Customs, Excise and Gold Tribunal - Delhi
Bajaj Auto Ltd. vs Collector Of Central Excise on 12 October, 1994
Equivalent citations: 1995(75)ELT382(TRI-DEL)
ORDER S.L. Peeran, Member (J)
1. In both these appeals common question of facts and law is involved, hence they are taken up together for disposal as per law.
E. No. 2346/93-B2 : This appeal arises from the order passed by the Collector of Central Excise & Customs, Pune by his order-in-original dated 14-6-1993. By this order, ld. Collector has confirmed a duty demand of Rs. 1,21,41,847.25 under Rule 9(2) read with proviso to Sub-section (1) of Section 11-A of the Central Excises & Salt Act, 1944. We have also imposed a penalty of Rs. 75,00,000/- under Rule 173Q(1) of the Central Excise Rules, 1944. He has also ordered for confiscation of land, building, plant and machinery under Rule 173Q(2) but however, has granted redemption on payment of a fine of Rs. one lakh. The facts of this case are that a show cause notice dated 31-12-1988 was issued to the appellant and two others namely M/s. Precimex Engineers and M/s. Proficient Die Maker, Pune. It is alleged in the show cause notice that the appellant procured the excisable goods vis. MS sheets on which appropriate duty of excise or additional duty under Section 3 of Customs Act, 1962 have been discharged. They had declared these goods as their inputs under Rule 57G(1) of Central Excise Rules, 1944 to be used in the manufacture of their products (vis. Motor Vehicle and components thereof) for the purpose of Rule 57A in order to avail the credit of duty paid on the said inputs as per the procedure prescribed under the said Rule. It is alleged that they had removed part of the said inputs for home consumption declaring it as "Waste" arising from the processing of inputs after discharging the duty on the said inputs in the manner as provided under Sub-rule (4) of Rule 57F, although they were liable to pay duty on such inputs in the manner as provided under Rule 57F(i)(ii). It is alleged that they have failed to make adjustments of the excess credit (caused due to differential rate of duty, applicable to the said inputs and its "Waste") availed by them in respect of such inputs and cleared them at reduced rate of duty in contravention of Rule 57F(i) and (ii). It is stated that Rule 57F(i)(ii) holds the said inputs "as if manufactured in their own factory" and also provides manner of payment of duty on such inputs cleared for home consumption, and therefore, the appellants have contravened the provisions of Rule 173F read with Rule 9(2) in as much as they failed to determine the correct duty liability on the inputs, so cleared, and the manner so provided under the said Rule. It is also alleged that they had suppressed the facts regarding actual status/nature of the inputs not removed and misdeclared them as "scrap" and accordingly, the provisions of proviso to Section 11A of Central Excises & Salt Act, 1944, read with the provisions laid down in Rule 57-1 of Central Excise Rules, 1944 are invokable so as to demand the differential duty on the said inputs beyond the period of six months. Therefore, differential duty payable on the said inputs cleared as "waste" during the period from 1-3-1986 to 30-6-1988, amounting to the above said amount has been demanded. In the show cause notice, besides calling upon them to explain as to why penalty should not be imposed under the penal provisions of the Central Excise Rules, it is also alleged that the premises of M/s. Precinax Engineers and M/s. Proficient Die Maker were searched respectively on 8-7-1988 and 12-7-1988 and the goods in the nature of the said inputs valued at Rs. 7,876.70 and Rs. 1,182.50 respectively were seized under the reasonable belief that the same have been removed in contravention of Rule 57F(i)(ii) by M/s. Bajaj Auto Ltd. Hence, they were also issued a show cause notice.
2. The show cause notice is accompanied by an annexure which sets out the grounds for issuing the show cause notice. The department had made a detailed investigation including search and taken statements from various persons. In the course of the proceedings, several witnesses were called for cross examination. The evidence collected has been summarised in the form of facts in the annexure and the same is noted herein below :
"(I) M/s. Bajaj Auto Ltd., Akurdi, Pune removed the original inputs duly procured by them under Rule 57A, in the form of MS Sheets of irregular dimensions, Circles, patties/strips, all retaining the essential characters of Sheets, as "MS Waste and Scrap" by misusing the provisions of Rule 57F(4).
(II) While disposing such inputs in the manner stated above, M/s. Bajaj Auto Ltd., Akurdi, Pune have not discharged full duty liability on the said goods in terms of Rule 57F(i)(ii) i.e. duty payable to the extent of Credit availed or the appropriate rate applicable to the said goods.
The term "Waste and Scrap" has been defined under the Central Excise Tariff Act, 1985 effective from 1-3-1986 and incorporated under Section XV Chapter 72 of the Central Excise Tariff Act.
The Note 1(ix) to Chapter 72 defines "Waste & Scrap of base metals" as under :
"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".
This definition, effective from 1-3-1986, underwent minor change with effect from 1-3-1988. The revised definition applicable with effect from 1-3-1988 onwards is contained in Section Notes 6(a) to Section XV of the Central Excise Tariff Act and is as under:
"Metal waste and scrap from the manufacture of mechanical working of metals, and metal goods definitely not usable as such because of brokage, cutting-up, wear or other reasons.
The investigations carried out in this behalf and direct and/or corroborative evidence collected for this purpose appear to show that major portion of inputs so cleared by M/s. Bajaj Auto Ltd., Akurdi as MS "Waste and Scrap" in fact do not represent "Waste and Scrap" as defined under the Tariff, in as much as the so-called scrap cleared is neither fit for recovery of metal nor sent any time for the said purpose but actually used as such for further manufacture of parts/components.
The evidences and other relevant facts are discussed in brief, as under :-
In this context, the materials allegedly removed by M/s. Bajaj Auto Ltd., Akurdi and sent to M/s. Precimax Engineers, Warje Malwadi, Pune and M/s. Proficient Die Maker, Pune were seized under regular panchanamas and on verification of those material, it was observed that they do not represent "Waste and Scrap" as statutorily defined, but consist of MS Strips and Circles. The clearance documents i.e. Gate Passes indicate that M/s. Bajaj Auto Ltd., Akurdi have described this material as MS Scrap and paid duty at the rate of Rs. 365 /- per M.T., however, other documents which are normally not verified by the Department or which the Assessee is not statutorily required to submit to the department such as G.D. Notes (Goods despatched Note) describe the so-called scrap with its true description and MS Strips/ Circles/Cuttings of irregular size. (Reference Ex. A-l and A-2). Further, Shri R.R. Gholap Prop, of M/s. Precimax Engineers, Warje Malwadi, Pune and Shri M.V. Desai of M/s. Proficient Die Makers, Pune in their respective statements at 6-7-1988 and 12-7-1988 (Ex. A-3 and A-4) have confirmed that they do not receive any melting scrap and/or they do not send the material received from M/s. Bajaj Auto Ltd., Akurdi, Pune as Scrap for recovery of metal. They manufacture the press parts now such material as per specifications and send those parts back to M/s. Bajaj Auto Ltd., Akurdi, Pune. Shri Gholap also produced one latter received from M/s. Bajaj Auto Ltd., Akurdi, Pune, (Ex. A-5) which clearly states that the material sent to them is MS Scrap/Strips for manufacture of various small parts. On further enquiry with various Vendors of M/s. Bajaj Auto Ltd., Akurdi, it is observed that they have received such letters and have also received such type of material for making the components/parts out of it for M/s. Bajaj Auto Ltd., Akurdi, Pune. The fact that the said material is not scrap but usable input for manufacture of small press-parts has been accepted by the various concerned Personnel of M/s. Bajaj Auto Ltd., Akurdi, Pune in their respective statements recorded in this behalf. It is also observed that such type of letters have been issued periodically by M/s. Bajaj Auto Ltd., Akurdi, Pune to almost all their Vendors/Job Workers".
The annexure summarises the statement of various persons from whom the department has recorded in para 5 of the show cause annexure. The department admits that there are instances where scrap, such as M.S. turning and boring has genuinely gone for re-melting. In para 9 of the annexure, it is alleged that the evidence brought on record lead to the conclusion that the assessee has been indulging in the illicit practices, with due knowledge of law and procedures, in removing the inputs or portion of inputs in the form of Circles, Strips/patties/off-cuts etc. at reduced rate of duty by describing such material as "Waste and Scrap" for excise purposes which otherwise do not qualify to be so, as uniformally accepted by assessee's representatives and established through recorded evidence and instances. It is alleged that the said data leads to the conclusion that the waste and scrap, in its true sense, either as defined in the Central Excise Tariff or as understood by the assessee always fetch at very reduced price, nearly to the extent of 20 to 25% of the price of its virgin/parent material for the obvious reason that such scrap, to be reconverted into its original form of inputs or other such usable form require certain processes, including re-melting, and money considerations involved in such precesses, shall always be equated with difference of price between such scrap and its parent form. Therefore, it is alleged that naturally, if the price difference between scrap and its parent inputs, goes narrowing, it will only reveal that the scrap is not much different from the inputs. Therefore, it is alleged that the appellant are clearing their M.S. scrap, so generated, in the following manner :
"(i) Some quantity of scrap is sold to various vendors/job workers for the manufacture of parts/components for the assessee, by the vendors/job workers.
