Customs, Excise and Gold Tribunal - Delhi
Bajaj Tempo Ltd. vs Collector Of Central Excise on 31 July, 1995
Equivalent citations: 1997(89)ELT752(TRI-DEL)
ORDER Lajja Ram, Member (T)
1. M/s. Bajaj Tempo Ltd. have filed the present two appeals, one against the Order-in-Original dated 2-11-1991 of the Collector of Central Excise, Pune, and the other against the Order-in-Appeal dated 17-3-1992 of the Collector of Central Excise (Appeals), Pune. As both the appeals involve common issues for decision, they were heard together and are being disposed of by this common order.
2. The appellants were engaged in the manufacture of motor vehicles, internal combustion engines, and parts thereof, falling under Chapter 87 of the Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as the 'Tariff')- For manufacturing various parts of the motor vehicles, they were bringing duty-paid mild steel (MS) sheets, classifiable under Heading No. 72.08 of the Tariff. On receipt of the duty-paid MS sheets, they obtained credit of the Central Excise duty paid by the manufacturers of these sheets, under the scheme popularly known as Modvat scheme, laid down under Rules 57A to Rule 57] of the Central Excise Rules, 1944 (hereinafter referred to as the 'Rules'). They were working under the scheme known as self removal procedure (SRP), under which assessees were allowed to take clearances of their goods on their own, without any supervision by the Central Excise officers at the point of clearance. A part of the receipt of the sheets after optimum utilisation by them was removed to outside customers. The appellants paid Central Excise duty on such removals as applicable to waste and scrap at the rate of Rs. 365/- per MT, plus special excise duty, as applicable to the goods classifiable under sub-heading No. 7204.90 the Tariff, while the revenue alleged that the Central Excise duty was payable at the rate of Rs. 715/- per MT plus special excise duty, and other higher varying rates as applicable from time to time i.e. the rate at which they had obtained credit on receipt, as unused inputs. It was found that the goods removed were not in the form of turnings, borings etc., but were off-cuts/cutpiece of steel sheets useable for their sheet value by manufacturers of relatively small parts. In the show cause notice dated 3-5-1991 issued by the Collector of Central Excise, Pune it was alleged that "cut sheets collected during the process were cleared as scrap." The provisions of Rule 57-1 of the Rules were invoked. In reply the appellants had stated, among other points, that the goods in question were waste and scrap so far as they were concerned. They referred to the definition of waste and scrap, and submitted that their classification list had already been approved and that the waste and scrap was removed by them under the approved classification list. The Collector of Central Excise, Pune confirmed the demand of Rs. 15,61,339.50 and imposed a penalty of Rs. 4 lakh. Redemption fine of Rs. 1 lakh was also imposed, in lieu of confiscation of land, building, plant and machinery. In the other case decided by the Collector of Central Excise (Appeals) Pune also, the Order-inOriginal passed by the Asstt. Collector of Central Excise, Pune, was confirmed and the appeal filed by M/s. Bajaj Tempo Ltd. was rejected. The Collector of Central Excise (Appeals) had relied upon the Tribunal's decision in the case of L.M.L. Ltd. v. C.C.E. reported in 1989 (44) E.L.T. 119 (Tribunal).
3. Both the appeals were posted for hearing on 5-1-1995 when Sh. C.S. Lodha, Advocate appeared for the appellants. Sh. S.K. Sharma, SDR and Sh. Somesh Arora, JDR represented the respondent.
4. Sh. C.S. Lodha, the ld. Advocate stated that the steel sheets were received by them for fabricating roof, panels etc., of the motor vehicles, and the remnants of the Sheets were disposed of by them after the optimum use of the sheets. He referred to the changes in the Tariff in March, 1988, the definition of waste and scrap, and the Chapter Note 6(a) under Chapter Section XV of the Tariff, and stated that the remnants were not primary sheets. Their final products were motor vehicles and parts thereof, and the sheets were their inputs. It was submitted that till 28-2-1986 there was no duty on waste and scrap, and it was only from 1-3-1986 that waste and scrap was covered under Heading No. 72.04. Effective from 1-3-1988 the definition of waste and scrap was changed. He submitted that they had effected their clearances under the approved classification lists, and their activities were known to the department. In so far as the appeal filed against Order-in-Original passed by the Collector of Central Excise, Pune is concerned, he pleaded that it should be allowed on limitation alone. The Id. Advocate traced the history of the case, and referred to a number of decisions in the matter. In particular he referred to the Tribunal's decision in the case of L.M.L. Ltd. v. C.C.E. reported in 1989 (44) E.L.T. 119 (Tribunal), and in case of Bajaj Auto Ltd. Order No. E/166/94-B1, dated 12-5-1994 reported in 1995 (75) E.L.T. 382 (Tribunal), and submitted that the rationale of these decisions was not applicable to- the facts in the present case.
