Custom, Excise & Service Tax Tribunal
Raj Finoxides Pvt Ltd vs Kolkata-Iv on 9 August, 2024
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
EASTERN ZONAL BENCH : KOLKATA
REGIONAL BENCH - COURT NO. 1
Excise Appeal No. 76029 of 2014
(Arising out of Order-in-Original No. 14-15/Commissioner/CE/Kol-
IV/Adj./Commr/2014 dated 03.04.2014 passed by the Commissioner of Central
Excise, Kolkata-IV, M.S. Building, 15/1, Strand Road, Kolkata - 700 001)
Shri Shambhu Nath Shaw, Director, : Appellant
M/s. Raj Finoxides (P) Limited
Kharial, Dankuni,
District: Hooghly, PIN - 712 310
VERSUS
Commissioner of Central Excise : Respondent
Kolkata-IV Commissionerate,
M.S. Building, 15/1, Strand Road,
Kolkata - 700 001
AND
Excise Appeal No. 76030 of 2014
(Arising out of Order-in-Original No. 14-15/Commissioner/CE/Kol-
IV/Adj./Commr/2014 dated 03.04.2014 passed by the Commissioner of Central
Excise, Kolkata-IV, M.S. Building, 15/1, Strand Road, Kolkata - 700 001)
M/s. Raj Finoxides (P) Limited : Appellant
Kharial, Dankuni,
District: Hooghly, PIN - 712 310
VERSUS
Commissioner of Central Excise : Respondent
Kolkata-IV Commissionerate,
M.S. Building, 15/1, Strand Road,
Kolkata - 700 001
APPEARANCE:
Shri N.K. Chowdhury, Advocate for the Appellant(s)
Shri B.K. Singh, Authorized Representative for the Respondent
CORAM:
HON'BLE SHRI R. MURALIDHAR, MEMBER (JUDICIAL)
HON'BLE SHRI RAJEEV TANDON, MEMBER (TECHNICAL)
FINAL ORDER NOs. 76656-76657 / 2024
DATE OF HEARING / DECISION: 09.08.2024
Page 2 of 17
Appeal No(s).: E/76029 & 76030/2014-DB
ORDER:[PER SHRI RAJEEV TANDON] M/s. Raj Finoxides (P) Limited, Kharial, Dankuni, District: Hooghly, PIN - 712 310, a manufacturer of Refined / Pure Lead Ingot and various types and grades of lead alloy ingot has filed Excise Appeal No. 76030 of 2014 assailing the Order-in- Original No. 14-15/Commissioner/CE/Kol- IV/Adj./Commr/2014 dated 03.04.2014 passed by the Ld. Commissioner of Central Excise, Kolkata-IV Commissionerate. Shri Shambhu Nath Shaw, Director of M/s. Raj Finoxides (P) Ltd. has filed Excise Appeal No. 76029 of 2014 challenging the imposing of penalty on him by way of the above Order-in-Original dated 03.04.2014.
2. The brief facts of the case are that the appellant-company who is also engaged in job work and conversion of various grades and types of lead alloy, received lead alloy scrap, lead dross, lead sludge, etc., from the units of M/s. Exide Industries Limited1 at Haldia and Shyamnagar.
2.1. The appellants were issued a Show Cause Notice dated 04.10.2013 alleging that as a job worker, they had undertaken job work / conversion of waste and scrap of lead generated in the course of manufacture of lead acid storage batteries at the above two units of EIL. The appellant manufactures and clears excisable goods, namely, Refined / Pure Lead Ingot containing lead 99.97% and various grades of lead alloy ingots containing lead percentages varying from 94% to 98%. On the basis of the records maintained by the appellant, the Department alleged that the appellant manufactured lead alloy ingots and removed 1 - EIL Page 3 of 17 Appeal No(s).: E/76029 & 76030/2014-DB the said finished goods to EIL in the guise of job work, without payment of duty, in terms of Rule 4(5)(a) of the CENVAT Credit Rules, 2004. The Department inter alia states that EIL were the manufacturer of lead acid storage batteries and their major raw materials were pure lead, lead alloys, polypropylene, etc., and that they sent waste and scrap to the job worker on regular basis as per the provisions of the Rule 4(5)(a) ibid., for conversion to finished lead alloy. The waste and scrap generated were sent to them for conversion. It added that they kept / stored lead scrap brought from the Haldia and Shyamnagar units of EIL and their own inputs separately, but due to shortage of space, at times there was a mix-up. Further, the different types and grades of lead scrap were stored together and not separately as received from EIL. The appellant had not paid tax on job work for conversion of metal so sourced from EIL.