(ii) Large/huge quantity of the scrap is sold to their traders by calling the tenders for different varieties of scrap, periodically.
(iii) Very little quantity of the scrap is sent to the Vendors/job-workers under Central Excise Rule 57F(2) for manufacture of parts/components on assessee's behalf. This quantity is outside the purview of this show cause notice.
(iv) Some quantity of the scrap, such as M.S. turning and borings, M.S. Dal and dust (small pieces) has actually been sold for melting purposes which is also outside the purview of the show cause notice.
(v) Some quantity of such material is also captively consumed by the assessee in their press shop/body shop, which is also excluded from the purview of this show cause notice."
Thus, the differential duty @ Rs. 350/- per M.T. has been demanded for the clearances made from March 1986 to June 1986.
3. E.A. No. 2599/93-B1: The appellants have challenged the order-in-original dated 3-6-1993 passed by the Collector of Central Excise, Aurangabad has confirmed a demand of Rs. 53,94,522/- under the proviso to Section 11A(1) of the Central Excises & Salt Act, 1944. He has also imposed a penalty of Rs. 5 lakhs under Rule 173Q of Central Excise Rules, 1944. The department has alleged that the assessee, manufacturers of Motor Vehicles and components thereof were processing the raw-material vis. M.S. Sheets falling under subheading 7212.32 upto 29-2-1988 and under 7209.20 from 1-3-1988 onwards, on which appropriate duty of excise and/or additional duty under Section 3 of Customs Act, 1962 had been paid. They had declared the said M.S. Sheets as their inputs under Rule 57G(1) of Central Excise Rules, 1944, to be used in the manufacture of motor vehicles and components thereof for the purpose of Rule 57A in order to avail the credit of duty paid on the said inputs. It is alleged in the show cause notice dated 20-9-1989 issued to the appellants and 12 others that they had removed part of the said goods for home consumption declared it as "Waste and Scrap" arising from the process of said inputs after discharging the duty liability @ Rs. 365/- per M.T. upto 28-2-1989 and thereafter @ Rs. 500/- per M.T. on the said inputs in the manner as provided under Sub-rule (4) of Rule 57F, although they were liable to pay duty at the rate of Rs. 715/- per M.T. upto 28th Feb. 1989 and thereafter @ Rs. 900/- per M.T. on such inputs in the matter as provided under Rule 57F(i)(ii), in as much as they had been clearing the inputs or parts of the inputs either usable for further manufacture of finished goods in the premises of their vendors, job workers or to other manufacturers to manufacture the articles like locks, cycle parts, motor vehicle parts, domestic kitchen articles, electric fan parts, cycle parts etc. by treating such inputs as "Waste and Scrap" and thus suppressed the actual status of the inputs so removed by mis-declaring them as "Waste and Scrap" with a view to evade payment of duty.
In view of these facts, the Deptt. carried out a detailed investigation/enquiry by seizing documentary evidence, statistical data and seizing samples of inputs i.e. pieces of M.S. Sheets sold by the assessee to their vendors and scrap dealers. The panchanama evidencing the actual nature and status of the piece of M.S. Sheets being removed as "Waste and Scrap" were made at the assessee's factory, and at the premises of various vendors of the assessee and the actual user of the said pieces of M.S. Sheets was also drawn up. The samples were also drawn from the scrap yard of the appellant under regular panchanama dated 7-1-1989 and on verification of these samples, the department alleged that they did not represent waste and scrap as statutorily defined but consisted of M.S. strips, circles and pieces. The clearance documents were also scrutinised and from it, it was alleged that the gate passes indicated that they had described these material as M.S. Scrap and paid duty @ Rs. 365/- per M.T. However, other documents which were normally not verified by the department such as goods despatch notes/invoices, described the so-called M.S. Scrap with its true description as M.S. strips/patties/circles, cuttings of irregular sizes. In addition to above, the samples of the inputs i.e. so-called M.S. Scrap allegedly removed by the assessee and sent to M/s. Rameshan Engineering, Aurangabad, M/s. Ajanta Press and Mechanical Works, Waluj, M/s. United Tools and Dies Co. Chikalthana and M/s. Kirti Enterprises, Waluj were drawn from their premises under Regular Panchanama, the samples of the various press components manufactured by the aforesaid factories out of the raw materials/inputs viz. pieces of CRCA Sheets were also drawn under regular panchnama. The statements of various functionaries of the assessee and the statement of scrap dealers and vendors/job workers of the assessee were recorded under Section 14 of the Central Excises & Salt Act, 1944.
In view of the investigations carried out and evidence collected (details mentioned in the show cause notice) it was alleged that the major portion of inputs so cleared by the assessee as "Waste and Scrap", as defined under the Central Excise Tariff in as much as the so-called scrap cleared was neither fit for recovery of metal nor sent any time for the said purpose but actually used as such for further manufacture of parts/components. Therefore, it was alleged that the assessee and its functionaries had contravened the provisions of the Central Excises & Salt Act, 1944 and rules made thereunder and thus has evaded Central Excise duty to the extent of Rs. 53,94,522/- during the period 1-3-1986 to 31-5-1989.
4. The assessee filed reply vide letter dated 9-2-1992 in which they submitted that for the manufacture of final products viz. the vehicles, M.S. Sheets were procured through import and some small percentage locally; i.e. the M.S. Sheets so procured were brought into their stream of production through press shops and required shapes such as chassis, frames, wheel, rims etc. were cut, formed, drawn, pierced, trimmed, punched, straightened from M.S. Sheets in various presses ranging from 60 to 500 tonnes capacities with the help of various dies as per technical specification, drawings and welded as necessary; that in those process, apart from sub-standard rejects, odd shaped remnants of M.S. Sheets were left behind; such remnants were processing waste resulting in the course of manufacture of vehicle parts from M.S. Sheets; that such waste met the requirement of the definition given under the Central Excise Tariff Act, 1985; that the M.S. Sheets being very expensive they had utilised the material to reduce the wastage as much as possible and to that extent/intent salvages and utilised in its manufacturing process those odd shaped sheet cuttings and other remnants which in any event satisfied the given definition to the extent possible. They gave the details of stages of some parts of the remnants arising out of manufacture and the manner of its utilisation by themselves or through job worker and the details records maintained and made submission before the Collector that the processing waste arising from manufacturing operations carried out by them on M.S. Sheets had at all material times, had been under excise control. They further pointed out to the various show cause notices issued in the past with reference to the Notification No. 54/64, dated 1-3-1964, the confirmation of demands, their appeals against the said confirmation and the writ petition filed by them, they had submitted that on the same issue they had agitated [before] the department and therefore, the department was fully aware of the scrap being generated in the factory. They had submitted scrap which arose during the manufacture of the said goods was made up essentially of the following :
(i) unusable cuttings arising in the process of cutting steel sheets into blanks for various parts,
(ii) scrap arising out of trimming, punching of steel sheets into blanks, they had submitted that the nature and relative value and volume of scrap which was generated from 1978 continued to be the same throughout, but the department was aware of the said position.
