 32,41,654/- on the alleged removal of M.S. scrap, C.I. scrap, S.S. scrap, aluminium scrap and copper scrap without payment of duty in terms of Section 11A of Central Excise Act. The Commissioner has also imposed equal amount as penalty under Section 11AC and penalty of Rs. 5 lakhs in terms of Rule 173Q (1) of CE Rules. The show cause notice was issued on 17.4.2000 for the period 1995-96 to 1999-2000. The assessee in their reply to the show cause notice stated as follows:
(a) accuracy of duty quantified could not be commented up on as the concerned bills are in the possession of CE authorities.
(b) they made correspondence with the Assistant Commissioner and Range Officer regarding disposal of condemned cables, wires, waste oils, scrap etc. and payment of amount thereon under rule 57S (2). Hence there was no suppression.
(c) Section XV of the Central Excise Tariff Act, 1985 deals with base metals and articles of base metal and does not cover articles of Section XVI under which most of the articles included in the show cause notice fall,
(d) The Items figuring in the show cause notice include:
a) used MS tins, b) electrical scrap, c) empty barrels, d) empty tins, etc. and emptying the containers, etc., doesn't amount to manufacture.
(e) There is no manufacturing process involving emergence of meal scrap not is there any mechanical working of metals and metal goods as they manufacture only paper and paper board manufactured out of forest materials. Scrap refers only to metal and metal goods damaged during their manufacturing process.
(f) The goods cleared were described as scrap for convenience of reference only.
(g) M/s. A.P.P. Mills relied upon case law to the effect that if an item does not arise out of manufacture the same cannot be treated as excisable goods.
(2)(ii) Shri P.K. Goswamee, Deputy Manager of M/s. A.P.P. Mills appeared for personal hearing on 10.10.2000 and reiterated the submissions made in the written reply to Show Cause Notice.
As against the above submission, the Commissioner in para 4 & 5 has held as follows:-
(4) As per Section 3 of the Central Excise Act, 1944, duties of excise shall be levied and collected on all excisable goods which are produced or manufactured in India. In Section 2(d) of the Act, 'excisable goods' are defined as goods specified in the schedule to the Central Excise Tariff Act, 1985, as being subject to a duty of excise. Thee are specific entries in the Central Excise Tariff to cover metal waste and scrap. Example 72.04 (Ferrous waste and scrap). There is no dispute on the fact that metal waste and scrap are marketable goods. Since metal waste and scrap are marketable goods and they being goods specified in the schedule to the Central Excise Tariff Act, 1985, they are excisable goods.
As per Section Note 8(a) of Section XV (base metals and articles of base metals) of the schedule to the Central Excise Tariff Act, 1985, 'waste and scrap' means metal waste and scrap from the manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting up, wear or other reasons.
As per the definition given in Section 2(f) of the Central Excise Tariff Act, 1944, manufacture includes any process incidental or ancillary to the completion of a manufactured product and which is specified in relation to any goods in the Section or Chapter Notes of the schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture. Definition of manufacture under Section 2(f) is, therefore, not confined to its natural meaning but is an expansive definition. Not only processes which are incidental and ancillary to the completion of a manufactured product but also those processes as are specified in relation to any particular goods in the Section or chapter Notes to the Tariff schedule have also been brought in to its ambit. In other words, the definition of manufacture in Section 2(f) endows a wider content to the expressing, as several processes which would not ordinarily be understood as amounting to manufacture are specifically included therein.
The wider content given to the expression 'manufacture' in Section 2(f) of the Central Excise Act, 1944 places the process of general of metal waste and scrap as detailed in the definition given in Note 8(a) of Section XV of the Central Excise Tariff on par with the natural meaning of manufacture. Hence, generation of scrap as explained in Note 8(a) of Section XV of the Tariff amounts to manufacture as per the definition given in Section 2(f) of the Central Excise Act, 1944.
