Customs, Excise and Gold Tribunal - Delhi
Siemens Ltd. vs Collector Of Central Excise on 24 August, 1995
Equivalent citations: 1995(80)ELT662(TRI-DEL)
ORDER Lajja Ram, Member (T)
1. This is an appeal filed by M/s. Siemens Limited, Joka, 24 Parganas (West Bangal), being aggrieved with the order-in-original, dated 12-2-1992 passed by the Collector of Central Excise, Calcutta-I.
2. The appellants were engaged in the manufacture of Switch boards, Panels and parts thereof. They brought duty paid cold rolled (CR) iron and steel sheets, aluminium bars and sections, Copper bars and rods etc., and availed Modvat credit of the Central Excise duty paid thereon by the suppliers. After cutting the required portion for the manufacture of their finished goods, the cut sheets and metal ends, etc. were sorted out and sold to outside parties on payment of Central Excise duty as applicable to waste and scrap of the respective metals. It was alleged in the show cause notice dated 27-2-1991 that during the period from 1-3-1986 to 31-12-1990, these goods cleared under the description of waste and scrap attracted product rate of Central Excise duty. The Collector of Central Excise, Calcutta-I who adjudicated the matter, came to a finding that the goods cleared under the description of waste and scrap, had not gone for the purposes of remelting and had been used as the product. On limitation, he relied upon the Gujarat High Court decision in the case of Torrent Laboratories Pvt. Ltd. v. Union of India -1991 (55) E.L.T. 25 (Guj.). After giving due allowance to the damaged sheets which were packing materials, he demanded Central Excise duty of Rs. 2,59,655.54 and imposed a penalty of Rs. 25,000/-.
3. The matter was posted for hearing on 11-7-1995 when Sh. Arshad Hidayatullah, Senior Advocate with Sh. S.P. Kampani, Consultant appeared for the appellants. Sh. Somesh Arora, SDR represented the respondents.
4. Sh. Hidyatullah, the learned Sr. Counsel stated that the appellants were bringing duty paid mild steel sheets and other metal goods and after utilising in the process of manufacture, the remnants were being cleared on payment of Central Excise duty as waste and scrap. He referred to the changes in the definition of scrap, and stated that with effect from 29-2-1988, a new definition has been introduced in the Tariff and invited attention to Section Note 6 of Section XV. of the Schedule to the Central Excise Tariff Act, 1985 (The Tariff). Referring to the Tribunal decision in the case of Bajaj Auto Ltd. v. Collector of Central Excise 1995 (75) E.L.T. 382 (Tribunal), the learned Sr. Advocate pleaded that the matter may be remanded to the competent authority to come to a finding whether the scrap was useable as sheet etc. On limitation also, it was stated that the Adjudicating authority - the Collector of Central Excise had not applied the test of suppression, and in this connection, referred to the Tribunal's Larger Bench decision in the case of Atma Steels Pvt. Ltd. v. Collector of Central Excise, Chandigarh 1984 (17) E.L.T. 331 (Tribunal). He pleaded that the demand was time barred. The provisions of Section 11A of the Central Excises and Salt Act, 1944 (hereinafter referred to as the 'Act') had to be read even when no time limit was fixed. He relied upon the Karnataka High Court decision in the case of Thnngabhadra Steel Products Ltd. v. Superintendent of Central Excise 1991 (56) E.L.T. 340 (Karnataka) and the Tribunal decision in the case of Hindustan Motors Ltd. v. Collector of Central Excise 1993 (63) E.L.T. 723). As the Collector had dropped the charge of suppression, no penalty should have been imposed.