They had submitted that w.e.f. 1-3-1986 Modvat Rules were introduced and that the appellant for its Akurdi Works and also for its Waluj Works, filed declaration under Rule 57G, obtained dated acknowledgments and on getting the approval under 57F(2) they cleared the processing waste and in respect of clearances under Rule 57F(4) duty was paid on Iron and Steel waste and scrap; that once again the Supdt. Central Excise Akurdi had issued show cause notice alleging contravention of Rule 9(1) and 173(2) read with Rule 52A alleging that they had not paid duty on scrap inter alia of Iron and Steel generated during the course of manufacture of finished excisable goods and had demanded duty for the period from 1-3-1986 to 21-2-1987; that after considering the cause shown the Assistant Collector vide his order dated 30-11-1987 had confirmed that the assessee had paid duty correctly on the processing waste. Therefore, they had filed classification lists in respect of waste and scrap being generated in the course of manufacturing of vehicles to both the Collectorates, which had been approved by the jurisdictional Assistant Collector. Therefore, they submitted that all along the value, type of goods i.e. nomenclature and volume of their clearances of waste and scrap was known to and rightly accepted by the department as waste and scrap and that they had paid duty throughout as applicable according to the approved classification list and had submitted monthly R.T. 12 returns pertaining to waste and scrap which were assessed. Therefore, they had submitted that as per the definition of waste and scrap, what they had cleared from the factory was nothing but waste and scrap, which fact was all along accepted by the department; that under the circumstances, no suppression of any facts could be alleged. They submitted that the. said scrap, whether it be in the form of circles or in the form of patties or strips or any other odd shapes and irrespective of historical nomenclature which was only for the sake of convenience remained as scrap and any mention of the nomenclature of such scrap as aforesaid, did not change its character as scrap. They had submitted that the waste and scrap was not as a result of skill and labour applied with the object and intent of producing scrap. The skill and labour was applied to the M.S. Sheets with the object and intent of manufacturing the final products i.e. two/three wheeler vehicles and parts thereof. They had submitted that M.S. Sheets were priced at average of Rs. 20,000/- per M.T. whereas the waste was cleared under Rule 57F(4) was admittedly priced at an average of Rs. 7,000/- per M.T. Therefore, a vast difference in prices of the inputs and the waste admittedly existed which could only be an attributes of the fact that the waste was not M.S. Sheets and waste was what is purported to be waste. They had stated that waste did not have any of the essential characteristic of the M.S. Sheet i.e. hot or cold rolled flat products attracting definition of M.S. Sheets. They had stated that the test of the purpose of Rule 57F(4) was the absence of utility to the assessee which did utilise the inputs to the maximum extent for or in relation to the manufacture of final product; that if the residue or resulting processing waste had any value or utility for any person other than the assessee, such value or utility to the third party was of no consequences and if no value or utility was criterion for calling an item as 'Waste' as claimed by the department then Rule 57F(4) at once became redundant. They had submitted that the tariff entries or tariff definition could not be of any relevance to the modvat rules which were independent and self contained and occupy the entire field.
5. We reproduce herein below the findings given by the Collector in E.A. No. 2346/93-B1 and Appeal No. E/2259/93-B1. In the case of E/2346/93-B1, the Collector had raised two issues whether :
(i) It was in the form of original inputs like steel sheets procured under Rule 57-A or have retained the character of said inputs at the stage of removal as held in the investigation and
(ii) It was in the form of "Waste and Scrape" of steel generated in the process and eligible to be removed under the procedure laid down under Rule 57F(i)(ii) read with Rule 57F(4), as claimed by the party.
The ld. Collector after referring to the definition of "Waste and Scrap" for the relevant period as appearing in Chapter Note XVI has held that "Waste and Scrap of metal is only that type of scrap which is fit for recovery of metal. The samples shown to me did not show that they were melting scrap and therefore, the party had mis-declared, thus there is justification to extend the larger period". Ld. Collector has noted the admission of the party that the scrap removed were being used by manufacturers for manufacture of steel articles or for manufacture of small parts of steel in the units which are ancillary to the party's unit manufacturing scooters. In view of this position, he has concluded that the "off-cuts" cannot be treated as waste and scrap. In this context, he has also referred to the definition of term "off-cuts" as appearing in Chambers Twentieth Century Dictionary. He has held that off-cuts is not in rectangular shape and they are in straight length. He has held that the 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 m.t. (Rs. 715/- minus Rs. 365/-) without doing anything else. He has held that the entire purpose of Modvat scheme of avoiding the cascading effect of duty on the final product would be subverted. The scheme would turn into a gold-mine for the party rather than of reducing the burden of duty of the final product. He has held that when the party's contention is accepted then would lead to evasion of duty. He has held that the party did not produce any evidence on record that such trimmings or any other material referred to in the show cause notice were released for re-melting or atleast not re-used for representing entirely at party's own factory or at vendor's place. He has held that Dr. Chaudhari's evidence is contrary to their letter addressed to all vendors regarding supply of scrap by M/s. Bajaj Auto Ltd. to their job workers/vendors for getting the press parts manufactured from vendors. He has referred to the cross-examination of S/Shri Nargolkar, M. V. Desai and J.M. Joshi and has held that what they were receiving waste and scrap, was not melting scrap. Therefore, there is a clear contradiction to the definition of waste and scrap given in Chapter Note (ix) of the Central Excise Tariff Act, 1987. He has held that the party has cleared the sheet cuttings, circles and strips as waste and scrap and they were certainly different from the waste and scrap as meant under Central Excise law and as classified by the party also. He has held that the party did not disclose the status of material in any of their classification list/statutory declarations and it is only through investigation of the case, true nature of the product came to notice. Hence, Rule 9 is rightly invoked in the show cause notice and larger period is clearly attracted.
6. E/2259/93-B1 : The ld. Collector has referred to the Book "The Making, Shaping and Treating of Steel" published by United States Steel which was produced by the appellants for perusal. The Collector has also referred the result of cross-examination, then to the various witnesses of the appellants. On the basis of this evidence, he has drawn the following questions :
(i) whether the so-called waste and scrap cleared by party was in the form of original inputs like steel sheets/CRCA sheets procured for which Modvat credit taken under Rule 57A or have retained the said inputs at the stage of removals as alleged in the show cause notice.
(ii) whether the said waste and scrap of steel sheets cleared was in the nature of partially processed goods or capable of manufacture of an intermediate products.
(iii) whether the said waste and scrap of steel sheets generated in the process could be termed as waste and scrap within the statutory definition given under Chapter 72 and eligible to be removed under Rule 57F(4) as claimed by the party.
Considering the evidences on record, the ld. Collector has held that there is no substance to allege that M/s. Bajaj Auto Ltd., Waluj had at any time cleared or removed M.S. Sheets in original form on which they have taken the Modvat Credit. After giving the answer to the first question, ld. Collector has gone on to examine as to what waste and scrap would be as per the definition of Central Excise Tariff. He has gone through the panchanama drawn at the three factories to whom the MS strips, circles, cuttings of irregular size had been supplied by the appellants and from which the ld. Collector has held that the party had manufactured components such as cushion brackets, bracket for engines bonnet and bracket for washer plate for foot rest, hook plate for spring air cleaner cover, hinge bracket, Angle I, Angle II etc. and the same had been sold back to the appellants. Therefore, he has held that:
"When they got such components manufactured from their vendors under Rule 57F(2) and also purchased similar components or some other components which were manufactured out of the material so-called waste and scrap purchased from them by such vendors or manufacturers, therefore, in one case, they sent the similar type of material to their vendors under Rule 57F(2) without payment of duty for manufacture of components and got it back and in other case they sold the material may be not usable as such in their factory, but purchased the components manufactured from the very material. In both the cases, the M.S. Sheets whether in the original characteristic or partially processed or in the form of ramnants or left over material, has the utility as intended and declared under Rule 57G and only material which has no further utility definitely not usable as such without melting could be considered as waste within the meaning of Rule 57F of the said Rules."
Further, the Collector has held as follows :
"And therefore, considering the Modvat Scheme and the provisions of Rule 57F such a material which is called by the party as waste and scrap because it was not usable as such in their factory, still being under process material having intended utility has to be subjected to duty as applicable to the inputs itself and in that case the removal of such goods are governed by the provisions of Rule 57F(i)(ii), and not under Rule 57F(4) as contended by the party.
The definition of waste and scrap as mentioned in Section XV of the Central Excise Tariff Act, 1985 made effective from 1-3-1988 and even earlier has the same meaning. The word 'definitely not usable as such' in the definition of waste and scrap has significant meaning. It has to be interpreted to mean if not usable as such (not in the factory itself even outside) the ultimate use is melting for recovery of metal and that case it is not used as such. In this case, from the very description and nature of the material as borne out by the panchanama and samples drawn is not for the purpose of melting but was having capability of further use in most of the cases. It, therefore, has to be construed that the party never disposed off the said material in the manner as required to deal with melting scrap. The identity of the material so disposed of is proved ... that it was not the scrap as defined under Central Excise Tariff Act, 1985 and even within the provisions of Rule 57F of the Central Excise Rules, 1944.
As held above that so-called waste and scrap of steel sheet cleared was not in the form of waste and scrap as defined under the Central Excise Tariff Act, 1985, therefore, the disposal under Rule 57F(4) is rulled out. There is no doubt the assessee did process the inputs and generated the goods for which present demand. Such material was admittedly not the original inputs, nor the waste and scrap but carried some intermediatory status or under process inputs capable of further intended use and in fact, it has been utilised may not be by factor)' itself but by some other manufacturer for manufacture of smaller components which were purchased by M/s. Bajaj Auto Ltd., Waluj for their use in the manufacture of vehicles, their final product. And, therefore, its removal has to be governed under Rule 57F(i)(ii) and in that case, the duty payable shall not be less than the Modvat Credit earned. In view of this position, the party has, therefore, short paid the duty and it is recoverable from them".
