Customs, Excise and Gold Tribunal - Mumbai
Appellate Collector Of Customs And ... vs Chloride India Ltd. on 12 February, 1986
Equivalent citations: 1988(34)ELT288(TRI-MUMBAI)
ORDER K. Gopal Hegde, Member (J)
1. The review show cause notice issued by the Government of India in exercise of their power Under Section 36(2) of the Central Excises & Salt Act (as it then stood) against the order-in-appeal No. 1239 of 79 dated 26.11.1979 (issued from file No. V-2(31)1981/78-7973) passed by the Appellate Collector of Central Excise, Bombay statutorily stood transferred to the Tribunal for being heard as an appeal.
2. The brief facts necessary for the disposal of the appeal are :-
The assessee M/s. Chloride India Limited were the manufacturers of electric batteries falling under Tariff Item 31 C.E.T. They were bringing duty paid containers into their factory for use in the manufacture of electric batteries and were availing concession Under Rule 56A of Central Excise Rules in respect of those containers. They had been submitting from time to time to the Central Excise Authorities that in the course of manufacture of electric batteries certain number of battery containers were getting damaged and became unserviceable. They were also applying for permission to destroy such damaged containers Under Rule 56-A(3)(iv)(c). The jurisdiction Superintendent, however, refused permission to destroy and demanded duty on such containers. Against two such demands dated 27.7.1978 and 29.9.1978 the assessee filed an appeal before the Appellate Collector of Central Excise, Bombay. The Appellate Collector accepted the contentions of the assessee that the damage of the containers occurred during the course of manufacture and therefore Rule 56-A(3)(iv)(c) was attracted and accordingly he set aside the order of the Superintendent and directed the Superintendent to allow the assessee to destroy the unserviceable battery cases and to grant remission of duty on those cases. The Government of India however, came to a tentative conclusion that the interpretation of Rule 56-A(3)(iv)(c) made by the Appellate Collector was erroneous in law. The Government of India was further of the view that the battery containers that got damaged in the process of manufacture cannot be considered as a waste arising in the process of manufacture. The interpretation of Government of India of the above said Rule was that it applies only when the raw material or component parts that is procured Under Rule 56-A is utilised in the process of manufacture and finally after the process of manufacture is completed some waste is produced along with finished goods. In that view of the matter, the Government of India as stated earlier, issued a review show cause notice calling upon the assessee as to why the order passed by the Appellate Collector should not be set aside.
3. The assessee sent that reply dated 26.11.1980. In this reply, among other things, they contended that the interpretation of the provisions of Rule 56A(3)(iv)(c) by the Central Government was grossly misconceived and unrealistic. The battery containers which get damaged at the various stages in the manufacture of their electric batteries which is the final finished product can never be used for the purpose for which they are intended to be used and as such they must be considered as waste as contemplated by Rule 56-A(3)(iv). They further contended that the waste which arises from the process of manufacture can be disposed of only in one of the three ways : (a) the waste can be removed on payment, (b) where such waste is of such a class or categories of waste as the Central Government may, from time to time by the orders specify for the purpose, be removed from the factory without payment of duty, for being used in the manufacture of class or categories of goods as may be specified in the said order and (c) if such waste is found unfit for further use or not worth the duty payable thereon being remitted. They then stated that they had claimed duty relief under (c) above. If the said relief is denied to them, their damaged containers will have to be grouped under (a) above and they shall be required to pay duty thereon. This position would be untenable as the damaged containers which cannot be used for the purpose for which they are intended to be used, i.e., as a part of electric battery cannot be regarded as an excisable product and a demand of duty thereon will be an illegal and unauthorised levy. If this legal position is not accepted, no manufacturer can enjoy the benefit of the special procedure prescribed under the said Rule 56-A. Finally they submitted when the literal meaning of the words used in the statutory provision would manifestly defeat its object by making a part of it meaningless and ineffective. It is legitimate and even necessary, to adopt the rule of literal construction so as to give meaning to all parts of the provision and to make the whole of it effective and operate. They, therefore, requested to withdraw the show cause notice and to cancel the same.