5. Sh. Somesh Arora, the learned DR replied that the goods cleared under the description of waste and scrap were fit for use as sheets and other metal goods and as Modvat credit had been taken thereon on clearance, the duty to the extent of the Modvat credit should have been paid. He stated that the matter was covered by the Tribunal's decision in the cases of (1) LML Limited v. Collector of Central Excise 1989 (44) E.L.T. 119 (Tribunal) and (2) Bajaj Auto Limited v. Collector of Central Excise 1995 (75) E.L.T. 382. On limitation, the learned DR submitted that the law as before the amendment was applicable for the period prior to 6-10-1988 and that the whole of the demand was within time under the relevant provisions of law. In support of his various contentions, the learned DR relied upon the Tribunal's decision in the cases of (1) Rajasthan Worsted Spinning Mills v. Collector of Central Excise 1990 (47) E.L.T. 483 (Tribunal) (2) Collector of Central Excise v. Jagdamba Electronics 1993 (68) E.L.T. 144 (Tribunal) and (3) Collector of Central Excise v. Maradia Steel Pvt. Ltd. 1992 (59) E.L.T. 59 (Tribunal).
6. In rejoinder, the learned Senior Advocate stated that the various cases cited by the learned DR related to the refund of duty while in the present case, the demand under Rule 57-1 of the Central Excise Rules, 1944 (hereinafter referred to as the 'Rules') was the issue. He stated that sub-rule (2) of Rule 57-1 of the Rules was not applicable and only sub-rule (1) of Rule 57-1 was relevant.
7. We have carefully considered the matter. M/s. Siemens Limited were engaged in the manufacture of switch boards, panels and parts thereof (final products), falling under sub-heading Nos. 8536.90, 8537.00 and 8538.00 of the Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as the Tariff). They were bringing duty paid goods - iron and steel CR sheets, Aluminium and copper bars, rods, sections etc. (inputs) falling under subheading 7209.20, 7604.30 and 7403.19 of the Tariff, and availed of the credit of duty of Excise paid by the suppliers on those inputs (specified duty), under the provisions of Rule 57A and utilised the credit so taken towards discharging their own duty liability on the final products. A part of the inputs after cuttings for use in the manufacture of the final products was removed on payment of Central Excise duty as applicable to waste and scrap under sub-headings 7204.90,7404.00 and 7602.00 of the Tariff and sold to outside parties. They were found to be useable as such for making small articles like toys etc. The Adjudicating authority, the Collector of Central Excise, Calcutta-I had come to a finding that these goods removed were capable of being used as a product.
8. Under Rule 57A, the credit of the specified duty is allowable if the duty paid inputs are used in or in relation to the manufacture of the final product. The expression used in the rule is "used in or in relation to the manufacture" of the final product. The expression is not 'intended for use' (refer Supreme Court decision in the case of State of Haryana v. Dalmia Dadri Cement Ltd. (AIR 1988 SC 342). Depending upon the requirement for the manufacture of their final product, portions from inputs were cut. The whole of the input was not used. After meeting out their requirement, the rest/part of the inputs (not used in or in relation to the manufacture of the final product) were removed from their factory for outside consumption. The appellants had submitted that such goods removed from their factory for home consumption were 'waste' for the purposes of sub-rule (4) of Rule 57F of the Rules. Sub-rule (4) of Rule 57F provided that any waste arising from the processing of inputs in respect of which credit had been taken, may be removed on payment of duty as if such waste is manufactured in the factory. Scrap is normally understood as something which is not serviceable. Scrap according to dictionary means a small piece cut or broken from something, fragment. In commercial parlance, 'scrap' is normally understood as waste. It may however, be used for re-rolling or re-melting for bringing out raw material to be used for producing finished goods (Refer Supreme Court decision in the case of TISCO v. CCE 1995 (75) E.L.T. 3 (SC). It has been clarified in the Import and Export Policy for the period April 1990 - March 1993 Vol. I (Extract at page 10 of the Paper Book) that waste and scrap is normally used for recovery of metal by remelting. From the Invoice at page 50 of the paper book, it is seen that even crimpled/rejected sheets in different sizes had been taken as waste. In the case of Tata Iron & Steel Company Ltd. v. CCE (supra), the Hon'ble Supreme Court had held that a sub-standard article is not scrap as understood in commercial parlance or trade circle. Under these circumstances, could it be said that the part of the input which is not useable by the appellants (or is not used by them) for the manufacture of their final product, but is disposed of to outside buyers and is useable by them as such without re-melting, for the purpose of Rule 57A, has been used in or in relation to the manufacture of their final product.
