Customs, Excise and Gold Tribunal - Tamil Nadu
Triton Valves Ltd. vs Collector Of Central Excise on 5 July, 1996
Equivalent citations: 1997(89)ELT233(TRI-CHENNAI)
ORDER K. Sankararaman, Member (T)
1. The batch of twelve appeals filed by the appellants M/s. Triton Valves Ltd. has arisen from Order- in-Appeal No. 87/94, dated 31-3-1994 passed by Collector of Central Excise (Appeals), Bangalore whereby he had rejected their appeal against order (Original) Sl. No. 2/94 (B. CEx), dated 28-1-1994 passed by Assistant Collector of Central Excise, Mysore II Division in terms of which the latter had confirmed duty demand of Rs. 95,12,770/- for which 12 show cause notices had been issued to them by the Superintendent of Central Excise, Range D, Mysore. As the duty demand confirmed by the Assistant Collector which has been upheld by the Collector (Appeals) in the order-in-appeal, impugned before us, arose from 12 show cause notices relating to different relevant periods, the instant twelve appeals which involve a common issue are disposed of by this common order.
2. The brief facts of the case are that the appellants are manufacturers of valves and valve cores using duty paid inputs like copper, zinc and lead. They are availing of Modvat credit facility in respect of the inputs used by them for which they had filed necessary declaration. During the course of manufacture of their final products, they obtain scrap of brass as a by-product. They removed such scrap to their job workers for getting it converted into rods which they received from the job workers and used in the manufacture of their declared final products. They had removed the brass scrap to their job workers after obtaining the permission of the Assistant Collector under Rule 57F(2) of the Central Excise Rules as it then stood. Such removals were without payment of duty. The demand of duty contested in the instant appeals is in respect of such removal of brass scrap.
3. Shri Krishna Srinivasan, learned counsel for the appellants referred to the miscellaneous application filed by them for permission to raise the additional ground of lack of jurisdiction on the part of the Assistant Collector who had confirmed the disputed duty demands. The application is allowed and the learned counsel was heard on the said question. He referred to the Ministry of Finance Circular 19/92-CX.6, dated 18-12-1992 wherein it had been stated that the monetary limit for the amount of duty for adjudication by Assistant Collector has been fixed at Rs. 50,000/-. He contended that as the Assistant Collector had adjudicated the demands exceeding this ceiling the order was bad in law and liable to be struck down. Conceding that they had not raised this plea at any earlier stage, he submitted that their not raising this plea and submitting to the adjudication of the Assistant Collector will not cure the defect of illegality of the order. He referred to the Supreme Court judgment reported in AIR [1954] SC [340], Kiran Singh v. Chaman Paswan. Without prejudice to this plea on the question of jurisdiction, he pointed out that they had removed the brass scrap for conversion into brass rods by their job workers after getting necessary permission from the Assistant Collector. Such permission was withdrawn only in January, 1994 after the confirmation of the demands. The learned counsel contended that such demand was irregular when the permission was in force. The first show cause notice dated 6-2-1989 covered the period April, 1987 to October 1988. The demand was time barred for the major part. He then referred to two decisions of the Tribunal (West Regional Bench) in Chloride Industries Ltd., Pune v. CCE, Pune [1993 (45) ECR 24 and Press N. Forge v. CCE, Bombay [1994 (74) E.L.T. 894 where, in similar situations, it had been held that it was permissible to remove the scrap to job worker without payment of duty. The learned counsel pleaded that their appeal be decided on the same basis or the matter may be referred to a larger Bench in view of the contrary decision by this Bench (Southern Bench) in Collector of Central Excise v. Nucon Industries Pvt. Ltd. [1992 (59) E.L.T. 122].
3A. Shri Victor Thyagaraj, Senior Departmental Representative rebutted the arguments and pleaded that the appeals be dismissed following the Bench decision in Nucon Industries case as well as other similar decisions reported in 1993 (67) E.L.T. 181 Shriram Refrigeration Industries Ltd. and 1992 (60) E.L.T. 151 Collector of Central Excise v. Alco Wire Products Pvt. Ltd.. As held by the Tribunal, removal of scrap from the manufacturer's premises is not governed by Rule 57F(2) but by Rule 57F(4) as they stood at the material time. Under the former Sub-rule only the inputs themselves or partially processed inputs could be removed to an outside place for specified processes. The scrap that had arisen in their factory was not such material and hence the facility availed by them was not permissible. Demand has been confirmed correctly, he contended and pleaded for the dismissal of the appeals.