4. During the hearing of this appeal, Shri Pattekar submitted that the view taken by the Appellate Collector is erroneous the waste contemplated by Rule 56A(3)(iv) is not the waste of the type pleaded by M/s. Chloride India Ltd. The view taken by the Government of India in the review show cause notice is the correct view. He urged that if the battery container gets damaged during the process of manufacture it may not be useful for further manufacture but it does not become waste within the meaning of the expression used in the said Rule. The waste contemplated by the said Rule is the waste produced along with finished goods.
5. Shri Deshmukh, however, submitted that the containers are essential components for the assembly of electric batteries and are used in the manufacture or assembly of the electric batteries. In the course of completion of electric batteries some of the containers are damaged at the various stages of operations like, (1) Handle fixing, (2) Boxing, (3) Lid fixing, (4) Connector fixing, (5) Sealing/finishing, (6) Repair of batteries.
The damaged containers have to be rejected and destroyed being a waste arising out of the process of manufacture of electric batteries. It was also contended by Shri Deshmukh that upto January, 1973 the appellants were permitted to destroy the damaged containers on nil duty gate passes, thus availing of the admission of duty. The further contention of Shri Deshmukh was that the order passed by the Supdt. was not based on his judgment but under direction from the higher authorities and therefore that order is liable to be set aside. In that connection, Shri Deshmukh relied upon the decision of the Supreme Court in the case of Orient Paper Mills v. Union of India. It was also urged by Shri Deshmukh that the view taken by the Superintendent that the damaged containers cannot be held to be a waste is misconceived. Finally, Shri Deshmukh submitted that admittedly due to damage caused to the container during the process of manufacture, the container became unserviceable and therefore a legal right has been created for remission of duty and that right cannot be withdrawn lightly or perversely. The view taken by the Appellate Collector is correct and that order may be confirmed and the review show cause notice may be discharged.
6. We have carefully considered the submissions made on both the sides. This appeal undoubtedly involves an interesting question of law as to the scope of Rule 56-A(3)(iv) of the Central Excise Rules, 1944 (for short 'The Rule'). The question for our consideration is whether the battery containers, which have been rendered useless and became waste during the process of manufacture of batteries, would be entitled to remission of duty Under Rule 56-A(3)(c). To put it differently, whether the expression "waste" contemplated by Rule 56-A(3)(iv) takes within its ambit, the containers of battery which gets broken or damaged in the process of manufacture of electric batteries.
7. In order to answer the above question, it is necessary to set out certain facts and the background of the case. The assessee M/s. Chloride India Ltd., -at the relevant time, were the manufacturers of electric batteries which fall under Tariff Item 31 of CET. For the manufacture of electric batteries they make use of the containers which they receive from the West Bengal battery Under Rule 56A procedure, and they obtain proforma credit of the duty paid on those containers in their register R.G. 23 Part II. Admittedly, certain of the containers get damaged or broken in the course of manufacture. Upto January, 1973 the assessee was getting remission of duty on the containers got damaged or which became useless for the completion of the finished product, namely electric batteries. When the assessee sought permission for destroying the damaged containers the jurisdictional Central Excise Superintendent by his order dated 21.7.1978 and by his further order dated 29.9.1978 made known to the assessee that parts of electric storage batteries which are damaged or unfit for consumption or marketing during the process of manufacturing electric storage batteries and which are not utilised in the manufacture of electric batteries cannot be held to be waste arising from the process of manufacture and as such the request of the assessee to destroy the containers as well as the request for remission of duty were not admissible. The assessee was also further informed that whenever parts of electric batteries which are received Under Rule 56-A are damaged or became unfit for consumption or marketing during the process of manufacture of electric storage batteries intimation should be given to the office and the amount, equivalent to the amount of proforma credit availed on them Under Rule 56-A, should be debited in R.G. 23 Part II. The Superintendent did not demand duty as such on the damaged containers but only passed orders if the assessee desires to destroy the scrap containers they will have to clear them by making a debit entry in R.G. 23 Part-II of the amount equivalent to the proforma credit availed on those containers. With this, we now proceed to consider the scope and ambit of Rule 56-A(3)(iv). It reads :
"Any waste arising from the process of manufacture to which the materials or component parts, in respect of which credit has been allowed under Sub-rule (2), may be subjected in the manufacturer's factory shall -
(a) be removed on payment of duty, or
(b) 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, be removed from the said factory without payment of duty, for being used in the manufacture of the class or category of goods as may be specified in the said order subject to the procedure under Chapter X of the Central Excise Rules, 1944 being followed, or
(c) on application by the manufacturer and if found unfit for further use or not worth the duty payable thereon, be destroyed in the presence of the proper officer, the duty payable thereon being remitted".