5. Sh. Somesh Arora, the ld. JDR replied that the appellants had declared the goods removed, as scrap, but in place of scrap what was removed were the cut sheets. They were cut sheets but nevertheless they were sheets and not scrap. He referred to the value at which these cut sheets were sold and argued that they were not the waste and scrap. These cut sheets were useable for fabricating small parts. Their value was fairly high. In the invoices, the goods have been described as MS sheets. He referred to the definition of waste and scrap, as contained in the Tariff, and the HSN notes on page 987, and submitted that the goods were not scrap. On time bar, the ld. SDR stated that the first show cause notice issued by the Asstt. Collector of Central Excise, Pune was within time, and as regards the second show cause notice issued by the Collector of Central Excise, Pune, further investigations were required to be made to invoke larger period of limitation. The show cause notice invoking larger period of limitation could not be issued in a vacuum. He referred to para 3 of the adjudication order passed by the Collector of Central Excise, Pune wherein the issue of limitation has been dealt with in detail. He reiterated the findings of the Collector and added that in the facts and circumstances of the case, the suppression has been clearly established.
6. In rejoinder, the ld. Advocate stated that there was no mala fide intention on the part of the assessee and in this regard, he referred to para 44 of the Tribunal's decision in the case of Bajaj Auto Ltd. Order No. E/166/94-B1. With regard to final conclusion in that case, however, he pleaded that the Tribunal's decision in that case should be ignored as that decision did not address to all the relevant submissions.
7. Continuing on 6-1-1995 the ld. Advocate pleaded that the invoices only contained the description 'sheet' and the charge that complete sheets were removed in the garb of scrap has been dropped by the adjudicating Collector of Central Excise. The ld. Advocate made an alternative prayer to refer the matter to a larger Bench.
8. The appellants filed written submissions which were received in the registry on 18-1-1995.
9. We have carefully gone through the facts and circumstances of both the cases, and have given our due thought and consideration to the submissions made by both the sides.
10. The appellants were engaged in the manufacture of motor vehicles and parts of motor vehicles, their final product. For use in the manufacture of their final product, they were bringing duty-paid mild steel (M.S.) Sheets, their inputs. They took credit of the Central Excise duty paid by their suppliers on such inputs (the specified duty) under the provisions of Rule 57A of the Rules. The credit of the specified duty so taken was utilised by them towards payment of the duty of excise on their final product. Under Rule 57A of the Rules 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 S.C.'s 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 their inputs were cut. The Whole of the sheet was not used. After meeting out their requirement the cut sheets (not used in or in relation to the manufacture of the final product), were removed from their factory for outside consumption. They had declared that such cut sheets removed from their factory for home consumption were the 'waste', for the purposes of Sub-rule (4) of Rule 57F of the rules. Sub-rule (4) of the Rule 57F provided that any waste arising from the processing of inputs in respect of which credit has been taken may be removed on payment of duty as if such waste is manufactured in the factory. From the process of manufacture, it is seen that the un-cut sheets and the cut sheets were not two different commodities, and that the cut sheets were left out of the uncut sheets, from which certain portions and parts have been cut. Before the Collector of Central Excise (Appeals) the appellant had stated that "even if a sheet is found to have a crack, the same is discarded and therefore such a sheet, and in other cases the un-cut portion is treated as waste." On whole of the sheet they had already taken the credit of the duty paid by the suppliers/manufacturers. This credit has been taken at the rate of Rs. 715/- per tonne, and other higher rates. They declared that the cut sheets removed from their factory for home consumption were waste, classifiable under sub-heading No. 7204.90 of the tariff, and the rate of duty payable on such removals was Rs. 365/- per tonne (on weight basis on this portion, credit to the extend of Rs. 715/- per tonne and onwards, as applicable had already been taken/utilised). They had admitted that their removals were of utility to other manufacturers. It could not, therefore, be said that these removals were not of use as such. Could it be said then 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 out-side buyers, and is usable to them, for the purpose of Rule 57A of the rules, has been "used in or in relation to the manufacturer" of their final product. The Asstt. Collector of Central Excise, Pune, who had adjudicated the matter had come to a finding that the cut sheets did not satisfy the definition of waste and scrap. He has held that the cut sheets which were a part of their inputs, the metal sheets, were useable as such, and they did not satisfy the definition of waste and scrap as given in Section Note 6(a) of Section XV of the Tariff.
11. Section XV of the Tariff covered base metals and articles of base metal. Chapter 72 covers iron and steel.
For the purpose of Chapter 72, prior to 1-3-1988, the expression "Waste and Scrap" had been 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 appellants had sought to separate 'metals' from the 'metal goods', and contended that the expression 'definitely not useable as such', does not relate to the scrap of metals but to the scrap of metal goods. We do not find any such distinction in the definition. Earlier definition specifically excluded 'residues', and covered only that waste and scrap which was fit only for the recovery of metal or for use in the manufacture of chemicals. Further, the definition has to be seen in the light of the excise law. If the 'metal goods' are divorced from the 'manufacture or mechanical working', then all the old metal goods (broken, cut, work-out etc.) would become excisable and dutiable, which would be an absurd proposition. The cut sheets in this case are left outs, and are in the nature of residue. They do not appear to be the product of any process of manufacture. We are not concerned with the turnings, borings, etc., referred to by the Asstt. Collector of Central Excise, Pune in his adjudication order dated 25-7-1990.