9. The Collector of Central Excise, Calcutta I who had adjudicated the matter, had come to a finding that the assessee had not been able to adduce any evidence to show that the metal cuttings removed as waste and scrap, had really gone for the purpose of re-melting, and that they were capable of being used otherwise than as melting scrap. Accordingly, he held that they did not satisfy the definition of waste and scrap as given in Section Note 6(a) of Section XV of the Tariff.
10. Section XV of the Tariff covers base metals and articles of base metal. Chapter 72 of the Tariff covers iron and steel. For the purposes of Chapter 72, prior to 1-3-1988, the expression 'waste and scrap' was assigned the following meaning:
'Waste and scrap of iron or steel fit only for the recovery of metal or for use in the manufacture of chemicals but does not include slag, ash and other residues'. With effect from 1-3-1988, the definition of waste and scrap was shifted to the Section Notes and was revised as under :
'Metal waste and scrap from the manufacture or mechanical working of metals and metal goods definitely not useable as such because of breakage, cutting-up, wear or other reasons.
The definition covers metal waste and scrap. It should have arisen from the manufacture or mechanical working of metals and metal goods. It should be definitely not useable as such. The cut sheets, cut ends etc. in this case are left outs and have not arisen from the manufacture of metals or metal goods.
11. The scope of waste and scrap is explained in the Harmonised System of Nomenclature (HSN) inter alia, as cited in para 50 of the Tribunal decision in the case of Bajaj Auto Ltd. v. Collector of Central Excise 1995 (75) E.L.T. 382 (Tribunal):
"Waste and scrap is generally used for the recovery of metal by re-melting or for the manufacture of chemicals. But the Heading excludes articles which with or without repair or renovation, can be reused for their former purposes or can be adopted for other uses; it also excludes articles which can be re-fashioned into other goods without first being recovered as metal...."
12. In the case of TISCO v. Collector of Central Excise 1995 (75) E.L.T. 3 (SC) the Hon'ble Supreme Court had held that scrap is normally understood as something which is not serviceable. In commercial parlance, the 'scrap' is normally understood as 'waste', but it may be used for re-rolling or re-melting for bringing out raw material to be used for producing finished products. Although the Hon'ble Supreme Court had observed that the size of the scrap may be relevant for fixation of price but it could not reflect on the nature of the scrap. The facts in the present case amply demonstrate that the goods removed as scrap were not used for bringing out raw material to be used for producing finished products. They were a marketable commodity as known to commerce and were such as to make them worthwhile to trade in. It is no body's case that they were not goods as understood in commercial parlance, and/or were not marketable. They were not waste or rubbish which had been thrown up in the course of manufacture, were not merely refuse given out in the course of manufacture, as was the case with the dross and skimmings in Union of India v. Indian Aluminium Company Ltd. 1995 (77) E.L.T. 268 (SC). The sheet cuttings, aluminium, copper ends, etc. were also not in the nature of manufacturing loss, as was the case in Multi Metals Ltd. v. Assistant Collector of Central Excise, Kota 1992 (57) E.L.T. 209 SC.