As per Section Note 8(a), of Section XV of schedule to the Central Excise Tariff Act, 'Waste and scrap' means metal waste and scrap from the manufacture or mechanical working of metals and metal goods definitely not usable as such because of breakage, cutting up, wear or other reasons. The expression 'manufacture or mechanical working' is quite significant in this context. The above expression makes a distinction between 'manufacture' and 'mechanical working'. Hence, if the scrap is generated as a result of mechanical working of metals, such scrap is excisable, irrespective (natural meaning) or not. In other words, if there is a process of manufacture or a mechanical working of metals (not necessarily amounting to manufacture as per its natural meaning), metal scrap, if any, generated in the course of such manufacture or mechanical working of metal are undoubtedly excisable goods. Similarly, the above definition also gives specific examples of how waste and scrap are generated through other processes. Breakages, cutting - up, wear and tear dn other reasons are processes specified in the above said tariff definition, which result in the generation of waste and scrap. Breakage cutting-up, wear and tear etc. are processes entirely different from manufacture or mechanical working of metals. In other words, the above definition of metals waste and scrap brings within the scope of manufacture even scrap items generated on account o breakage, cutting-up, wear and tear or other reasons. Hence, if metal goods which on account of any of the specified processes such as breakage, cutting-up wear and tear or other reasons become scrap, the process which converts the metal goods into scrap amounting to manufacture under Section 2(f) of the Central Excise Act, 1944 and the resultant scrap is excisable. Any interpretation, other than the above, would make the second part of the definition of waste and scrap ie., and metal goods definitely note usable as such because of breakage, cutting up, wear or other reasons totally redundant.
The expression 'any process' as used in Section 2(f) of the Act, is wide enough to cover the processes which are carried out intentionally and which occur by chance. Similarly, the said expression any process covers not only constructive processes but also destructive processes. If a destructive process results in the emergence of a new product, that destructive process also amounts to manufacture under the Central Excise Act, 1944 and the resultant produce is excisable. This reasoning fully justified the definition of metal waste and scrap as given in Note 8(a) of Section XV of the Central Excise Tariff as amounting to manufacture for the purpose of Section 2(f) of the Central Excise Act, 1944.
5(i) The argument of M/s. A.P.P. Mills that the scrap sold by them has no relationship with their main produce ie., paper and paperboard is of no relevance to their case. There is nothing in law that the products manufactured in the course of the main activities of a unit alone are excisable. What is required to be seen is whether in the hands of the manufacturer any goods have undergone any processing which resulted in the emergence of a commercially different produce. There is no dispute on the fact that 'metal scrap' is a commercially distinct and different marketable product. When the prime iron and steel items brought in were subjected to certain processes as specified in Note 8 (a) of Section XV in the premises of M/s. A.P.P. Mills, the scrap in question emerged at the hands of M/s. A.P.P. Mills as a commercially distinct marketable commodity. In the light of the above discussions, the above processes are to be held as amounting to manufacture and hence, the metal scrap sold by M/s. A.P.P. Mills are chargeable to Central Excise duty.
5(ii) M/s. A.P.P. Mills further contended that Section XV of the Central Excise Tariff Act, 1985 which contains Section 8(a) defining 'scrap' deals with the base metal and articles of base metal whereas most of the articles in the show cause notice fall under Section XVI which deals with machinery and mechanical appliances, electrical equipment parts thereof etc.,. Hence reliance placed on Section Note 8(a) of Section XV will note cover the goods of Section XVI.
Reliance on Section Note 8(a) of Section XV is placed with regard to the excisability and dutiability of the scrap manufactured out of the goods falling under Section XVI but not with reference to the goods falling under Section XVI themselves. Section Notes and chapter Notes in the Central Excise Tariff Act, 1985 operate with reference to the finished goods manufactured but not the goods from which the finished goods are manufactured.
2. With regard to the allegation that they had also liable to pay duty on M.S. tins, electrical scrap, empty barrels, empty tins, auto scrap and old condemned MS cement and concreted metal cutting scrap, the Commissioner in para 6 has agreed with the contention of the assessee that they do not come within the ambit of Section Note 8 (a) of Section XV.
3. Arguing for the appellants, Ld. Counsel opposes the findings recorded which is extracted above and submits that in terms of section Note 8(a) of Section XV, the waste and scrap is indeed dutiable provided the same is arisen while manufacture of the final goods or during mechanical working of metals and metal goods and definitely not usable as such because of breaking, cutting up, wear or other reasons. He points out that in the present case, the appellants had not carried out any manufacturing activity and the metal scrap had not arisen out of any mechanical working of metals. All these scrap arose as a result of old machineries which were scrap and removed for replacement. Further they had demolished the building and the iron and steel material of girder and iron rods which were recovered from the destruction of the building cannot be treated as falling within the Section Note 8 (a) of Section XV. They had specifically raised this plea as can be noted from para 2(i)(e) which is already reproduced above. The Commissioner has not answered this question at all but in para 4 recorded that they did not dispute about its marketability, hence they are to be treated as metal waste and scrap. He submits that it cannot be treated as waste and scrap unless the Section 8(a) of Section XV is satisfied. It is his submission that the same is not satisfied and hence on merits, they have a strong case. he relies on the following judgments:-
(i) Appollo Tyres Ltd. Vs. CCE Cochin [2000 (125) ELT 532-Trib.]