4. We have considered the rival submissions and perused the record. We shall first deal with the question of jurisdiction raised by the learned counsel. We find that in Kiran Singh v. Chaman Paswan cited by him the Supreme Court had observed inter alia, as follows :
"It is a fundamental principle that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collaterial proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree, and such a defect cannot be cured even by consent of parties."
In the present case, the Assistant Collector had confirmed the demand for duty under Section 11A of Central Excises & Salt Act, 1944. Sub-section (2) of the said section at the material time provided for the Assistant Collector to consider the representation made and determine the amount of duty due. Such power was to be exercised by the Collector if the duty was short levied or not levied due to fraud, collusion, wilful misstatement, suppression etc. In the present case, the notice did not refer to such factors and hence, as far as the statutory provisions were concerned, the Assistant Collector did not exceed his jurisdiction. The limiting of the power of adjudication for the Assistant Collector to cases not involving Rs. 50,000/- as duty was by executive instructions of the Government. The Assistant Collector had exceeded the ceiling, committing an administrative irregularity but that cannot be held to be a statutory irregularity. We, accordingly, overrule the preliminary objection regarding jurisdiction.
5. The merits of the case need to be considered now. It is the appellant's contention that their case for removal of the scrap arising in their factory in the course of manufacture of their final product was covered by Sub-rule (2) of Rule 57F, as it then stood, Sub-rule (3) now] for which they had applied for permission and got it. The Assistant Collector had noted in his order which has been upheld in the impugned order-in-appeal that under Rule 57F(2) only inputs as such or after they had been partially processed during the course of manufacture of the final product could be sent for job work outside the factory without payment of duty and the processed goods should be returned to the factory for completion of manufacture. In the instant case, the waste and scrap that arise during the manufacture of final products are complete by themselves, classifiable under Heading 74.04 of the Central Excise Tariff. He had, therefore held that Rule 57F(2) was not applicable to such waste and scrap of copper. He had relied, in coming to such a conclusion on the Tribunal decision in Alco Wire Products Pvt. Ltd. v. CCE. We have perused this decision as also two other similar decisions of the Tribunal which have been cited by the Senior Departmental Representative. These have been referred to in Paragraph 3 supra. In these decisions, the specific applicability of Sub-rule (4) of Rule 57F had been taken note of for waste products arising in the course of manufacture of the final product. The said Rule is extracted below :
"Any waste arising from the processing of inputs in respect of which credit has been taken may -
(a) be removed on payment of duty as if such waste is manufactured in the factory; or
(b) be removed without payment of duty where it belongs to such class or category of waste as the Central Government may from time to time by order specify for the purpose of being used in the manufacture of the class or categories of goods as may be specified in the order, subject to the procedure under Chapter X being followed."
The Tribunal in the aforesaid cases had observed that Government had issued orders in respect of Aluminium waste while no such facility had been extended to the subject goods. It was, therefore, held that as specific provision has been made in respect of waste arising during the course of processing of inputs in respect of which credit may have been taken, the authorities cannot have resorted to any other rule while dealing with the aspect of the scrap except Sub-rule (4) of Rule 57F and hence the scrap in question had to suffer duty before it can be cleared out of the factory. This was in the case of Collector of Central Excise v. Nucon Industries Pvt. Limited. Similar view had been taken in the other cases also. This decision is dated 6-8-1991 and reported in 1992 (59) E.L.T. 122. This publication was in May, 1992. The two contrary decisions taken by Single Member Benches of West Regional Bench are in Chloride Industries Limited, Pune v. Collector of Central Excise -1993 (45) ECR 24 (Date of Decision 2-9-1992) published on 1-3-1993 and Press N. Forge v. Collector of Central Excise, Bombay reported in 1994 (74) E.L.T. 894 (Date of decision 15-4-1994). These decisions had not taken note of the earlier contrary decisions of the South Regional Bench. These took the view that Sub-rule (2) of Rule 57F was applicable in such cases. The facts in Press N. Forge case were, however, slightly different in that they brought copper scrap from outside as one of the inputs which were sent to job worker for conversion into rods and castings which they received and used in the manufacture of machine parts. In this process, fresh scrap was generated which they sought to send out to job worker along with the bought out scrap for conversion into castings and rods. The dispute, therefore, was in respect of the scrap generated in their factory during manufacture. The relevant paragraph from the said order is extracted below :-