13. The learned DR representing the respondent, had relied upon the Tribunal decisions in the cases of LML Ltd. v. CCE 1989 (44) E.L.T. 119 (Tribunal) and Bajaj Auto Ltd. v. CCE 1995 (75) E.L.T. 382 (Tribunal). In the case of LML Ltd. after discussing the various provisions of the Modvat Scheme, the Tribunal held that 'off cuts' could not be treated as waste and scrap. Although the definition of waste and scrap had subsequently undergone modification, it would not affect the conclusions drawn by the Tribunal in any way. In para 8.2 of their decision in the case of LML Ltd., the Tribunal had observed as under:
"There is yet another reason which compels us to discard the contention of the appellants that off-cut is not in rectangular shape and in straight length to term it as sheet. If we accept this contention, then an entire sheet can be converted into a non-sheet by cutting one small corner of the sheet and thereby earn a cash credit of Rs. 350/- per metric tonne (Rs. 715-365) without doing anything else. Entire purpose of the Modvat Scheme of avoiding the cascading effect of duty on the final product would be subverted. The scheme would turn into a gold mine for an assessee rather than of reducing the burden of duty on the final product. By taking an extreme example of the aforesaid type, we are not saying for a moment that the appellants are indulging in it. Our purpose lies in pointing out the infirmity in the contention of the appellants. Such contention, if accepted would lead to evasion of duty. Accordingly, it deserves to be turned down and we do so unhesitatingly."
Para 44 of the Tribunal's decision in the case of Bajaj Auto Limited is also extracted below -
"I have carefully considered the pleas of both sides. MODVAT Credit Scheme is a Procedural Scheme for avoiding cascading effect of duty. Assessment of inputs under that scheme is done on the basis of definition, description, interpretative rules etc. of the CETA, 1985. Therefore, there is no doubt that when 'waste and scrap' is required to pay duty under Rule 57F(4), it must conform to the definition of that expression in the CETA, 1985. If no definition is provided in the statute, then we may fall upon the commercial parlance test. This is the clear enunciation of law laid down by the Supreme Court in the case of Krishna Carbon 1988 (37) E.L.T. 480. It is therefore, clear that goods which are sought to be cleared under Rule 57F(4), as waste and scrap, must fulfil the definition given in Section XV (Note 6) of the Schedule to the CETA, 1985. Sheets are certainly metal goods. It is not metal simply. This expression would mean metal in primary form such as falling under sub-section I of Chapter 72 and Heading 72.06 which speaks of iron and non-alloy steel ingots or other primary forms. It is significant to note that 'Ferrous waste and scrap falls under Heading 72.04 under sub-section I of Chapter 72 pertaining to Primary materials etc. and is clubbed with remelting scrap ingots of iron and steel. Subsequent Headings 72.07, 72.08 describe the goods as products. There is, therefore, substantial force in the learned DR's submission that if the so-called 'waste and scrap' is usable as sheet, it cannot be termed as waste and scrap. If it is cleared, debit must be made at the rate of duty payable on sheet subject to any other provision of law."
14. The appellants have contended that the demand was barred by the period of limitation. The show cause notice is dated 27-2-1991 and the period involved is from 1-3-1986 to 31-12-1990. In this case, we are not dealing with the taking of the credit of duty paid on inputs. The inputs were brought into the factory, and the credit of duty paid thereon was taken on the basis of their declaration that the said inputs will be used in or in relation to the manufacture of their final product. Under sub-rule (1) of Rule 57-1 where credit of duty paid on inputs has been taken on account of an error, omission, etc. a notice could be served within 6 months from the date of such credit. In this case, at the time of receipt of the inputs, the credit was taken, and at that stage, there was no error, omission or mis-construction on any body's part. The issue here is not the taking of the credit at the stage of receipt of the inputs in the factory, but the disposal of the inputs not being in the manner as specified in the Modvat Scheme. Under the Modvat Scheme, while taking of the credit is relatable to a fixed date, there is no time limit within which the inputs are required to be used/disposed of. In a case where the inputs