(ii) Diesel Components Works Vs. CCE Chandigarh [2000 (120) ELT 648-Trib.] and
(iii) Rama Trading Co. Vs. CC, New Delhi [1999 (111) ELT 901-Trib.].
4. Ld. Counsel submits that these three judgments squarely apply to the facts of the case as in those cases also the defective materials which were removed were held to be not treated as waste and scrap. He points out that during the relevant period 1995-96, Section 11AC was not in the statute book and hence question of invokation of larger period and imposing mandatory penalty do not arise. To this extent also they have a strong case. He also argues that larger period is not invokable in the present case as there is no suppression of facts for the reasons that they held a bonafide belief that they were not covered by Section 9(a) of Section XV as the said scrap was nothing but old and scrap machineries which were not coming within the ambit of the definition. Therefore, larger period was not invokable. He further submits that all the capital goods on which he had taken Modvat credit which were removed had been intimated to the department and the said facts has been accepted by the Commissioner. Therefore, from this point of view also, the larger period cannot be invoked and demand for larger period is not enforceable. He submits that large number of invoices were seized by the department and those copies were not shown or furnished for the purpose of their reply and effective response to the case and therefore, there is violation of principles of natural justice.
5. Ld. D.R. defends the order and submits that the order is quite a detailed one and speaks for itself about the application of mind. The Commissioner has noted that the items come within the definition of waste and scrap appearing in Section 8(a) of Section XV. He submits that the contention of the appellants are all based on facts and it can be verified only through documents whereas the appellants have not produced all the documents to the bench for the purpose of verification and therefore, at this prima facie stage, they should be put to terms.
6. On a careful consideration of the submission, we notice from the order itself that appellants in para 2(i)(e) had clearly taken a stand that no manufacturing process involving emergence of metal scrap was carried out by them as there is no mechanical working of any metal sand metal goods to treat the same as waste and scrap within the definition of Section Note 8(a) of Section XV. The Commissioner ought to have addressed himself to this point. However, we notice that he has not gone into the details of this section Note but (SIC) merely because they have sold the scrap, he has upheld the allegation. We are not agreeable with this findings. The reason being that the Tribunal has already adjudicated on this issue in three citations referred to supra wherein it has been clearly laid down that defective goods like old and scrap machineries which are removed from factory/building cannot be treated as waste and scrap in terms of Section Note 8(a) of Section XV. We note that the stand taken by the Ld. DR is correct that this is a point which has to be verified through documents. The documents are not before us. On this issue, Ld. Counsel has taken a stand that they were entitled for examining the invoices and for taking copies. The same has not been furnished to them which has also resulted in violation of principles of natural justice. It is also very clear for the show cause notice and the order that the period of learned is from 1995. Therefore, the plea taken that mandatory penalty cannot be imposed for this period is now upheld by the Apex Court also as it have been held that the mandatory penalty has to be imposed only from the day of the promulgation of Section 11 AC. Furthermore, the appellants plea that the demands are time barred as Section Note 8(a) of Section XV clearly defines what waste and scrap has not examined. Their understanding of waste and scrap was on the basis of the definition and therefore, the department has not brought out the fact that the appellants had an intention to evade duty. It is a fundamental rule laid down by the Apex Court in the case of CC Vs. HMM Ltd. as reported in 1995 (76) ELT 497-SC, in the case of Tamil Nadu Housing Board vs. CC [1994 (74) ELT 9] and the case of Pushpa Pharmaceutical Ltd. [1995 (78) ELT 401].
7. In the result, we find that the order being not a speaking order, requires to be set aside and remanded for de novo consideration while granting waiver of pre deposit of duty and penalties and stay of its recovery. Thus the appellant succeed by way of remand. The impugned order is set aside and matter remanded to the original authority for de novo consideration to decide the matter in the light of the observation above and the citations relied by the Ld. Counsel. The Commissioner shall grant full opportunity to the appellants to take copies of invoices and file their fresh reply to the show cause notice. The Ld. Commissioner shall hear the pass a detailed and considered order in the light of the judgments already noted and in terms of Section Note 8(a) of Section XV of the Central Excise Tariff Act 1985. Thus the appeal is allowed by way of remand to the original authority for de novo consideration.
(Pronounced & dictated in open Court)