Ld. Collector has held that the party had been availing Modvat procedure and by representing that the goods were waste and scrap, while on investigation it was seen that they had mis-declared and furnished mis-statement to avail Modvat Credit by not paying full duty is required and therefore, proviso to Section 11A of the Central Excises & Salt Act, 1944 was correctly classifiable. In view of the matter that he has confirmed the duty of Rs. 53,94,522/- under Section 11A of the Central Excises & Salt Act, 1944 and has also imposed a penalty of Rs. 5 lakhs.
7. We have heard Shri E.P. Bharucha, Ld. Sr. Advocate for the appellant and Shri S.K. Sharma, ld. JDR for the Revenue. Shri Bharucha argued the appeal by taking us through the ground of appeal, the literature in support of their contentions and referred to the cross examination of the witnesses, gate passes issued by the appellant, test results of the M.S. Scrap and that of original M.S. Sheets and difference between them, the advertisement issued by the appellant for sale of scrap, correspondence of the appellants from 1983 onwards in respect of the scrap removed from the factory, previous visits of the officials, audit visits and check previous proceedings in this matter. On the basis of these materials, ld. Sr. Advocate submitted his arguments in three folds :
1. On limitation, the demands are barred by time in view of the various previous proceedings, correspondence, visits of officers and audit classification list filed and approved by the department and various other materials were referred to show that the department had full knowledge of the nature of scrap arising during the course of manufacture of the final product and the manner in which it was removed from the factory.
On the basis of these materials, ld. Counsel submitted that the demands are barred by time. Ld. Counsel pointed out to the show cause notice dt. 5-3-1983 which pertained to similar issue of generation of scrap in the process of manufacture which pertained to the period 5-7-1978 to 5-7-1983. The Asstt. Collector had confirmed the show cause notice by his order dt. 31-12-1984 taking note of the manner in which the waste arises in the appellant's activity of manufacturing of final product. The appellant had preferred an appeal before the Collector of Appeals, who by his letter dt. 5-11-1985 inter-alia had held that payment of duty should be restricted only for a period of six months, prior to the issue of show cause notice and that there was no warrant to invoke the extended period of limit, as the Deptt. was aware of the complete facts and the manner in which the said waste arises in the appellant's factory. The Counsel submitted that the appellants being aggrieved by the said order, had filed a writ petition before the High Court in writ petition No. 1646 of 1985. The High Court had directed the appellants to pursue the appellate remady [remedy] and with that direction to dispose of the writ petition. The Counsel had pointed out to the correspondence, the appellants had with the department, by their letter dt. 18-6-1986 addressed to the Supdt. By this letter, they had informed the Deptt. of the scrap, which is generated in the factory. He also referred to the show cause notice issued by the appellant dt. 21-2-1987 and they filed the reply thereafter on 19-4-1987. The Counsel pointed out to the annexures filed alongwith the said reply. In this annexure, the details of M.S. Scrap, MS practice and MS turning had been disclosed. The appellants had given a detailed figures of the scrap which was generated, the duty liability and the payments made by the appellants. He referred to the order-in-original passed on 30-11-1987 by the Asstt. Collector in respect of these proceedings. Pointing out to these materials, the Counsel submitted that the Deptt. was fully conscious and aware of the nature of the scrap and the proceedings which had been held in respect of the same. In particular, he pointed out the findings given by the Asstt. Collector in his order-in-original dt. 30-11-1987 which pertains to the removal of iron, steel and aluminium copper, scrap. Therefore, it was cleared from the order itself that the appellants had neither suppressed nor mis-stated nor held back any opinion or information from the deptt. In that view of the matter, the Counsel submitted that there was no suppression in the case and hence the findings given by both the Collectors on this aspect of the matter is totally uncalled for. In support of his plea that where the deptt. was aware of all the particulars and also had initiated proceedings besides visiting the factory and on account of which larger period cannot be evoked, the Counsel relied on the ratio of the following cases :
1. Synthetics & Chemicals Ltd. v. Collector of Central Excise - 1992 (57) E.L.T. 480.
2. Richardson & Cruddas v. Collector of Central Excise -1992 (57) E.L.T. 336.
3. Tech Invest (India) Pvt. Ltd. v. Collector of Central Excise - 1990 (47) E.L.T. 665.
4. Bimetal Bearings Ltd. v. Collector of Central Excise -1990 (45) E.L.T. 285.
5. Andhra Pradesh State Electricity Board v. Collector of Central Excise - 1988 (35) E.L.T. 199.
Ld. Counsel referring to the show cause notice and submitted that the Deptt. had proceeded as if they had initiated the proceedings on the basis of the intelligence report. He pointed out to the material on record to show that there was no question of any intelligence report in this case as the transactions were recorded and had been within the knowledge of the Department. He pointed out to the letter dtd. 29-1-1993 addressed by the Advocates to the Collector wherein they have sought clarification as to when the alleged intelligence was received by the Department and whether the intelligence was oral or written. The Deptt. by their letter dt. 12th February, 1993 had stated that nature and contents of the intelligence collected while booking the case cannot be disclosed, as it being secret. Pointing out to these materials, the Counsel submitted that there was nothing secret about the whole issue as the appellant themselves had noticed the advertisement as of sale of scrap being bringing out in the newspaper dt. 9-12-1985 and on subsequent dates.
(ii) Ld. Counsel took up the issue of the bonafide belief held by the appellant in considering the waste and scrap. He submitted that in the market and trade, the items were considered as scrap and was also dealt as scrap and all the evidence produced by the Department clearly disclosed that the purchasers -both scrap dealer as well as small scale industrialists had purchased it as scrap material and they were conscious of the fact that what was being purchased from the appellant was M.S. Scrap. Ltd. Counsel referred to the extracts of the book "The Making, Shaping and Treating of Steel" published by United States Steel, particularly he referred to pages 145 & 146 which divides all scrap into two broad categories i.e. dormant scrap and prompt industrial scrap i.e. the scrap generated while making products. Referring to the literature, the Counsel submitted that the illustration given is 'unwanted portions of sheet cut to a desired shape or size, trimming resulting from stamping and pressing operations". The Counsel submitted that the scrap generated in their case also was as a result of the process of cutting, trimming and stamping process on the purchased M.S. Sheets in its press shop and the remnants thereof which are obtained during the cutting, stamping and pressing operations are scrap and were cleared as scrap. Therefore, the Counsel submitted that the appellants held a bona fide belief that what was being cleared by them was waste and scrap. They had given advertisement in the newspaper calling for tenders for sale of these wastes and scraps. Therefore, he submitted that the Department having full knowledge of the clearances and also of their holding such a bona fide belief that the goods were scrap. In support of the bona fide belief, the Counsel also referred the gate passes, which clearly mentioned the Goods Delivery Note (GDN) Number, which accompany the gate pass. He submitted that the Gate Pass and GDN bear cross references and clearly co-relate each other. He submitted that there was no dispute that the Goods Delivery Note spelt out in detail the type of waste i.e. patties, circles etc. Ld. Counsel also referred to the evidence on record particularly the affidavit of Dr. Chowdhury, the Test Report and statement of the witnesses in this regard particularly that of Shri S.K. Tiwari, Shri M.R. Joshi, Shri P.S. Vaidya, Shri Madhur Bajaj, Shri M.C. Joshi, Shri M.V. Iyer, partner of Rameshan Engineering Co., Shri Prakash Khopade, Shri M.S. Bhosale, Officer of M/s. A.M. Enterprises, Shri Suresh Bapat, proprietor of Manas Industries and the scrap dealer Shri Abdul G. Chowdhury, partner of Good Luck Trading Co. He also referred to several witnesses who have not been classed opted for cross examination by the Department".
8. On the question of merits, ld. Counsel relied on the definition of the waste and scrap itself appearing in the Section Note XV of the Central Excise Tariff, 1985. He pointed out to the definition appearing in Central Excise Tariff, 1986 as on 1-3-1986 in Chapter 72 which describes Waste and Scrap :
"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."
He pointed out that to this definition and submitted that this definition was modified by the Central Excise Tariff, 1988 as on 1-3-1988, which read :
"Metal Waste and Scrap from the manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting up, wear or other reasons."