12. Prior to 1-3-1988, waste and scrap of iron and of steel was covered by Heading No. 72.03 of the Tariff. Tariff relating to iron and steel had been rationalised vide Sub-clause (b) of Clause 54 read with the Fourth Schedule of the Finance Bill, 1983. The classification effective from 1-8-1983 (vide Notification No. 188/83-C.E., dated 5-7-1983), broadly followed the customs classification at that time in respect of corresponding items under Chapter 73 of the 1st Schedule to the Customs Tariff Act, 1975. The definitions of various products Under the revised tariff also broadly followed the definitions given in the Customs Tariff which were patterned at that time on the Customs Co-operation Council Nomenclature, popularly known as Brussel's Tariff Nomenclature (BTN). Under BTN, crop ends fillings and turnings, resulting from cutting and shaping of iron and steel, were the examples of the wastes and scrap. With effect from 1-3-1988 the Tariff description underwent a change and ferrous waste and scrap are now covered by Heading No. 72.04, and the description is as under:
"72.04. Ferrous waste and scrap; remelting scrap ingots of iron and steel.
7204.10 Of Iron 7204.20 Of stainless steel 7204.30 - Of other alloy steel 7204.90 Other."
Although the rest of the Central Excise Tariff was broadly aligned with the Harmonised System of Nomenclature (HSN) with effect from 28-2-1986, the tariff relating to iron and steel (which had only at that time recently been changed on the pattern of BTN), was then left untouched. As a part of the exercise of aligning the Tariff relating to ferrous and non-ferrous metals and articles also with the HSN, in the 1988 Budget, the changes were effected in Section/Chapter Notes and Tariff entries. Keeping in view the HSN Notes, the Tribunal in the case of Bajaj Auto Ltd. v. C.C.E., Pune reported in 1995 (75) E.L.T. 382 (Tribunal) had held in para 50 of their order as under :-
50. The submissions made by both the parties, have been carefully considered. The question is whether goods, in question, should pay duty applicable to metal waste and scrap or at the rate payable under Heading 72.08 CETA as flat rolled products. The definition of waste and scrap in CETA underwent a change in Finance Act, 1988. This was part of the exercise of aligning of the excise tariff more fully with HSN. As observed by the Finance Minister in his Budget Speech, while introducing the Finance Bill, 1988, "I propose to align the excise tariff relating to ferrous and non-ferrous metals and articles thereof with the corresponding chapters of the Harmonized System when would help reduce classification disputes." The Budget instructions by the Finance Ministry explaining the changes 1988 (15) ECR 16J are as follows :
"The commodity descriptions relating to iron and steel and articles thereof have been re-cast and brought in line with the corresponding Chapter descriptions appearing in the Harmonised System (H.S.). As in the H.S., the commodities falling within Chapter 72 have been put under four broad groupings, namely, (a) Primary materials; products in granular or power form; (b) iron and non-alloy steel; (c) Stainless steel; and (d) Other alloy steel; hollow drill and rods, of alloy or non-alloy steel. Accordingly, the specific definitions of various products of iron and steel Chapter hitherto being followed would stand replaced by the definitions as available in the Harmonised System. Since the commodity descriptions would now be based on the H.S., the general guidelines available in the Explanatory Notes to the Harmonised System could be referred to in case of any doubts."
Therefore, it will be appropriate and in order to refer to the scope of the term 'waste and scrap' as defined in Section XV Note (6) in HSN and to the Explanatory Note under heading 72.04. The definition of the term 'waste and scrap' under Sl. No. 6(a) in Section XV HSN is identical with that in the CETA after alignment. The scope of waste and scrap is explained in HSN, inter alia, as follows:
"Waste and scrap is generally used for the recovery of metal by remelting or for the manufacture of chemicals. But the heading excludes articles which with or without repair or renovation, can be re-used 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 a metal...."
Viewed in the light of the definition of the term 'waste and scrap' in CETA and its scope as found above, it will be difficult to sustain the appellants' arguments that the steel sheets undergo changes in mechanical properties in the pressing processes and that hence, thereafter they do not answer the description of sheets but should be considered as scrap. This is also because, admittedly, the certain quantity of the sheets are used for making components for the appellants by job-workers. It is also, seen in this context that the Supreme Court in the case of Cannanore Spg. & Wvg. Mills v. Collector of Central Excise, Cochin - 1978 (2) E.L.T. J375 had held that the word 'hank' occurring in a Central Excise Notification could not be interpreted according to the well-settled commercial meaning of that term which was accepted by all persons in the trade, inasmuch as the said commercial meaning would militate against the statutory context of the said exemption notification. The word 'hank', the court held, as used in the notification, meant a coil of yarn' and nothing more. The above judgment has been referred to by the Supreme Court in the case of Akbar Badruddin Jiwani v. Collector of Customs - 1990 (47) E.L.T. 161 wherein the Supreme Court also observed that whether the general principle of common parlance trade understanding is applicable or not depended on the statutory context. The Supreme Court in that judgment also quoted with approval the Tribunal decision in the case of Collector of Customs v. Hargovindas & Co. - 1987 (29) E.L.T. 975 wherein the Tribunal had observed "It is by now well-known that the Customs Tariff import schedule hardly left any scope to go in for trade parlance or common parlance because it statutorily defined almost everything with the help of rules of interpretation and explanatory notes. In such a scheme, the statutory definitions must prevail over the trade parlance or any other aids to interpretation." In such a view of the matter when there is a definition of the term 'waste and scrap' in Note 6 to Section XV CETA that definition has to prevail over what the textual authorities and the trade concerned would consider as waste and scrap. The criterion to be applied is whether the sheets are capable of being reused for their former purposes. Some of the persons examined in this case have stated that the sheets could be used as such for manufacture of other articles. The appellants have, further, argued that the sheets are metal and not metal goods. But this argument does not find support in the HSN Explanatory Notes. In Section XV of HSN under the heading "General" at p. 972 it has been stated that each of Chapters 72 to 76 and 78 to 81 covers particular unwrought base metals and products of those metals such as bars, rods, wires or sheets as well as articles thereof.