2.2. The appellant submits that they had borne the cost of ingredients mixed with lead alloy in the operation of lead scrap recovery and availed CENVAT Credit wherever so eligible and debited the duty in RG-23 Part-II Register. They further submit that after smelting, no scrap remains as lead and only some quantity of slag remains having low percentage of lead, which is not recoverable and which is disposed of in accordance with the instructions of the West Bengal Pollution Control Board (WBPCB).
2.3. The Show Cause Notice further alleges that the appellant-company had entered into contracts with EIL for job work against job charges depending upon the grade and type of lead scrap as sent by EIL. Going by the definition of 'manufacture' as per Section 2(f) Page 4 of 17 Appeal No(s).: E/76029 & 76030/2014-DB of the Central Excise Act, 19442. It has been alleged that the appellant had manufactured lead alloy ingot out of different types of scrap received from the said two units of EIL and the goods, being lead alloy ingots, were marketable and attendant excise duty was required to be paid. In support, the Department points out that the Annexure-II challans were not adequately filled-up with the requisite information viz. the nature of processing / manufacturing required to be done and instead, only indicated the quantity of the said goods and the quantity of finished goods returned.
2.4. The Department also claims that as per the Standard Input Output Norms (SION), for generation of 1 kg. lead alloy, only 1.07 kgs. of lead scrap is required as input as incorporated in the Foreign Trade Policy and has thereby calculated the quantity manufactured based on the quantity of scrap received during the material period. The Department thus also alleges short payment by reflection of a lesser quantity of lead alloy so produced as a result of the conversion process based on the said norms. In effect, the Department therefore alleges deliberate suppression of actual production with the intent to evade payment of Central Excise Duty.
2.5. With reference to Rule 4(5)(a) of the CENVAT Credit Rules, 2004, the Department is of the view that only 'inputs' or 'capital goods' were allowed to be sent for job work for further processing, etc., while, in the instant case, EIL sent the goods viz. various grades of antimonial lead scrap, calcium lead scrap, lead alloy scrap, lead dross, lead sludge, etc., generated during the manufacturing process undertaken in their factory by them, for conversion / manufacture to lead alloy 2 - the Act Page 5 of 17 Appeal No(s).: E/76029 & 76030/2014-DB ingots utilizing the provisions of Rule 4(5)(a). The Department contends that the said goods were neither inputs nor partially processed inputs and therefore, ineligible for availment of the benefit of provisions of Rule 4(5)(a) of the CENVAT Credit Rules, 2004 and thus the said benefit was not available to EIL and also to the appellant who could not return the said finished goods without payment of duties of excise.
2.6. In the process, the Department inter alia alleged contravention of the provisions of various Rules viz. Rules, 4, 5, 6, 8, 10, 11 and 12 of the Central Excise Rules, 20023.
3. The said Show Cause Notice was adjudicated by the Department confirming the demand of Central Excise Duty of Rs.3,61,30,151/- under Section 11A(4) of the Act read with Section 11(A)(10), besides imposing penalty of an equal amount under Section 11AC(1)(a) of the Act, along with demand for interest under Section 11AA of the Act. A penalty of Rs.35,00,000/- was also imposed on the Director viz. Shri Shambhu Nath Shaw (also the appellant in Excise Appeal No. 76029 of 2014).
4. Arguing that the Show Cause Notice is misdirected, the appellants submit that in case any Show Cause Notice was to be issued, then, in terms of the provisions of Rule 4(5)(a) of the CENVAT Credit Rules, 2004, the same was required to be issued to EIL in the first place, as waste and scrap had been sent by EIL for conversion into intermediate products i.e., lead alloy ingots, for use in the manufacture of the final products viz. lead acid storage batteries and 3 - the Rules Page 6 of 17 Appeal No(s).: E/76029 & 76030/2014-DB not to them, being the job worker. They submit that a conjoint reading of the provisions of Rule 4(5)(a) would demonstrate that the responsibility for accountal of waste and scrap sent to the job worker is on the principal manufacturer namely, EIL in this case. In case of any deficiency in receipt of goods, duty thereon was required to be paid by EIL and not the appellant-company.