He submitted that the period in question was from 1-3-1986 to 31-5-1989. Therefore, the Tribunal was required to give interpretation of waste and scrap as prior to 1-3-1988 in the Tariff and after 1-3-1988. Pointing out to the first definition appearing in the Tariff, ld. Counsel submitted that the scrap generated was being sold as a scrap only for scrap dealers. These dealers were selling it to the foundaries. In few cases, the appellant had removed the same to small scale industries, who were manufacturing certain parts for the appellant. He fairly submitted that the percentage of such removals to the manufacturers constituted only 2% and therefore, there is no creation of scrap falsely by the appellants. There is a genuine creation of scrap arising out of the manufacture of final product. This scrap was recognised by the Trade and the Department was fully aware of such removal as the same had been documented. The appellants were holding bona fide belief as per the trade and as per the technical understanding of the scrap and, therefore, had removed by sale of scrap. Therefore, the bona fide belief in respect of such removal of 2% of re-usable material as scrap should not be held against them. They had also not agitated seriously in respect of 2% of removals to the manufacturers for the period prior to 1-3-1988 but the Counsel submitted that as the transactions were within the knowledge of the department, the recovery of duty even for this 2% would be barred by time.
As regards the amended portion of the definition of waste and scrap appearing in Chapter 72, the Counsel submitted that the definition clearly contemplated three circumstances under which the scrap was generated :
(i) Metal waste scrap for manufacture or
(ii) Mechanical working of metals and
(iii) Metal goods definitely not usable as such because of breakage, cutting up, wear or other reasons.
He pointed out that as regards the last portion of definition is concerned, it pertained to fully manufactured goods, which had become defective and non-usable for the reasons of breakage, cutting up, wear or other reasons and had to be thrown away as scrap. He pointed out that in the present case before us this type of waste -was not in consideration. He submitted that the metals, waste, scrap arose out of manufacture of final product and also those scrap which arose for mechanical working of the metals. He submitted that although waste scraps are goods and there cannot be any doubt about it but the meaning to these scraps, cannot be given a wider scope. Ld. Counsel submitted that every scrap will be utilised for recovery of metal and therefore, the first two portions of the definition should not be made redundant by stating that they are not meant for utilising metal. All the three types of scrap arising from the definition were definitely useful for recovery of metals. The affidavit of Dr. Choudhary disclosed that when steel sheets undergo drawing operations in press shop, their tensile strength, elongation and hardness are always affected as indicated by tests carried out on the fresh material and those generated as a scrap. He submitted that the scrap was hard and it made the material brittle. Hardness are not improved by this quality and therefore, such material was not as per the ISI specification or understanding of M.S. Steel Sheets. The scrap arising from press cuttings were also not recognised and accepted for manufacture of quality goods. These scrap materials were utilised for making only odd quality goods which did not require any ISI specification or quality. He pointed out to test results of goods which was manufactured from good material and also those goods manufactured from scrap. He also referred to the Technical Literature "Source Book on Forming of Steel Sheet" published by American Society for Metals (Pages 136 to 140); "The Making, Shaping and Treating of Steel" published by United States Steel (page 145); "SAE Handbook of 1985, Volume I dealing with materials," (page 150); "Presswork and Presses" published by J.A. Grainger (page 152). Pointing out to these materials, ld. Advocate submitted that the mechanical, properties, dimensional characteristics were all changed in the scrap material apart from mechanical shearing, there was also temperature change. He also referred the statement of the department of witnesses about the changes in the scrap material and about their using these scrap materials to reduce the cost of production. Therefore, he submitted that 90% of the scrap was in the nature of waste and scrap and it had been sold to the scrap dealers. The scrap dealers had clearly stated that they were selling the same for melting purpose. He pointed out that both the Collectors had not gone into details of definition of waste and scrap appearing in the Tariff prior to 1-3-1988.
Ld. Counsel pointed out that the judgment rendered by the Tribunal in the case of LML v. Collector of Customs as reported in 1989 (44) E.L.T. 119 was not in the context of the later definition and hence it is distinguishable in the light of the material placed by the appellants.
9. Ld. JDR at the outset relied on the judgment rendered in the case of L.M.L. Ltd. v. Collector of Central Excise. He submitted that the definition prior to 1-3-1988 referred only to that waste and scrap which is capable of melting and was for recovery of metals alone. He submitted that those scrap which were also capable of being utilised again for the purpose of manufacture of goods, were not covered in the definition. The Tariff did not mention about the quality of the goods. He submitted that sheets can be in the form of circle also. The front-view of the section, after cutting the cross section should be rectangular and so long as it is so, it can be utilised as an inputs for manufacture of goods. He submitted that the samples seized were in the shape of M.S. Strips and Circles and their sizes had also been noted. The scrap generated in appellants' own factory had been utilised in the manufacture of their own goods. Therefore, the entire materials removed as scrap, were to be treated as such and therefore, the finding given by the lower authorities should be accepted. He submitted that the technical details of the literature were not relevant. On time bar, ld. JDR submitted that the appellants had not fully described the goods and also had not given the details and therefore, mere visits to their factory by departmental officials cannot be a ground to hold that the department was aware of the proceedings. There was a clear mis-declaration and hence larger period was invokable. He relied on the rulings rendered by the Supreme Court in the case of :
(1) Jayshri Engineering Co. (P) Ltd. v. Collector of Central Excise -1989 (40) E.L.T. 214 (2) Shri Hanuman Metal Industries v. Collector of Central Excise, Delhi - 1984 (18) E.L.T. 652
10. We have carefully considered the submissions and have perused the records, impugned orders, citations and the literature produced before us.
We have already noted the questions raised by the ld. Collectors in these appeals and their findings and the grounds raised by the appellants. The definition of the "Waste & Scrap" as appearing in Section XV prior to 1-3-1988 and subsequent to this date has also been noted. The issue for our consideration is :
(i) whether the demands raised in this case or barred by time as contended by the appellants on account of previous proceedings and knowledge attributable to the department.
(ii) whether the party was holding a bonafide belief that what they were clearing from the factory was "waste and scrap" as per the understanding of the tariff of definition is waste and technical literature and trade and commercial understanding.
(iii) whether clearances made as waste and scrap by the appellants fall within the definition of "waste and scrap" as defined in Section XV and Note 1(ix) to Chapter 72 of Central Excise Tariff Act, 1985 effective from 1-3-1986 and as per the amended definition from 1-3-1988 appearing in Section Note VIA to Section XV of GET Act, 1985.
11. The appellants have taken a contention that the demands were barred by time. In view of knowledge of the generation of Waste and Scrap in the appellant's factory. They have contended that the Department had issued a show cause notice dated 5-7-1983 in which the appellants were importing indigenous steel sheets falling under T. 126 for manufacture of scooters and auto-rikshaws. It has been alleged therein that scrap is generated in the process of manufacture and the same is cleared by them without payment of duty. The show cause notice had been replied by them by their letter dated 1-8-1983 by which they had referred to the entire records. There is another letter dated 4-1-1984 which is also relied in reply to the show cause notice. In this reply, they have referred to Order-in-Appeal No. S/49-1311/79R and ors. passed by the Collector of Central Excise, Bombay. They have also referred to decision of the Appellate Collector of Central Excise, New Delhi, in case No. 14/CE/APPL/DLH/80, dated 11-6-1981. By this letter, they have also mentioned about the data that they were having in respect of the total scrap sold by them during every financial year. They had stated that the scrap arises in the following manner:
1. Unusable cuttings arising in the process of cutting steel sheets into blanks for various parts.
2. Scrap arising out of trimming, punching of steel sheet blanks while manufacturing.
3. End pieces of steel bars and tubes after cutting blanks.
4. Turnings arising out of machining of forgings, bar and tube parts.
5. Rejected components.
They have also given in this letter the details of scrap sold from 1978-79 to 1982-83. The Asstt. Collector has passed a order on 31-12-1984. By this order, the Asstt. Collector has gone through the entire aspect of the generation of scrap and has confirmed the duty for the period 5-7-1978 to 31-7-1983 in terms of show cause notice dated 5-7-1983 and 4-1-1984. The appellants had filed a writ petition before Bombay High Court. The same was disposed of directing them to seek appellate remedy. Therefore, they filed a appeal before Bombay Collector (Appeals) who by his order dated 5-11-1985 restricted the demand to only 6 months on the ground that there had been no suppression of facts. We have also gone through the correspondence between the appellants and the department on this subject. There is a letter dated 13-6-1986 from the Supdt. with regard to payment of duty on steel/iron scrap (7203-10/7203.20). The appellants have replied by their letter dated 18-6-1986. By this letter, they have stated that stock of scrap which was in existence on 1-3-1986 is exempt from payment of duty. They have also referred to the stocks of scrap arising out of the processing inputs which were in stock in the factory as on 1-3-1986. The deptt. again issued another show cause notice on 1-3-1986, by their letter dated 21-2-1987. This has been replied by their letter dated 7-4-1987. By their letter dated 7-4-1987, they have annexed statements giving details of scrap generated in respect of M.S. Scrap, M.S. Patties and M.S. Turnings. The details pertain to both the divisions, main division and motor-cycle division. The annexures are running into six pages. The Asstt. Collector had passed a order on 30-11-1987 and had confirmed the demand only for six months in respect of scrap generated in the factory. The appellants have also produced records pertaining to audits conducted by the department. The audit party has checked all the registers including sales invoices, purchase invoices, annual stock checking report, RG 6(c), RG 4, RG 9, RG 7(c) RT 8(c), Gate security records, RG 12, RG 23 Part I & n, RG 16 and all other records. There is correspondence between the department and the appellants in respect of the audit of all the relevant records. The appellants have also produced classification list pertaining to waste and scrap. The classification list for the period in question has also been approved. These materials and record has not been examined by the lower authorities and there is no clear cut finding as to how there has been suppression and mis-declaration in the matter. The Collectors have held that the sale of materials to the small scale industries have not been brought to the notice of the department. It is seen that there are gate passes which have been audited by the department for various periods which clearly discloses that what has been removed, is M.S. Scrap in the form of sheets, circles and patties. The duty has been paid on such description. The various documents have been gone through by us and it is seen that the challan by which the sale has been described is that the goods are steel strips 75 x 5 in respect of Nargalkar Industries dated 21-7-1986. By this Challan No. 1084,500 kg. has been sold. Likewise, we have seen the Challan of despatch in respect of other industries also. In all these Challans and gate passes, the appellants have clearly described the goods as steel strips. On a perusal of these materials, it is clear that there has been no mis-declaration or mis-description, while removing the goods to the traders and small scale industries who have manufactured the items for the appellants. Therefore, the allegation that there is mis-declaration, mis-statement and suppression is not proved by the department. The department has proceeded on the ground that the inputs which are removed under Rule 57F(i)(ii) or part of the input for home consumption declaring it as waste and scrap arising from the process of said goods. It is the departments' case that these inputs cannot be considered as waste and scrap, as they had been utilised for manufacture of finished goods in the premises of vendors/job workers and other manufacturers to manufacture the articles, locks, cycle parts, motor vehicle parts, domestic kitchen articles, electric parts, cycle parts by treating inputs as waste and scrap. The assessee has explained that they were holding a bona fide belief that this type of sale constitute only 2% of the entire sale of waste and scrap. They have also explained that they have held the bona fide belief on the ground that these items were also waste and scrap, in the light of the understanding in the trade in respect of such materials, technical understanding, as well as description of ISI specification in respect of such materials. In support of these contentions, the appellants have relied on the test results, affidavit of Dr. Choudhary, Professor of Metallurgy and extracts of ISI and technical books. They have also submitted that such an understanding of bonafide belief is genuine and that has arisen out of factors explained by them. In that view of the matter, they state that ruling rendered in the case of Padmini Products, 1989 (43) E.L.T. 195 and Chemphar Products, 1989 (40) E.L.T. 276 would apply to the facts and circumstances of the case. They also submitted that this bonafide belief held by them is sufficient to exonerate them in respect of 2% of clearances of alleged input materials as "waste and scrap".
12. We have carefully gone through the previous orders and the materials produced by them and also the technical literature on which they have claimed the bonafide belief. We have quite satisfied with this explanation. The deptt. being fully aware of these transactions which have been clearly recorded and that the appellants were also advertising about the sale of such scrap, therefore, the department could have taken steps to proceed against the alleged removal of M.S. cuttings, circles and trimmings for manufacture of goods, which have been utilised by the assessee themselves in time. In view of these circumstances and materials on record, it cannot be said that the deptt. was unaware of such removals. More particularly in the light of the gate passes, GP. I invoices, Challans on which there is no mis-description of the items sold by the appellants. In that view of the matter, we hold that the removal of 2% of alleged input material and recovery of duty on the same is also barred by time. The citations relied by the appellants on this point of bonafide belief as well as the demands being barred by time is totally applicable to the facts and circumstances of the case and therefore, applying the said ratio, we hold that the demands are not recoverable beyond six months.
13. Let us examine the issue on merits. The department is alleging that the appellants had declared the said goods as their inputs under Rule 57G(1) of Central Excise Rules, 1944 to be used in the manufacture of their product (Motor Vehicle and Components thereof) for the purpose of Rule 57A in order to avail the credit of duty paid on the said inputs. However, they had removed part of the said inputs for home consumption declaring it as "Waste" arising from the precessing of inputs after discharging the duty on the said inputs in the manner as provided under Sub-rule (4) of Rule [57F], although the appellants were liable to pay the duty on such inputs in the manner as provided under Rule 57F(i)(ii). It is the department's case that the M.S. Sheets of irregular dimensions, circles, patties/strips all retain the essential characteristic of sheets, and that they are not "waste and scrap" and hence full duty as on inputs is required to be paid and not the duty as on the waste and scrap and hence the differential duty has been demanded in these proceedings. We have held that the recoveries are barred by time for reason noted supra. However, the question still remains to be answered as to whether, these inputs i.e. M.S. cuttings, trimmings and circles retains all the characteristics of the M.S. Sheet or they have lost the characteristics tensil strength, mechanical and physical properties, dimensional characteristics, temperature changes and, therefore, they are to be treated as "waste and scrap" alone, as urged by the appellants. It is the appellant's contention that 2% of the waste and scrap has been removed for manufacture of materials to their job workers and other manufacturers. It has been pointed out by them through the evidence of several witnesses, expert evidence and from the literature, that this M.S. cuttings and scrap do not retain any longer the properties of the M.S. Sheets. They state that it is waste and scrap generated and arisen from the processing of M.S. Sheets and that the duty paid thereon is as for "waste and scrap" is totally justified. We notice that both the collectors have not examined the enormous oral and documentary evidence on record, both in the light of the reference of "waste arising in the course of such operations" used in Rule 57(F)2(a) or "waste, if any, arising in the course of manufacture of the final products" words as employed in Rule 57F(3)(ii) or "Any waste, arising from the processing of inputs" as used in Rule 57F(4). There has been not much of appreciation and interpretation of the definition of the "Waste and Scrap" appearing in Section XV of the Central Excise Act, 1985, prior or after 1-3-1988. It is this controversy, which is required to be resolved.
14. As stated earlier, it is the case of appellant that what was cleared under the provisions of Rule 57F(4) of the product rules was scrap and waste and not the original M.S. Sheets. They have denied having cleared M.S. cuttings, circles and trimmings. It is their specific case, that whatever waste could be salvaged for further use for manufacture of components, in their own factory, that has been recovered and what is useless and unworthy, and that material, which has lost its tensil strength, size and shape, physical and mechanical properties, thickness and which cannot be used for manufacture of goods as per ISI specifications or British specifications, that has been discarded as waste and scrap. This is collected in the scrap yard. The scrap has lost its utility as M.S. Sheets, on account of technical deficiency, and hence it is sold by calling public tender through newspapers. That 98% of the purchasers are scrap dealers and mere 2% is purchased by some small units and they also buy it as scrap, for manufacturing small components, which are not as per ISI specifications. However, in trade and commercial parlance, the scrap sold is not recognised as M.S. Sheet cuttings and technically also it is not so recognised. These contentions are supported by oral and documentary evidence, which we will examine hereinbelow :
(i) Shri P.V. Santurkar, Chief Executive of the appellant's factory in his cross examination has denied having cleared good steel sheets. The samples were shown to him, which was a piece 470 x 985 mm. He denied this piece to be called as Scrap, as this type of pieces, were used in the factory for manufacturing smaller components. He admitted generation of scrap in press shop. In press shop, pieces were cut to the required size, by forming, deep drawing, piercing trimming etc. He stated that the scrap which is so generated in press shop does not retain the same properties of the steel sheets; as these cut pieces get generated after various operations, therefore, the size, shape and physical properties like tensil strength, thickness etc. changes while sheets are processed in the press shop. He has further explained that when there is change in size, the cut piece cannot be used unless a small part is made. Change of thickness, change in tensile strength is not acceptable for processing any further and hence becomes unsuitable for any of their processes in the factory. He has denied having sold any steel sheets, unless the sheets get deeply pitted, rusty and deformed in handling.