51. In view of the above reasoning, one is inclined, in the facts and circumstances of this case, to agree with the order proposed by the Hon'ble Member (Technical) that if the so called waste and scrap is useable as sheet it cannot be termed as 'waste and scrap' and that if it is cleared, debit must be made at the rate of duty payable on sheet subject to any other provision of law and that further since the goods have been cleared, for determining duty liability for the past six months from the Show Cause Notices, documentary evidence will have to be taken into account to arrive at the findings "usability" for which purpose the case has to be remanded to the adjudicating authority. The order proposed by Hon'ble Member (Technical) is, therefore, concurred with.
13. The expression used in Rule 57F is the 'waste' for ease of reference Rule 57F is extracted below :-
"Rule 57-F. Manner of utilisation of the inputs and the credit allowed in respect of duty paid thereon. - (1) The inputs in respect of which a credit of duty has been allowed under Rule 57A may -
(i) be used in, or in relation to, the. manufacture of final products for which such inputs have been brought into the factory; or
(ii) be removed, subject to the prior permission of the Collector of Central Excise, from the factory for home consumption or for export on payment of appropriate duty of excise or for export under bond, as if such inputs have been manufactured in the said factory:
Provided that where the inputs are removed from the factory for home consumption on payment of duty of excise shall in no case be less than the amount of credit that has been allowed in respect of such inputs under Rule 57A.
(1A) Notwithstanding anything contained in Clause (ii) of Sub-rule (1), the inputs in respect of which a credit of duty has been restricted in terms of proviso to Rule 57A, may be removed subject to prior permission of the Collector of Central Excise from the factory for home consumption on payment of duty of excise equivalent to the credit availed on such inputs.
(2) Notwithstanding anything contained in Sub-rule (1) a manufacturer may, with the permission of the Collector of Central Excise and subject to such terms and conditions and limitations as he may impose, 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 out any other operation necessary for the manufacture of the final product or remove the same without payment of duty under bond for export, provided that the waste, if any, arising in the course of such operation is also returned to the said factory;
(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 or remove the same without payment of duty under bond for export provided that the waste, if any, arising in the course of manufacture of such intermediate products is also returned to the said factory :
Provided that the said waste need not be returned to the said factory if the appropriate duty of excise leviable thereon has been paid.
(3) Credit of specified duty allowed in respect of any inputs may be utilised towards payment of duty of excise, -
(i) on any of the final products in or, in relation to the manufacture of which such inputs are intended to be used in accordance with the declaration filed under Sub-rule (1) of Rule 57G; or
(ii) On the waste, if any, arising in the Course of manufacture of the final products; or
(iii) on the inputs themselves if such inputs have been permitted to be cleared under Sub-rule (1):
Provided that the credit of specified duty in respect of inputs used in the final products cleared for export under bond or used in the intermediate products cleared for export in accordance with Sub-rule (2), shall be allowed to be utilised towards payment of duty of excise on similar final products cleared for home consumption (for export) on payment of duty and, where for any reason, such adjustment is not possible, by refund to the manufacturer subject to such safeguards, conditions and limitations as may be specified by the Central Govt. in the Official Gazette :
Provided further that no such refund of credit of duty shall be allowed if the manufacturer avails of drawback allowed under the Customs and Central Excise Duties (Drawback) Rules, 1971, or claims rebate of duty under Rule 12A, in respect of such duty.
Provided also that the credit of specified duty in respect of inputs used in the final products cleared either to a unit in a Free Trade Zone or to a hundred percent Export Oriented Unit under bond shall be allowed to be utilised towards payment of duty of excise on similar final products cleared for home consumption on payment of duty.
(4) 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 for being used in the manufacture of the class or categories of goods as may be specified in the said order, subject to the procedure under Chapter X being followed; or
(c) be destroyed in the presence of proper officer on the application by the manufacturer, and if found unfit for further use, or not worth the duty payable thereon, the duty payable thereon being remitted:
Provided that such waste may be destroyed by the manufacturer governed by Chapter VIIA after informing the proper officer in writing regarding the quantity of such waste and the date on which he proposes to destroy, at least seven days in advance and after observing all such conditions as may be prescribed by the Collector of Central Excise by a general or special order with regard to the mariner of disposal of such waste.
(5) No part of the credit duty allowed shall be utilised save as provided in Sub-rule (3).
(6) On an application made by a manufacturer, the Collector may, subject to such conditions and limitations as he may impose, permit a manufacturer having credit in his account in form RG 23A and lying unutilised on account of shifting of the plant or factory, belonging to the manufacturer, to another site, to transfer the credit in the account aforesaid to such factory of the same manufacturer."