4.1. With regard to the contention of the Department that waste and scrap were not inputs / processed inputs and could not be treated to be 'input', the appellant submitted that the waste and scrap generated in the course of manufacture of the final product in the factory of EIL manufacturing lead storage batteries has to be considered as inputs as the same were sent to them for the purpose of processing into lead ingots as per the specifications prescribed. They also submit that each consignment was covered by purchase orders issued by EIL indicating the specifications thereof. Moreover, in support of the contention as to whether waste and scrap was input and whether it could be sent to a job worker for the purpose of processing / manufacture, they have relied upon the decision of the Larger Bench of the Tribunal in the case of Wyeth Laboratories Ltd. v. Collector of Central Excise, Bombay4 which decision has been subsequently followed by authorities below and to cite by way of ready reference, the following cases were adverted to:
i. Hindustan Cables Ltd. v. CCE, Bolpur5 ii. Shakti Wires Products v. C.C.E., Mumbai-V6 iii. C.C.E., Belapur v. Plastika Industries7 4 - 2000 (120) E.L.T. 218 (Tribunal - L.B.) 5 - 2001 (138) E.L.T. 384 (Tri. - Kol.) 6 - 2009 (241) E.L.T. 223 (Tri. - Mum.) 7 - 2016 (335) E.L.T. 574 (Tri. - Mum.) Page 7 of 17 Appeal No(s).: E/76029 & 76030/2014-DB
5. It is not in dispute that the appellant were receiving waste and scrap from the said two units of EIL and processed them into ingots and sent back the finished goods to the principal manufacturer viz. EIL by adopting the process as envisaged in Rule 4(5)(a) of the CENVAT Credit Rules, 2004. We note that the waste and scrap was supplied by EIL and hence, its accountal was imperative on the part of EIL alone. In the challans annexed to the Appeal Paper Book, vide Part-II of the challans, the details of goods (as were received) and that returned to the principal manufacturer are indicated. Copy of one such challan is scanned and pasted hereunder as part of record (ref. page 152 of the Appeal Memorandum): -
Page 8 of 17Appeal No(s).: E/76029 & 76030/2014-DB 5.1. Also scanned and pasted for records is one such actual purchase order issued by EIL in favour of the appellants, issued in respect of "LEAD DUST AUTO"
and "SCRAP ANTIMONY GRID" supplied: -Page 9 of 17
Appeal No(s).: E/76029 & 76030/2014-DB Page 10 of 17 Appeal No(s).: E/76029 & 76030/2014-DB 5.2. It is observed from the said challans that the necessary details therein such as quantity of material sent to the job worker, the description of the goods, the nature of process and manufacturing activity required to be undertaken and the quantity finally returned back are duly incorporated in the said challans. Moreover, as the appellant receives various types and grades of lead scrap and other scrap, for the finished goods i.e., lead ingots, there can be no one-to-one correlation in view of the percentage of purity / impurity and the variety of scrap supplied.
6. Also from records, it is evident that there is no other evidence for suppression of production in the hands of the Revenue to allege shortage in supply of the finished goods and seek Central Excise Duty thereon on such allegedly short-supplied quantity. It is not disputed that the consignments sent by EIL were covered under specific purchase orders indicating specifications of lead ingots to be supplied upon conversion; the recovery percentage vis-à-vis lead ingots to be returned to EIL has also been prescribed in these purchase orders. We find that the said purchase orders were placed on the appellant after the R&D department of EIL ascertained the recovery percentage vis-à-vis the quantity of lead alloy ingots as per specification that could be made and returned by the appellant, as stated in the purchase orders.
6.1. It is a settled legal principle that no demand can be thrusted upon an assessee, on mere wild allegations without a substantial basis and foundation thereof. There is no shred of evidence to support the proposition of short supply of finished goods as alleged by the Revenue in this case. The said Page 11 of 17 Appeal No(s).: E/76029 & 76030/2014-DB allegation of the Department is thus outright baseless, presumptuous and therefore unsustainable.In fact, as the commercial transactions were based on the purchase orders issued by EIL, the veracity of which is not questioned by the Department, the allegations against the appellants are completely hollow void in the first place and therefore without any basis. As there is no challenge to the purchase orders issued by the EIL, no allegation for short supply of goods can be sustained. In case there is any clandestine manufacture and removal of goods, the onus lies on the Department to prove the same with appropriate, tangible, valid and sustainable evidence.