(ii) Shri Chandrashekhar Narayan Athawale, Deputy Manager (Materials) in appellants' factory, whose statement had been recorded by the investigating officers on 31-10-1988. He was shown original copies of GP 1 Nos. 423, 424, dt. 8-6-1988 in the name of Precimax Engineers, wherein there was a mention of GD notes bearing Nos. 8768 & 8770 of dt. 8-6-1988 and variety of goods shown as 175 scrap. He was shown GD Notes dt. 8-6-1988 in which there is a mention of description of M.S. Scrap circles of 2 mm, 2.5 mm and M.S. Strips. On such examination, he has stated that:
"Such pieces cannot be declared as scrap unless they are fully deformed or rusty or pitted. I can only say that such sheet cutting should not have gone out of the factory of Bajaj Auto but could have been useful in our plant. Round about June/July 1988, as a matter of routine check myself and Mr. Modak intercepted one tempo which was being loaded with the vendor's scrap. We found out that there were certain rectangular cut pieces of approx. 18" by square in size in the matadore. Since the quantity of such cut pieces was large enough i.e. couple hundreds. We wanted to make sure that it was really a scrap. We, therefore, did not allow the material to go out. One sample piece of such cutting was then referred to General Manager (Works) and the guidelines were obtained to get certification from production planning and control department about the material being really a scrap not usable as such in the factory. After this incident we have been instructed to exercise more surprise checks as and when necessary to avoid such type of irregular movement of goods and valuable material under the guise of M.S. Scrap."
On cross examination, Sh. Athawale confirmed about the above statement and the guidelines laid down by General Manager to prevent good material being removed as scrap and thereafter no such incident occurred, on account of surprise checks.
(iii) The department had recorded the statement of Sh. Kishor Vasudev Kothurkar, Manager, Production and Planning in appellants' factory. He was also shown the said GP 1 Nos. 423 & 424; GD Notes 8768, 8770 dt. 8-6-1988 and variety of goods shown as M.S. Scrap. He has stated that such sheets cannot be declared as scrap unless they are deformed or rusty or pitted. He has also stated that such sheets should not have gone outside the factory.
In his cross examination, he has stated that the samples shown to him by the department were scrap. They procure M.S. Sheets of size of 1000 mm x 2000 mm, 125 mm x 2500 mm, 1500 mm x 3000 mm. The scrap is generated in press shop and in three wheeler body shop and that is stored in scrap yard, which is 30,000 square feet, and in open plot of land with roads on all the three sides. He submitted about the procedure laid down by the General Manager for determining the scrap and the procedures laid down by them. He also stated that the portion sent to scrap yard were not steel sheets.
(iv) Sh. Shankar Bayaji Madane, Manager Press Shop was also examined by department on 21-10-1988. In this statement he has given the details of different parts manufactured and the extent of M.S. Scrap generated, therein, which is to a tune of 900 to 1000 MT per month. He stated that 600 MT is reusable being of good quality and the selling ratio of such M.S. Scrap is much lighter than the rate of the melting M.S. Scrap, that is to say about 500/- or above. He was shown one seized sheet, from M/s. Proficient Die Makers for which he stated that it could not be considered as scrap. He was also cross-examined. He has stated that remnant of steel sheets after due punching could be considered as scrap. He also explained the procedure of eliminating and identifying the scrap, about the watchman specially posted to identify and remove good materials and to report about it to supervisor. On further re-examination of the sample shown to him at the time of recording statement, Sh. Madane stated that the said piece shown to him was scrap, and he denied having said to officers that it was a steel sheet. He further stated that the sample shown to me was not a scrap as it was l/5th portion of any sheet.
(v) Sh. Jugalkishore Babulal Baldeva, Senior Stores Officer was examined and statement recorded by department on 18-10-1988. He confirmed the following types of material sold to the vendors as scrap :-
(1) Strip-2" breadth x 2 feet long and circle 6" diameter or more wheel circle and rate of sale was Rs. 7500/- approximately per ton.
(2) Strip (less than 2" in breadth x 2 feet in length) and scrap in trimmings (i.e. off cuts) which they call as M.S. Sheet cuttings, generally sold at Rs. 5200/- per Ton.
He stated that such type of scrap is generated into the press shop disposal of which is done in the following manner:
(1) Part of such scrap as used in press shop for preparing the components of their own requirements viz. Ball-bearings, diaframs etc. Stearing column bracket are made from strips.
(2) Wheel Runs and circles etc. On being shown the GP No. 424 dt. 8-6-1988 and 8770 dt. 8-6-1988, he stated that it might have been cleared as scrap and it has utility for them and for outsiders also. Scrap sent to traders can also be utilised for preparing components. He was cross examined. On being asked as to why he resigned from M/s. Bajaj Auto Ltd., he gave the following reply:
"There was no human element in that organisation. Although I worked sincerely for several years, what I got in return was only bricks and stones. When I think of the officers of that organisation I feel like abusing them, therefore, I resigned.
(vi) Sh. Sharad Madhav Modak, Manager's (Materials) statement was also recorded on 6-8-1988. He has explained the method of selling the scrap (Ferrous and non-Ferrous). They advertised in the paper to sell the scrap and their categories and sealed tenders were invited from interested parties. When he was shown samples seized from the premises of M/s. Precimax Engineers, he replied that it cannot be used for manufacturing of any components. In his further statement dt. 2-11-1988 he confirmed that this piece could be used for manufacture of components and this was also a raw material for their factory also. He spoke about a loaded tempo with rectangular steel sheets measuring approximately 1 feet 1 /2 feet, which had been intercepted at the main gate, and the material was brought back and sent to press shop for further use. Later, after this incident they had adopted procedure for strict checks in consultation with general manager. He was also cross examined.
(vii) Sh. J.J. Mehta, Material Manager had also been examined and statement recorded on 4-11-1988. He was also cross examined. Likewise C. Dawsan, Assistant Manager (Materials), statement was recorded on 12-8-1988 and he had also been cross examined. The answers were all same as given by other witnesses.
(viii) Mr. Prasad, Junior Stores Officer in his cross examination has stated that the nature of scrap sold was M.S. Scrap, M.S. Turnings, assorted scrap, Aluminium borings, wooden scrap, M.S. Patties, M.S. Scrap meant off cuttings, trimmings, punching, circles etc.
15. We note below the evidence collected from the purchasers of scrap material :-
(i) Shri Ravindra Ramachandra Gholap, Proprietor of M/s. Precimax Engineers, in his statement dt. 8-7-1988 confirmed about the seizure of stocks from his factory, which had been purchased by him from M/s. Bajaj Auto. He confirmed using the such material in the past and that he was going to use this material also for manufacture of vehicle parts to be supplied to Bajaj Auto Ltd. He stated that he was not putting the material for remelting and mere used in the same condition. During the manufacture of components with these goods, about 40% scrap was generated, which was sold by him as waste scrap to the traders and it was not returned to the Bajaj. Such scrap could not be re-used and it was to be remelted, for recovery of metal. In his cross examination, he stated that he was using M.S. Sheets as raw materials sometimes brass sheets and he did not purchase M.S. Sheets from Bajaj Auto Ltd. but had purchased scrap. He had purchased scrap from open market and it was generally said that the Bajaj scrap is imported and the other Indian or Bokaro. He also stated that by looking he could not state that the scrap is of Bajaj Auto.
(ii) Sh. Narutirao Vithalrao Desai, authorised representative of M/s. Proficient Die Makers was also examined on 12-7-1988. His statement is identically noted as that of Sh. Gholap except he stated that scrap generated was 30%. In his cross examination he has stated that he used M.S. Sheets, M.S. Waste and Scrap as raw material and he purchases from open market and from Bajaj. He denied having M.S. Sheets from Bajaj Auto. On further examination he admitted that the piece 4 feet x 6 feet seized from his premises on 12-7-1988 was purchased by him from Bajaj Auto.
(iii) The statement of Sh. Kalian Bhutan Chaudhary partner of M/s. Regal Trading Co. was also recorded on 8-9-1988. He admitted purchasing from Bajaj Auto the following type of materials :
(i) M.S. Scrap
(ii) M.S. Patties
(iii) Steel Sheet Cover, Side Cover, Packing Strips
(iv) Wheel Reem Circles.