Under Rule 57F any waste arising from the processing of inputs in respect of which credit has been taken, can be removed on payment of duty as if such waste is manufactured in the factory. The appellants had called the cut sheets as scrap. They have stated in para (e) on their ground of appeal in Appeal No. E/6133/92-B1 as under :-
"(e) That the Collector (Appeals) further failed to appreciate that even if the expression 'definitely not usable as such' was to be applied to waste obtained due to mechanical working of metals, such use was referable to the manufacturer and not to any other person. In other words it is relevant to ascertain whether the scrap is usable as such by the manufacturer or not. If the answer is in the affirmative, the goods cannot be regarded as scrap, however, if the answer is in the negative, the goods have to be regarded, as scrap. It will be entirely incorrect to disregard a scrap as scrap merely because someone can find use for it. If this test is to be applied, nothing could be regarded as scrap because someone can always find use for scrap as such. The order of the Collector (Appeals) is clearly bad in law and deserves to be set aside."
The point for consideration is whether the cut sheets in this case are actually waste, the genuine waste, sold as waste it is no use saying that for me it is a waste. The waste should satisfy the objective criteria. The relevant considerations for identifying a waste are its physical identification, the price at which they are sold, and the end-use to which they are put. The appellants in their written submissions have stated that "in so far as he is concerned they are of no further use." In the scheme of excise law it is not the subjective satisfaction of the manufacturer as what construes an excisable waste. The waste is normally understood as something which is not serviceable (refer Supreme Court's decision in the Tisco Ltd. v. CCE - 1995 (75) E.L.T. 3 (SC). In the show cause notice, dated 4-11-1988 the goods have been described as usable cut steel sheets having potential use as sheets or steel, for manufacture of various parts and components of comparatively small sizes. Cutting of sheets do not bring into existence any new product and even after cutting, the sheets remain the sheets. They have been referred to as the unused inputs. The assessee had referred them as scrap and had argued that so far as they were concerned, the cut sheets were 'waste'. On the basis of the price and other relevant consideration, the Asstt. Collector of Central Excise, Pune had come to a decision that the goods under consideration were not waste. The Asstt. Collector of Central Excise, Pune had observed that these cut sheets were used for making other components outside the factory by different manufacturers and therefore, commanded a higher price than the normal waste and scrap. (Also refer para 1 of the Order-in-Appeal dated 17-3-1992). The Collector of Central Excise, Pune had observed as under :-
"This is also supported by the fact that whereas they have declared the goods as scrap in Gate Passes, they have been correctly described as M.S. Sheets -Select/ Unselect in the corresponding invoices."
Even with regard to the scrap, the Hon'ble Supreme Court in the case of Tata Iron and Steel Co. Ltd. v. C.C.E., reported in 1995 (75) E.L.T. 3 (S.C.) had observed that scrap is normally understood as something which is not serviceable. (para 2); a substandard article is not scrap as understood in commercial parlance or trade circle (Para 2); a sub-standard bloom or billet is steel bloom or billet. But the scrap of billet or bloom would not be the same thing as semi-finished product. In the commercial sense scrap and semi-finished products cannot be understood in the same sense. (Para 4); "price fixation by controller of Iron and Steel could not furnish basis for interpreting the entry, for levying duty under the Central Excises and Salt Act, 1944. The controller might have classified scrap depending on size and terming it as rolling, melting and industrial scrap, but that could not render it as semi-finished steel products. Size of scrap may be relevant for fixation of price but it could not reflect on the nature of scrap." (Para 5).
14. Classification list under Rule 173B of the rules is required to be filed by the assessee in respect of (i) all excisable goods produced or manufactured by him, (ii) all other goods produced or manufactured by him and intended to be removed from his factory, and (iii) all the excisable goods already deposited or likely to be deposited, from time to time without payment of duty in his warehouse. The Modvat credit is subject to the compliance of the procedure as prescribed under Rule 57G. Under Rule 57G, the manufacturer intending to take credit of the duty paid on the inputs under Rule 57A is obliged to file a declaration with the Asstt. Collector of Central Excise having jurisdiction over his factory indicating the description of the final products manufactured in his factory and the inputs intended to be used in each of the said final products, and such other information as the said Asstt. Collector may require. Approval of the classification list filed under Rule 173B is generally accorded before the goods are actually removed, and under the scheme of the SRP, the manufacturer is obliged and required to clear the goods as per approved classification list. The procedure to be observed by the manufacturer 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. It is seen from the copy of the classification list on record that there is no reference to the metal sheets therein. Only waste and scrap of steel as manufactured by them has been shown under Heading No. 72.04 with Notification No. 89/88-C.E., dated 1-3-1988 (Serial No. 3). The approval of such a classification list cannot be considered as approval for removal of the cut sheets etc. under the description of waste and scrap.