7. As for the Department's assertion that the processes undertaken by the appellant as a job worker did amount to manufacture and therefore the appellant did not fall within the ambit of Rule 4(5)(a) of the CENVAT Credit Rules, 2004, we are of the view that the understanding rendered by the Ld. Commissioner does not flow from the rules. For the sake of ready reference, Rule 4(5)(a) of the CENVAT Credit Rules, 2004 is reproduced hereunder: -
"RULE 4. Conditions for allowing CENVAT credit. --
.........
"(5)(a) The CENVAT credit shall be allowed even if any input or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning, or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose, and it is established from the records, Page 12 of 17 Appeal No(s).: E/76029 & 76030/2014-DB challans or memos or any other document produced by the manufacturer or provider of output service taking CENVAT credit that the goods are received back in the factory within one hundred and eighty days of their being sent to a job worker and if the input or the capital goods are not received back within one hundred and eighty days, the manufacturer or provider of output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods by debiting the CENVAT credit or otherwise, but the manufacturer or provider of output service can take the CENVAT credit again when the inputs or capital goods are received back in his factory or in the premises of the provider of output service."
7.1. In fact, as can be seen from the aforesaid Rule, the same specifically postulates that CENVAT Credit is allowable if any input or capital goods as such, after being partially processed, are sent to a job worker for further processing, testing, repair, re-conditioning, or for the manufacture of intermediate goods necessary for manufacture of final products, etc. 7.2. From the chain of events, it is clear that the lead scrap and other raw materials supplied by EIL are in the nature of inputs (semi-processed), as has also been held by the Larger Bench of the Tribunal in Wyeth Laboratories Ltd.4 (supra), and are supplied back to EIL (the principal manufacturer), against the challans issued and enclosed along with the monthly returns. The above Rule clearly states that the goods that are required to be sent by the principal manufacturer without payment of Central Excise Duty Page 13 of 17 Appeal No(s).: E/76029 & 76030/2014-DB are required to be returned for further processing to the principal manufacturer for utilization in the final product (viz. lead storage battery, in the present case).
8. Also, with respect to the Standard Input Output Norms (SION), we take note of the appellant's assertion that quality of lead scrap is an important variable and is necessary for consideration to arrive at the recovery percentage (based on thorough testing of waste and scrap) as undertaken by EIL in their R&D section. The percentage of recovery would depend on the material contained in the waste and scrap and thus there cannot be a fixed one-to-one formula in the instant case.
8.1. As far as the Department's contention on the recovery part and adoption of the SION norms to the present matter is concerned, it cannot be doubted that the recovery percentage would vary from case to case, more so when the scrap supplied is not the kind of standard scrap as enumerated in the norms as has also been duly tested and certified by the R&D wing of EIL at the time of supply. We further note that the kind of scrap indicated in the norms is well-defined and clearly states of its constitution, etc. For instance, in respect of "Radio Mixed Hard/Soft Scrap Lead", "Rakes Battery Lugs" and "Relay Lead Covered Copper Cable", it states: -
"-Radio MIXED HARD/SOFT SCRAP LEAD Shall consist of clean lead solids, free of other materials, such as drosses. battery plates, lead covered cable, collapsible tubes, type metals, aluminum, zinc, iron and brass fittings, dirty chemical lead and radio- active materials. Review packaging specifications and regulatory status pertaining to shipping with buyer prior to sale.Page 14 of 17
Appeal No(s).: E/76029 & 76030/2014-DB
-Rakes BATTERY LUGS To be free of scrap lead, wheel weights, battery plates, rubber and or plastic case material and other foreign material. A minimum of 97% metallic content is required. Review packaging specifications and regulatory status pertaining to shipping with buyer prior to sale.
-Relay LEAD COVERED COPPER CABLE Free of armored covered cable, and foreign material."
8.2. Moreover, the Foreign Trade Policy - SION Norms refers to scrap of specific grades like IPSI Radia, Rock Replay, Ropes and Rose. As the scrap received by the appellant is certainly not held to be of the said categories, and not identified to be so, no comparison can be made with the said norms without ascertaining the quality of the scrap received by the appellant from EIL for job work.
8.3. Thus, in view of the fact that the goods were supplied in terms of challans as referred to aforesaid, the purchase orders as supplied by EIL indicating recovery percentages in addition to other details, we hold that there is no case made out for demand of duty of excise, if any, from the job worker.