8. As has been seen earlier, the assessee's contention has been that the battery containers get damaged or broken up during the process of manufacture and thus become waste and therefore Sub-clause 3(iv)(c) of Rule 56-A is attracted and they are entitled to destroy the containers which have become unfit for further use and they are also entitled to remission of duty payable on those containers. The contention of the Department on the other hand is : That the assessee cannot claim remission of duty in respect of battery containers which have become unfit for further use since the expression 'waste' contemplated in Rule 56-A(3)(iv) is not the waste of the type pleaded by the assessee.
9. Rule 56-A(3)(iv) deals with waste arising from the process of manufacture. It further contemplates of removal on payment of duty any waste, arising from the process of manufacture to which the materials or component parts in respect of which credit has been allowed under Sub-rule (2) of Rule 56-A which may be subjected to the manufacturer's factory. It also provides for removal without payment of duty in the case of waste which belongs to such class or category as the Central Government may, from time to time, by orders specified for the purpose, be removed from the said factory without payment of duty, for being used in the manufacture of class or category of goods as may be specified in the said order subject to the procedure under Chapter X of Central Excise Rules being followed. Sub-clause (c) of 56-A(3)(iv) permits a manufacturer to destroy the waste which is found unfit for further use or not worth the duty payable thereon in the presence of the proper officer. It also provides for claiming remission of duty payable on such waste. Thus, it is clear the expression 'waste' contemplated in the said Sub-rule is dutiable waste. It is settled law that there cannot be payment of duty unless duty is leviable. Therefore, remission of duty arises only duty was leviable. Though we may agree with the contention of Shri Deshmukh, the battery containers have become useless and they have become waste, we are unable to agree with his contentions that the expression 'waste' contemplated by Sub-clause (iv) of Rule 56-A(3) would take within its ambit the battery container which is a component part of battery in respect of which credit has been given but had not been utilised in the manufacture of the finished product. The waste contemplated by Rule 56-A(3)(iv) are in the nature of by-products which are dutiable. The battery containers which have been rendered useless and thus become waste cannot be considered as a by-product or waste produced along with the finished goods arising from the process of manufacture of electric batteries and therefore, the assessee is not entitled to claim remission of duty in respect of those battery containers which have been rendered useless or have become waste and in respect of which credit has been given in R.G. 23 - Part II. The Superintendent was right in stating that the assessee is not entitled to claim any remission of duty if the containers have become damaged or unfit for use in the manufacture of electric batteries. The assessee should debit in R.G. 23 the amount equivalent to the amount of proforma credit availed on those damaged containers. The view taken by the Appellate Collector that the assessees claim for remission of duty falls within the scope of Rule 56-A(3)(iv)(c) is erroneous. The view taken by the Government of India in the review show cause notice as to the scope of Rule 56-A(3)(iv) appears correct.
10. The only other aspect that remains for consideration was the contention of Shri Deshmukh that the Superintendent has passed the order under directions from the higher authorities and his order is not the result of his judgment and therefore the same is liable to be set aside. Even if we are to accept the contention of Shri Deshmukh that the order of the Superintendent was based on the instructions from his higher authorities, and not based on his own judgment, such a grievance cannot be entertained at this stage. The order of the Superintendent had been set aside by the Appellate Collector. It is the order of the Appellate Collector which is under challenge. The Appellate Collector had interpreted the provisions of Rule 56-A(3)(iv)(c). The Government of India had taken a view that that interpretation was erroneous and had issued a show cause notice in exercise of their power Under Section 36(2) of the Central Excise Act. The assessee had been given all opportunity to reply to the show cause notice and was also heard. In the said circumstances, the contention regarding the order of the Superintendent assumes no importance whatsoever.
11. In the result, we allow this appeal and direct making of necessary debit entries in the R.G. 23 - Part II and thereafter to permit the manufacturers (the assessee) to destroy such of the battery containers in respect of which permission was sought for destruction.