15. At this stage, we may re-capitulate some special features of this case. The appellants brought duty-paid M.S. Sheets from outside. The duty on the sheets was paid by the suppliers at Rs. 715/- per tonne. On receipt the appellants took credit of the duty paid by the suppliers of these sheets. The Modvat scheme visualises that such sheets after credit has been taken by the declarant, of the duty paid thereon, can only be removed on payment of the appropriate duty, which shall not be less than the amount of credit that has been taken in respect of such sheets. It is assumed that the sheets are required to pay duty on clearance and that they are manufactured in the factory, in which they have been brought from outside. In other words, it can be said that as soon as the credit of the duty already paid is taken, the sheets are shorn off their duty paid character. Further, when duty is required to be paid on removal, no extra burden is cast on the goods or the manufacturer who had taken the credit of the duty already paid, and had utilised such a credit. It is in the nature of paying back to the exchequer what has already been enjoyed. But for such a credit of the duty paid by the suppliers, the duty on the finished goods was required to be paid, not out of such a credit but from the own account of the manufacturer. We may also note that mild steel sheet cannot be compared with the cloth in the hands of the tailor. In this case, we are talking of metal sheets, and the appellants had themselves admitted that as such, they are 'very expensive'. By no stretch of imagination, such costly sheets could be compared with fents, rags and chindies. Further, in this case, we are not concerned with turnings, borings etc. for which relief has already been given by the Asstt. Collector of Central Excise, Pune. The reversal of the credit is only to the extent of the duty taken credit of, and the value of the cut sheets in no case is less than the duty paid on the un-cut sheets.
16. The Collector of Central Excise (Appeals), while rejecting the plea of the appellants, had relied upon the Tribunal's decision in the case of L.M.L. Ltd. v. C.C.E. reported in 1989 (44) E.L.T. 119 (Tribunal). We find that the facts in that case before the Tribunal were more or less identical. After discussing the provisions of the Modvat scheme in general, and that of Rule 57F in particular, the Tribunal held that the off-cuts cannot be treated as waste and scrap. Although the definition of waste and scrap had subsequently undergone modification it will not effect the conclusions drawn by the Tribunal in any way. In para 8.2 of their decision, the Tribunal had observed as under :
"8.2 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 MT (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 goldmine 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 a 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 Ltd. v. C.C.E., Pune, Order No. E/166/94-B1, dated 12-5-1994 reported in 1995 (75) E.L.T. 382 (Tribunal) is extracted below:-.
"44.1 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 is 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 ld. JDR'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."
17. The appellants had relied upon a number of judgments in support of their contentions. We do not find them relevant to the facts before us. In the case of Union of India v. Madhu Syntex (P) Ltd. reported in 1988 (35) E.L.T. 349 (SC), the demand was raised without notice or hearing. In the case of Indian Aluminium Co. Ltd. v. A.K. Bandhopadhyay reported in 1980 (6) E.L.T. 146 (Bom.), the goods involved were refuse scum thrown off during the process of manufacture. In the case of Modi Rubber Ltd. v. Union of India, reported in 1987 (29) E.L.T. 502 (Del.), the goods were considered to be unfit for consumption or marketing. The Delhi High Court had held that tyres destroyed by cutting and punching were not treatable as goods manufactured, and that waste and scrap obtained in the course of manufacture of tyres were not covered in the Item No. 16 of the old Central Excise Tariff. In the case of CCE, Bhubaneshwar v. Aluminium Industries Ltd. - 1987 (31) E.L.T. 748 (Tribunal), the matter related to tne aluminium waste obtained in the course of manufacture of wires and cables, and the issue was whether they were covered by Item No. 68 of the old Central Excise Tariff. The matter in H.M.M. Ltd. v. CCE reported in 1989 (40) E.L.T. 423 (Tribunal) related to the Waste material coal cinder. In the case of Orient Ceramics and Industries Ltd. v. CCE - 1993 (65) E.L.T. 426 (Tribunal), the matter related to broken glazed tiles. The goods involved in the case of Bhor Industries v. CCE reported in 1991 (56) E.L.T. 611 (Tribunal) were plastic waste in the course of manufacture of polyethylene films. They were in the nature of process waste.
18. In the show cause notice, in Appeal No. E/793/92-B, contravention of the provisions of Rule 57F(l)(ii) and Rule 57F(4) of the rules was alleged, and the differential Central Excise duty was demanded under Rule 9(2) read with proviso to Section 11A(1), read with Rule 57-1 of the Central Excise Rules. The show cause notice is dated 3-5-1991 and covered the period from 1-4-1986 to 5-5-1988. In the show cause notice dated 3-5-1991, issued by the CCE, Pune it was alleged that the assessee were liable to pay the Central Excise duty on part of inputs in the manner as provided under Rule 57F(l)(ii), that they had wilfully mis-stated and wilfully suppressed the facts, had clandestinely cleared the cuttings of steel sheets as scrap, and that the proviso to Section 11 A(l) read with Rule 57-1, was rightly invokable. The Collector of Central Excise, Pune had held that the assessee were neither generating nor clearing the scrap, and therefore, their declaration of off-cuts as scrap in the classification list was a deliberate mis-declaration a mis-statement of facts with the intent to evade duty. It should have been declared as Sheet metal (off-cuts), and not as scrap. He has referred to the description in the gate passes and related invoices, and had observed "whereas they have declared the goods as scrap in gate passes, they have been correctly described as MS Sheets - select/unselect in the corresponding invoices."