9. It is also not necessary that the process undertaken at the job worker's end be the one defined as 'manufacture' within the meaning of Section 2(f) of the Act. It would be apt to reproduce paragraph 3(c) of the decision of the Larger Bench in Wyeth Laboratories Ltd.4 referred to supra wherein it has been held that the word "waste" used in rule 57F(4) has to be understood to denote a form of inputs, after partial or full reprocessing which could not in a Page 15 of 17 Appeal No(s).: E/76029 & 76030/2014-DB technological/commercially feasible manner be converted to a final product or desired to be converted further:
"(c) Commercial prudence and technological feasibility would induce a manufacturer to reconvert, reprocess, recondition and otherwise deal with intermediate goods, by-products, scrap, refuse, waste etc. to obtain maximum targeted production of the final product by utilising the facilities available in his premises or by sending them out on job work to other places. Only when final product is no longer profitable or technologically possible, a manufacturer would treat such resultant stage of by-
product, refuse, scrap to be no longer useful and therefore a waste. In this view the word "waste" used in rule 57F(4) has to be understood to denote a form of inputs, after partial, full or reprocessing which could not in a technological/commercially feasible manner be converted to a final product or desired to be converted further. Thus what would be 'waste' for a manufacturer, may not be a 'waste' in the case of another manufacturer, even in the case of same kind of goods. It is significant to note, that while Rule 57D talks of three stages i.e. waste, Refuse or by- product, Rule 57F(4) only talks of waste. Therefore, it appears, that the framers of the rules have used the word 'waste' in Rule 57F(4) to be understood in a limited fashion; this has to be restricted to such converted inputs which are not desired to be used any further, for use, in or in relation to the manufacture of the final product.
(e) Once we give such a meaning to the word 'waste' occurring in Rule 57F(4), then inputs, semi- processed, fully processed or converted into any other stage or further form, called by any name, would be covered by the provisions of the Rule 57F(2) used, inside or outside the Modvat credit Page 16 of 17 Appeal No(s).: E/76029 & 76030/2014-DB availers facilities i.e. on job work, provided job work procedures are followed, such movements would be permissible as long as the manufacturer availing the Modvat desires. Rule 57F(2) proviso itself provides that whatever cannot be processed any further on job work, under Rule 57F(2) would be 'waste'. Such waste would thereafter be dealt with as provided by Rule 57F(4). The rules do not impede the desire of the manufacturer to extract as much final product out of the inputs under Rule 57F(2) as possible or desired. The procedures under Rule could be 'aborted' and recourse taken to Rule 57F(4) at a stage, but only at the option of the assessee. The option to exercise the routes available between 57F(2) and 57F(4) procedures remains with the manufacturer and is not lost by a change in form of the input, due to processing.
(f) ...............................
(g) When we do not find any provisions of law to impede and raise duty liability at any stage on the assessees efforts/desire to use the inputs in or in relation to the manufacture of the final products. Therefore, Rule 57F(4) cannot be read to be applicable to partially processed inputs or inputs required to be sent for repairs, refining, reconditioning or carrying out any other operation necessary as the case may be, for the manufacture of the final product, as long as procedure of Rule 57F(2) is followed."
9.1. The appellants have also cited before us the Final Order vide Order No. FO/A/76093-76094/2016 dated 21.09.2016 in Excise Appeal Nos. 75215-75216 of 2014 (CESTAT, Kolkata) delivered under similar facts and circumstances.
Page 17 of 17Appeal No(s).: E/76029 & 76030/2014-DB
10. In view of the position as settled by the Larger Bench of the Tribunal, the issue involved is thus no more res integra. Therefore, the claim of the Department disentitling the waste and scrap for the benefit of Rule 4(5)(a) of the CENVAT Credit Rules, 2004 does not stand to any merit.
11. In view of our observations above and the settled position of law, we find no justification for the demand of duty or imposition of penalties on the appellants in the matter.
12. Accordingly, we set aside the Order-in-Original No.14-15/Commissioner/CE/Kol-IV/Adj/Commr/2014 dated 03.04.2014 impugned herein and allow the appeals filed by the appellants with consequential relief, if any, as per the law.
(Operative part of the order was pronounced in open court) Sd/-
(R. MURALIDHAR) MEMBER (JUDICIAL) Sd/-
(RAJEEV TANDON) MEMBER (TECHNICAL) Sdd