"6. After hearing both sides, I find that in this case removal of bought out scrap as well as generated scrap was effected under the delivery challans and they have otherwise (complied) with the provisions of Rule 57F(2). They have also made an application for grant of permission, which was granted only after 7 months. In the circumstances it cannot be expected of them to wait for the permission indefinitely since the entire manufacturing operation is dependent on obtaining the castings and the rods from the job workers be that as it may, the demand is only in respect of generated scrap and not in respect of bought out scrap. Hence the allegation that they did not wait for the permission under Rule 57F(2) cannot be a sole ground for denial of the Modvat benefit in respect of generated scrap. However, on the question of law, the Departmental Representative pleads that copper scrap is an excisable item and it is final product by itself and has to be cleared under Rule 57F(4), since it is manufactured by the appellant, Rule 57F(2) could not have been applied in such circumstances, hence the demand is justified. Even I am inclined to agree with this legal proposition made by the departmental representative, the consequences of duty payment have been completely lost sight of by the authorities. When the duty is paid on the generated scrap, it becomes a duty paid input for the appellant, which can be legitimately sent to the job workers under Rule 57F(2), for which no objection can be taken by the department. Only for this reason the Board appears to have allowed such generated scrap of Aluminium under Rule 57F(2) in an earlier circular, hence, so long as the department is satisfied that the scrap generated had been sent to the job workers and processed goods have been returned in the form of rods and castings to the appellant, there is no purpose in recovering the amount and again giving it as credit. Subject to verification of this aspect, the appeal from the appellant is allowed and the demand for duty could be confirmed, only if there was a diversion of generated scrap for any other purpose. In the circumstances, the penalty also is not sustainable and the same is set aside."
The present appellants are, in one respect, on a better wicket as compared to the aforesaid case as they had actually applied for and obtained the permission from the Assistant Collector for removal of the Waste and Scrap from their factory to the job worker. But that will not be conclusive of the matter as the Assistant Collector has got the power of limited review of an earlier decision if there is short levy or non levy involved therein within the ambit of Section 11A of the Act. This is what he has done. Hence we do not accept the plea that it was not open to the Assistant Collector to confirm the duty demand in the present case without first withdrawing the permission granted. Further as we shall presently see, even the permission granted under Rule 57F(2) would not come in the way of the levy of duty on the goods in question.
6. A plea was advanced by the learned counsel for the appellants that the authorities below had not considered the fact that they had declared Copper/Brass Scrap as an input in the declaration filed by them under Rule 57G. This has not been adverted to in the impugned orders. It is to be taken note of that in terms of the Explanation under Rule 57A the expression "Input" includes inputs which are manufactured and used within the factory of production in or in relation to the manufacture of final products. Even otherwise, once scrap is declared as an input it will cover scrap procured from outside as well as scrap generated within the factory. This type of situation was encountered in the Press N. Forge case decided by the West Regional Bench. Relevant portion of the order has been extracted supra. Once the factory generated scrap is thus identified as an input it will be open to the appellants to avail the benefit under Rule 57F(2). The Assistant Collector was correct in holding that such scrap is not the input as such or partially processed input within the meaning of Rule 57F(2) if the input is taken as the Copper, Brass, Zinc items received by them from outside sources. Such inputs have been fully processed and the final products come into existence and during such process, scrap also is generated which is a by-product. In that context, the disposal of the waste will be only as per the provisions of Rule 57F(4) which specifically deals with such waste. But the fact that scrap is also declared as an input will entitle them to the benefit available under Rule 57F(2). Accordingly the permission granted by the Assistant Collector was in order.
7. The consequences of the said permission have to be examined. The Sub-rule (Sub-rule 3 now) provides that notwithstanding anything contained in Sub-rule (1) a manufacturer may, after intimating the Assistant Collector of Central Excise having jurisdiction over the factory and obtaining dated acknowledgment of the same, remove the inputs as such or after the inputs have been partially processed during the course of manufacture of final products to a place outside the factory -
(a) for the purposes of test, repairs, refining, reconditioning or carrying on any other operation necessary for the manufacture of the final products and return the same to his factory for further use in the manufacture of the final product...;
(b) for the purpose of manufacture of intermediate products necessary for the manufacture of the final products and return the said intermediate products to his factory for further use in the manufacture of the final product.