19. The appellants have contended that the demand in Appeal No. E/793/92-B is barred by the period of limitation. As we have noted above, the show cause notice was issued on 3-5-1991 and the period involved is from 1-4-1986 to 5-5-1988. They have contended that, "it was open to the department to verify the nature of the goods before approving the classification list. Once a classification list is filed and approved, suppression cannot be alleged. In support of their contention, they have cited a long list of judgments. The facts and circumstances, of the case however, completely negate the pleadings of the appellants on this score. In this case we are not dealing with the taking of the credit of duty paid on inputs. The mild steel sheets (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 parts of the motor vehicles (final product). The issue is not the taking of the credit, but the disposal of the inputs, not being in the manner as specified in the Modvat Scheme. At this very stage, we would like to put on record that under the Modvat Scheme there is no time limit within which the inputs are required to be used/disposed of. In the show cause notice, dated 3-5-1991 issued by the Collector of Central Excise, Pune, the duty leviable on the inputs has been demanded under 'proviso to the Section 11A(1) read with Rule 57-1 of Central Excise Rules, 1944, For better appreciation Rule 57-1 is extracted below :-
"57-1. Recovery of credit wrongly availed or utilised in an irregular manner -
(l)(i) Where credit of duty paid on inputs has been taken on account of an error, omission or mis-construction, on the part of an officer or a manufacturer, or an assessee, the proper officer may, within six months from the date of such credit, serve notice on the manufacturer or the assessee who has taken such credit requiring him to show cause why he should not be disallowed to such credit and where the credit has already been utilise, why the amount equivalent to such [credit] should not be recovered from him :
Provided that where such credit has been taken on account of wilful mis-statement, collusion or suppression of facts on the part of a manufacturer or an assessee, the provisions of this clause shall have effect as if for the words "six months" the words "five years" were substituted.
(ii) The proper officer, after considering the representation, if any, made by the manufacturer or the assessee on whom notice is served under clause (i), shall determine the amount of such credit to be disallowed (not being in excess of the amount specified in the show cause notice) and thereupon such manufacturer or assessee shall pay the amount equivalent to the credit disallowed, if the credit has been utilised, or shall not utilise the credit thus allowed.
Explanation : (Where the service of the notice is stayed by an order of the Court, the period of such stay shall be excluded from computing the aforesaid period of 6 months or 5 years, as the case may be.) (2) If any input in respect of which credit has been taken are not fully accounted for as having been disposed of in the manner specified in this section, the manufacturer shall upon a written demand being made by the Asstt. Collector of Central Excise pay the duty leviable on such inputs within 10 days of the notice of demand."
It will be seen that Rule 57-1 has two sub-rules, dealing with two different situations. Sub-rule (1) relates to situation one "where credit of duty paid on inputs has been taken on account of an error, omission or mis-construction", or "on account of wilful mis-statement, collusion or suppression of facts." Sub-rule (2) relates to a subsequent situation two where "any inputs in respect of which credit has been taken are not fully accounted for as having been disposed of in the manner specified." This situation No. 2 may occur after a short or a long period of taking of the credit of duty paid on the inputs. There is a time limit for serving notice in situation No. 1. In situation No. 2 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 limits of situation No. 1 have not been built in Sub-rule (2). This is understandable also as there is no time limit within which the inputs are to be used/disposed of. They may be used or disposed of after availing of and utilising the credit, much beyond 6 months of their receipt. In this case, 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 Rule 57-1 of the Central Excise Rules, 1944." In the circumstances of the case, we do not find any infirmity in the order passed by the CCE, Pune.
20. In the Bajaj Auto's case reported in 1995 (75) E.L.T. 382 also 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 57-1(1) whereas in our opinion, the present case is covered by 57-1(2) (about which there is no finding in the Bajaj Auto's case).
21. Earlier in the case of Hindustan Lever Ltd. reported in 1994 (72) E.L.T. 168 (Tribunal) this point had been missed and only 57-1(1) was read with Section 11 A.
22. The appellants have relied upon a number of judgments in support of their pleadings. We have looked into them, but in the particular circumstances of this matter, we do not find that they go against the conclusions drawn by us. In the case of Air Conditioning Corporation, New Delhi v. CCE, Calcutta - 1985 (19) E.L.T. 206 (Tribunal), there was no allegation of clandestine removal either in the show cause notice or in the adjudication order. The issue in the case of Nat Steel Equipment P. Ltd. v. CCE reported in 1988 (34) E.L.T. (SC) was of classification of domestic electric appliances. There was no issue relating to Modvat credit and utilisation disposal of the inputs. In the case of TISCO Ltd. v. U.O.I, reported in 1988 (35) E.L.T. 605 (SC) the matter related to the weight of the forged goods for the purpose of levy of excise duty. The issue before is different than the matter before Supreme-Court in the case of CCE v. Chemphar Drugs and Liniments reported in 1989 (40) E.L.T. 276 (SC), and Padmini Products v. CCE reported in 1989 (43) E.L.T. 195 (SC). No interpretation of Modvat provisions was involved. In the case of CCE, Muzzaffar Nagar Steel reported in 1989 (44) E.L.T. 552, the matter related classification of runners and risers arising during the course of manufacture of steel ingots, and their entitlement to the benefit of exemption Notification No. 237/75-C.E. We do not find any relevance of that case also to the facts before us.