had been disposed of in a manner not specified, the date on which the credit was taken, is of no relevance. It is why under sub-rule (2) of Rule 57-1, it is provided that if any inputs in respect of which credit had been taken, are not fully accounted for, as having been disposed of in the manner specified then the manufacturer shall upon a written demand, being made by the Assistant Collector pay the duty leviable on such inputs within 10 days of the notice of the demand. There is no time limit, and there can be no time limit under sub-rule (2) of Rule 57-1. This sub-rule has also not been subjected to any change as was the case with regard to sub rule (1) which had been amended w.e.f. 6-10-1988. In the present case, the duty leviable on that part of the inputs, (The duty equivalent to the modvat credit already taken and utilised with regard to those inputs) which had not been used in or in relation to the manufacture of the product., had been demanded in terms of Rule 57-1 read with the proviso to Section 11A of the Act. For proper appreciation, it is repeated, that Rule 57-1 has two sub-rules dealing with two different situations. Sub-rule (1) relates to a situation where credit of duty paid on inputs had been taken on account of an error, omission or misconstruction, or on account of wilful mis-statement, collusion or suppression of facts. Sub-rule (2) relates to a subsequent situation when the inputs in respect of which credit had been taken are not fully accounted for as having been disposed of in the unspecified manner. This situation may occur after a short or a long period of time after taking of the credit of duty paid on the inputs. There is a time limit for serving notice in the first situation, but there is no time limit for demanding duty in the second situation. In the second situation, when inputs had been disposed of in the manner not specified, the date on which the credit was taken, is of no relevance and accordingly the time limit in the first situation had not been built in the second situation. This is understandable also as there is no time limit within which the inputs are to be used or disposed of after availing of and utilising the credit beyond the period of 6 months of their receipt. In the case before us, the duty leviable on that part of the inputs which had not been used in or in relation to the manufacture of the final product, has been demanded within the extended period of limitation, under the proviso to Section 11A(1) read with the Rule 57-1 of the Central Excise Rules. In the circumstances of the case, we do not find any infirmity in the order passed by the Collector of Central Excise, Calcutta.
15. In the classification list, general description of waste and scrap was mentioned. There was no description of the nature of the goods sought to be classified as waste and scrap. The classification list under Rule 173B of the Rules is required to be filed by the assessee before the removal of the excisable goods. Approval of the classification list is generally accorded before the goods are actually removed and under the Scheme of the self removal procedure, the manufacturer is obliged and is required to clear the goods as per the approved classification list. The procedure to be observed by the manufacturers with regard to taking of credit and disposal of the inputs is prescribed under the relevant Modvat rules. The classification list under Rule 173B could not be equated with the declaration under Rule 57G. and both could not condone the use not specified in the Modvat Scheme. It is seen from the copies of the classification lists on record that there is no reference to the cut sheets, metal cuttings etc. therein. Only general entry of waste and scrap has been written therein. In this view of the matter, it could not be said that a proper classification list on this account had been filed, and the approval of such classification lists could not be considered as approval for removal of the cut sheets, etc. under the description of waste and scrap.
16. In the Bajaj Auto's case reported in 1995 (75) E.L.T. 382 the distinction between 57-1(1) and 57-1(2) was not brought to the notice of the Bench and the time bar aspect has been considered only with reference to Rule 57-1(1), whereas in our opinion, the present case is covered by Rule 57-1(2) (about which there is no finding in the Bjaj Auto's case).
Earlier also in the case of Hindustan Lever Ltd. reported in 1994 (72) E.L.T. 168 (Tri.) this point had been missed and only Rule 57-1(1) was read with Section 11A of the Act.