The process to be carried out in the job-worker's premises will not entail any payment of duty in respect of such processed materials or the intermediate products which are manufactured there as the same are to be returned to the manufacturer's factory for use in the further manufacture of the final product. But this does not mean that the duty liability on the inputs themselves is to be waived. The inputs in question are the waste and scrap arising in the course of manufacture of the final product, in the appellant's factory. Such waste can be removed without payment of duty only within the terms of Rule 57F(4). In the absence of any order of the Government specifying Brass Scrap as a class or category of waste under that Sub-rule [57F(4)(b)] such removal without payment of duty is not permissible as has been held by the South Regional Bench in the different orders. The case has, therefore, to be regulated under Rule 57F(2), as already considered. The inputs considered under the different Sub-rules of Rule 57F are, as set out in Sub-rule (1) of that Rule, inputs in respect of which a credit of duty has been allowed under Rule 57A. Thus the facility under Rule 57F(2) relates to inputs on which duty has been paid and which has been allowed as credit. The inputs in question, namely, brass scrap have not discharged duty as scrap . Duty may have been paid on their inputs which has been taken as credit. That credit is used by them for payment of duty on their declared final products. Waste arising as a by product in the course of manufacture is a different product from the starting material and it falls under a specific Tariff item. Duty is payable thereon which has not been paid. This duty has to be paid to make the permission granted for removal of the waste scrap to the job worker conform to the requirement of Rule 57F(2). The non-obstante clause in the said provision does not grant immunity from payment of duty since the whole scheme of Modvat under the various Rules, including Rule 57F(2) presuppose the payment of duty on the inputs. It is this duty paid on the inputs which is available for being used for payment on the final product. This duty which we have held to be liable on the inputs (scrap) generated in the factory of the manufacture is also not subject to the exemption available under Notification 217/86, dated 2-4-1986 as the same is available to goods manufactured in a factory and used in that factory. In the present case, the goods are used in the factory of the job worker for conversion into brass rods. There is no exemption for the scrap cleared to the job worker for such conversion job. The job worker no doubt is entitled to duty free facility for their product which facility has been granted. The disputed duty liability is on the scrap which is the input. It has to pay duty leviable thereon whether cleared under Rule 57F(4) as held by the authorities below or even for availing the benefit under Rule 57F(2) as claimed by the appellants as for that facility also, the duty paid nature of the inputs is an essential requirement. We see no reason to interfere with the impugned order except in regard to that portion of the demand which was barred by limitation. The notice dated 6-2-1989 is time barred for the amount of duty relating to a period beyond six months prior to that date. We do not agree that the South Regional Bench decisions in the Nucon Industries Pvt. Limited and other similar cases call for a review and that the present appeals require to be referred to a larger Bench. We, therefore, dismiss the appeals except to the extent of excluding the time barred portion of the notice dated 6-2-1989. The duty paid or deposited and to be paid further in this regard will, however, be admissible to the appellants for payment of duty on their final products as per their declaration filed under Rule 57G.
8. We find incidentally that in the Nucon Industries Pvt. Limited case the Bench had observed that it was a case where one Wing of the Government had allowed removal of scrap for recycling without payment of duty and the other wing of the Government wants to nullify the effect of the instructions issued in the matter. It was stated that that the best course in such a situation would have been for the Department to approach the Board for issue of necessary notification exempting all scrap generated in the country sent out for recycling in case it was their intention to allow removal of scrap without payment of duty. Again another Bench of the Tribunal decided the Press N. Forge case observed that there is no purpose in recovering the amount and again giving it as credit. We are, however, of the view that in the absence of suitable provisions to permit removal of waste without payment of duty in cases of this type duty as leviable on such scrap has to be paid. That it may be revenue neutral as such duty paid on the inputs will be available for utilisation on the final products will not justify the non-levy of duty. If the department as well as the trade interests feel that there is avoidable scriptory work in recovering duty and then allowing credit thereof in cases of this type the Government may be approached for considering suitable relaxation as had actually been granted for some time in the case of Aluminium scrap.
9. The appeals are dismissed but with the above observations.