23. The Asstt. Collector of Central Excise, Pune in his Order-in-Original, dated 25-7-1990 has not imposed any penalty. The Collector of Central Excise, Pune has, however, imposed a penalty of Rs. 4.00 lakhs, and a fine of Rs. 1.00 lakh in lieu of confiscation of land, building, plant and machinery etc. under Rule 173Q. After going along the journey through which the proceedings had travelled in this case, we do not feel like confirming that part of the order of the Collector of Central Excise, Pune, which relates to fine and penalty.
24. The facts in both the appeals, and the relevant provisions of law have been dealt with in detail by us in the preceding paragraphs. In the grounds of appeal before us the appellants have not denied that the goods removed by them from their factory had a used and were useable, but had argued that "even if such scrap could be used by another person it would continue to be regarded as waste/scrap." (refer Ground-e), and that the "use was referable to the manufacturer and not to any other person", (refer Ground-f). We have discussed the factual aspect of the matter at appropriate places in our order. We have given our findings independently on the basis of the facts on record, and our understanding of the law. In the circumstances, there is no case for remand or for reference to a larger Bench\
25. Taking all the relevant considerations into account, we confirm the order passed by the Assistant Collector of Central Excise, Pune in Appeal No. E/6133/92-B. We also confirm that part of the order passed by the Collector of Central Excise, Pune in Appeal No. E/793/92-B, which relates to the demand of duty. We set aside that part of the order of the CCE, Pune which relates to penalty and find both the appeals are disposed of accordingly.
Sd/- Sd/- (S.K. Bhatnagar) (Lajja Ram) Vice-President Member (T) Dated 31-3-1975 S.L. Peeran, Member (J)
26. I have carefully gone through the order prepared by my Learned Brother, Shri Lajja Ram, Member (T). As desired, that I shall place my views on records hence lam doing so.
27. The Tribunal has decided the issue in question by two of its orders namely:
(i) LM.L. Ltd. v. Collector of Central Excise, [1989 (44) E.L.T. 119]. (ii) Bajaj Auto Ltd. v. Collector of Central Excise, [1995 (75) E.L.T. 382].
My Learned Brother had applied the ratio of the rulings on merits, as in these cases. Though I had expressed my views in Bajaj Auto Ltd. (supra), but by majority order the Revenue's contention, in so far as is stated in that order, was confirmed. I have to respectfully follow the majority to be applied to the facts of this case also. In the Bajaj Auto's case, the Bench unanimously held the demands to be time barred. My Learned Brother has not followed that view but has held that time bar is not applicable for demands raised under proviso to Section 11A(1) read with Rule 57-1 of Central Excise Rules, 1944. I am with utmost respect, not agreeable to this proposition, especially after noting in the order about the approval of the classification list. The facts and circumstances of this case does not allow for invokation of larger period under Section 11A read with Rule 57-1 of Central Excise Rules,1944. The question of extension of extended period for recovery of wrongly availing or utilisation in irregular manner under Rule 57-1 read with Section 11A of the Central Excise Rules, was gone into in great length in the case of Hindustan Lever Ltd. v. Collector of Central Excise, as reported in 1994 (72) E.L.T. 168 (Tribunal), and the majority order, examining a large catena of Tribunal decisions, it was held that the proviso of Section 11A has to be read while interpreting Rule 57-1 and 57A and in that view of the matter, the Tribunal held that extended period is not invokable in that case, as the accounts had been checked and returns regularly maintained and filed. Therefore, respectfully following the ratio of the Bajaj Auto Ltd.'s case (supra) and Hindustan Lever's case (supra) I hold that the demands cannot be confirmed for the period beyond 6 months, as there was no suppression or misrepresentation or misdedaration in the case.
28. In the Bajaj Auto Ltd. 's case, the matter was remanded to examine the extent of duty recoverable on the scrap, which was used as input for manufacture of other items. The final order is noted herein appearing at page 426 of the report is noted herein below:
MAJORITY ORDER S.L. Peeran, Member (J)
52. In terms of the majority opinion, the appeals are disposed of in the following terms :
(i) The demands are to be confined to Six months period.
(ii) The 'waste and Scrap' is required to pay duty under Rule 57F(4) of Central Excise Rules, 1944, and the goods, cleared under Rule 57F(4) as Waste and Scrap must fulfil the definition given in Section XV (Note 6) of the Schedule of the Central Excise and Tariff Act, 1985.
(iii) If the so-called 'Waste Scrap' is usable as sheet, it cannot be termed as 'Waste and Scrap'. On clearance such goods, debit must be made at the rate of duty payable on sheet subject to any other provision of law.
(iv) Since the goods have already been cleared, therefore, for determining the duty liability for the past six months from the dates of the show cause notices, the documentary evidence will have to be taken, in respect of each consignment cleared. The appeals are remanded to the adjudicating authority, in terms of the majority findings.
Sd/- Sd/- (P.K. Kapoor (S.L. Peeran) Member (T) Member (J)" Dated 12-10-1994
29. I am inclined to follow the same order as passed in Bajaj Auto lid's case and hence, case is to be remanded for that purpose. I agree with my Learned Brother that no penalty and fine is imposable in this case.
Sd/-
(S.L. Peeran) Member (J) Dated 22-5-1995 FINAL ORDER In view of the majority decision the demand of duty is confirmed but the penalty and fine are set aside.
2. The order of the Collector is modified to the above extent.