17. In the case of Thungabhadra Steel Products Ltd. v. Superintendent of Central Excise 1991 (56) E.L.T. 340 (Kar.), the appellants had given the full description of each item manufactured/warehoused by them. They had furnished all the details required in the proforma under Rule 57-1. Further the matter related to the credit wrongly availed of under sub-rule (1) of Rule 57-1. When the Hon'ble Karnataka High Court said that 'Rule 57-1 as it stood before the amendment with effect from 6-10-1988 should receive the same interpretation as it should receive after amendment, they were referring only to sub-rule (1) as no amendment has been made in sub-rule (2) of Rule 57-1. Tribunal's reference in the case of Collector of Central Excise v. Maradia Steel Pvt. Ltd. 1992 (59) E.L.T. 59 (Tribunal) also related to the provisions of Rule 57-1(1) which had suffered amendment on 6-10-1988. In the case of Collector of Central Excise v. Memory Steel Pvt. Ltd. 1990 (47) E.L.T. 704 (Tribunal) the matter related to the wrong availment of Modvat credit on bazaar scrap of iron and steel. In the case of Collector of Central Excise v. Bharat Containers Pvt. Ltd. 1990 (48) E.L.T. 520, the matter related to the filing of the vague declaration with a description 'sundry inputs. The Tribunal had observed that when the credit has been taken wrongly or it is in excess of the eligibility, it is a case of erroneous credit which can be recovered by a demand.
18. In the present case before us, we are concerned with the disposal of the inputs and not taking of the credit. When the inputs were received, the credit was taken; however, a part of the inputs were disposed of without reversal of the credit and on payment of lesser amount of duty applicable to waste and scrap. This duty applicable to waste and scrap was much lower than the credit already availed of by the recipient, the present manufacturer before us.
19. The appellants have also relied upon a number of other judgments and we have generally looked into them, we do not find that they contradict the view we have taken.
20. The facts and the relevant provisions of law have been dealt with in detail in the preceding paragraphs. Further we have discussed the factual aspect of the matter at appropriate places and in the circumstances, we do not find any merit in the pleadings of the appellant for remand of the matter. Before we part with the matter, we may however observe that the show cause notice refers to cuttings of iron and steel sheets, of aluminium and of copper, and the fact that these metal cuttings were sorted out size-wise, and the sizes were mentioned in their invoices. The appellants had contested the whole of the demand while the adjudicating authority barring the damaged sheets which were packing materials, had confirmed the whole of the demand. We are conscious that in the process of manufacture of the goods in question, some trimmings, shearings of uneven sides of sheets, etc. which could not be used as such, and had to be melted, are bound to arise. Demanding duty on such trimmings may not be proper. Those trimmings may have to be taken as waste in the manufacture of the finished excisable goods. In the case of Union of India v. Indian Aluminium Company Ltd. 1995 (77) E.L.T. 268 (SC) the Hon'ble Supreme Court in para 14 of their decision had observed as under :
"The entire quantity of raw material, namely duty paid aluminium ingots procured by the assessees from outside was used in the manufacture of aluminium sheets. It is nobody's case that the aluminium sheets which were manufactured by the assessees could have been manufactured out of a lesser quantity of aluminium ingots than what was actually used. In the process of manufacture, dross and skimmings had to be removed in order that aluminium sheets of the requisite quality could be manufactured. This does not mean that the entire quantity of aluminium ingots was not used for the manufacture of aluminium sheets. In the course of manufacture, a certain quantity of raw material may be lost because of the very nature of the process of manufacture or some small quantity of raw material may form part of wastages or ashes. This does not mean that the entire raw material was not used in the manufacture of finished excisable products. An exact mathematical equation between the quantity of raw material purchased and the raw material found in the finished product is not possible and should not be looked for."
Although there is no reference by the appellants of any loss or wastage of the type discussed by the Hon'ble Supreme Court above, in the interest of justice, relief to the extent of shearings and trimmings in the nature of wastages should be extended, for which the appellants are directed to file their claim with the Adjudicating authority.
This being a question of fact, the Adjudicating authority may reconsider the matter on this limited point and extend the relief to the extent permissible in the light of the Supreme Court observations cited above. We do not however, consider that for this limited exercise, the order should be set aside and the matter should be remanded.
21. Taking all the relevant Considerations into account, except to the extent of relief as discussed in para 20 above, we find no merit in the appeal in so far as the demand of Central Excise duty is concerned. In so far as the penalty amount is concerned, keeping in view the issues involved, we set aside the penalty amount of Rs. 25,000/-. Subject to above, the appeal is otherwise rejected and we order accordingly.