He denied having purchased M.S. Turning and borning [sic] scrap from them. The scrap generated in Bajaj was being sorted out in the above category and as per tenders paid the different scrap rates. He stated that ever sheet cuttings are sold by them, that could be used for manufacture of smaller machinery parts, foreg, locks, parts of cycles, electrical parts, Radio, Machine parts etc. and these sheet cuttings or wheel Reem Circles were not used for melting purposes, as it is not economically possible. He submitted that in his letter dt. 20-7-1988, admitted that during the period 1-7-1986 to 30-6-1988 had purchased 20,800 mts of M.S. Scrap from M/s. Bajaj Auto. They had lifted types of scrap, such as strips, patties circles etc. from July, 1986 to June, 1988 at the press ranging from Rs. 4617/- to Rs. 9687/- PMT, after the acceptance of tenders. In his cross examination he had stated that he had purchased scrap from M/s. Hindustan Motors, Calcutta, M/s. Telco, Pune and from M/s. Premier Auto Mobile Bombay. The scrap stored in Darmkhana gets mixed up and it is not possible to separate. They sell the scrap to manufacturer of key, locks, hardware items etc. and also to cycle parts. He denied having purchased M.S. Sheets from Bajaj Auto Ltd., Pune.
(iv) Similar statements have been recorded from Sh. Vishnu Prakash Mall, Director of Konkan Steel Ltd., Bombay. He has also confirmed purchase of M.S. Scrap from Bajaj Auto Ltd. In cross examination he stated that he had purchased only steel turnings and bornings and not steel sheets.
(v) Shri A.V. Desai, Partner, Bombay Engineering Co. has also confirmed in his cross examination that they were using CRCA Sheets, cut pieces and HR Sheets and denied having purchased steel sheets from Bajaj Auto. He admitted having purchased only steel scrap from them, for making press parts.
(vi) The statements of Sh. Divakar, Panch-witness, Nargolkar, Proprietor, Nargolkar Industries, Pune, Damodar Shivaram Budad, Prakash Ganpatrao Khopade were also in like nature that they were purchasing M.S. Patties from Bajaj Auto and also from outsider and nobody can refer the patties as steel sheets. Sh. N.V. Iyer, Manager in Automobile Products of India, also confirmed purchase of M.S. patties and scrap from Bajaj and confirmed that these materials cannot be regarded as M.S. Sheets. He also stated that M.S. Sheets were not purchased by him from Bajaj Auto. Mohmed Shamim Shaikh, partner of M/s. Lucky Scrap, Bombay, confirmed purchase of M.S. Scrap from Bajaj Auto, which consisted of cuttings and that they never purchased M.S. Sheets from [them] they sold it to various traders. Sh. Bhosale of A.M. Enterprise also denied having purchased any CRCA Sheets from Bajaj Auto Ltd. Sh. Prabhakar Vittal Rao Mankar, Proprietor, Ajanta Press has stated that he purchased end pieces and scrap from Bajaj of 6" x 10" width and did not purchase sheets. He supplied press parts to Bajaj Auto and to other customers like Videocon.
16. The department has also recorded a detailed statement of Sh. S.K. Tiwari, Manager (Materials). He has stated that scrap generated is the residue of certain manufacturing operations which are of various irregular shapes and sizes, such as trimming, punching, circles and patties and process rejection of sheet metal item. M.S. Turning and Borning is generated out of bars and tubes and forging of steel. He stated that M.S. Scrap means the sheet metal scrap generated, which is material reduced from certain press shop operations. Such scrap is of various irregular shapes and sizes. It also includes process rejection of sheet metal items. M.S. Patties, the scrap generated by press shop operations on sheets. Such scrap is having minimum width of 2" and minimum length of 2 feet. Assorted steel scrap (Excisable) consists of scrapped end pieces of bars and tubes, scrapped nuts and bolts etc. He also explained that Assorted Steel Scrap (Non-Excisable) consist of end pieces of civil construction material such as Tor Steel, Angles, Channels etc. on which MODVAT credit was not available. He explained that rejected CRCA Press components were not included in Assorted Steel Scrap. Steel Scrap was generated in press shop. M.S. Sheet Metal scrap generated in the press shop was dumped continuously into the scrap yard adjacent to press shop. From where the scrap dealers/vendors lifted the clearance were made on payment of duty. Scrap of M.S. Patties, and scrap of Wheel Reem Circles were sorted out and dumped in separate location in scrap yard. Scrap lifting was supervised to ensure correct type of scrap alone is loaded by the scrap dealer in the trade. He stated that M.S. Scrap is not their input and that they were not sending such scraps on 57F(2) Challan. Cut blanks were sent on 57F(2) Challan. He further stated that CRCA Steel Scrap is retained at the job worker's end which is generated out of raw material supplied by them under Rule 57F(2). However, by their letter dt. 25-8-1987, they had informed the superintendent, that they were liable to pay Excise duty on such scraps retained at job workers' end and that they were regularly paying duty for the scrap retained at job workers' end by calculating the quantum of scrap. The scrap retained is calculated based on the difference of weight of material supplied and the weight of finished goods received back by them. The duty paid is Rs. 365/- PMT as BED 5% of SED on BED on the scrap retained by the job worker's end. He further stated that the range of sizes of steel sheets sent to job workers under Rule 57F(2) challan is the same, which they purchase from their suppliers, for which statement dt. 2-8-1989 had been furnished. As regards M.S. Path', he denied having supplied to their job workers under Rule 57F(2). He confirmed having sent two sizes of circles (blanks) for processing to the job workers under Rule 57F(2).
(i) Code No. 00-0011-11 Size 2.00 mm Thickness x 140 mm dia
(ii) Code No. 00-0011-12 size 2.5 mm Thickness x 158 mm dia.
He stated that they were not paying duty on scrap sheet, covers and packing strips, since no MODVAT Credit was availed on the scrap sheet/covers/side covers/packing strips.
17. The statement of Sh. Madhav Bajaj, Chief Executive (Aurangabad Division) of Bajaj Auto Ltd. was also recorded on 2-3-1989.
18. The appellants have produced the affidavit of one Dr. R.D. Chaudhari, Professor of Metallurgy, College of Engineering, Pune. He has stated that at the request of Bajaj Auto Ltd., he carried out tests on M.S. Sheets and trimmings and M.S. Steel Sheets resulting after press shop operations in Bajaj Auto Ltd. The tests comprised of ascertaining the tensile strength, elongation and hardness. He has stated that when steel sheets undergo drawing operations in press shop, their tensile strength, elongation and hardness are always affected as indicated in the tests carried out. The result obtained are noted herein below:
"No. MET/5./7654 Metallurgical Testing and Consultancy
Services, College of Engineering,
Pune-411 005. Date: 14-3-1992
M/s. Bajaj Auto Ltd. Akurai,
Pune-411 035
Ref: - Your letter No. Nil of 13/3/92.
Sub: - Testing of Sheet Specimens.
Attn : - Mr. Katyal
SAMPLE Identify TEST REPORT
Marks: Physical Testing
--------------------------------------------------------------------------------
Sr. No. Tensile strength Percent Elonga- Hardness
Kg/mm2 tion H V10
(G.L.=10 mm)
1. S-1 sheet for body 29.3 43 94
half tool box side
2. S-2 sheet for body 29.4 40 91
half tool box side
3. T-1 Trimming of 39.2 10 121
body half tool box side
4. T-2 Trimming of 39.1 12 132
body half tool box side
Remarks : -The samples serial No. 1 and 2 conform to DIN 1623, RR st 14 grade. The samples serial No. 3 and 4 do not conform to DIN 1623, RR st 14 grade, which indicates that properties of original sheets have changed during processing."
19. The appellants have also produced the copy results of laboratory report in respect of fresh sheets and those of scrap. The same is reproduced herein below:
"Date 12-10-1992 LAB No. M588
LABORATORY REPORT
Item Description Sheet for Body Half, Tool Box Side (Fresh
Sheet)
Code No. 98020198
Quantity 2006 Kg.
1. CHEMICAL ANALYSIS Sheet size: D 9x1065x2085 mm
--------------------------------
On Mn.% Al%
-------------------------------- Remarks
0.04 0.14 0.04 Chemistry conforms to RRST14
grade, 28 DIN 1623-1972
------------------------------------------------------------------------------
2. HARDNESS (AS RECEIVED) 3. HARDNESS (AS QUENCHED) 85/90 HV 5 kg ()
------------------------------------------------------------------------------
4. VISUAL 5. MECHANICAL TESTING (GL 80mm INSPECTION/ T.S Elongation Breaking K Factor MAGNETIC KG/mm2 load CRACK 30.5 141 11.0
------------------------------------------------------------------------------
6. METALLOGRAPHIC (EXAMINATION)
------------------------------------------------------------------------------
7. GENERAL REMARKS Material conforms to RRST 14 as per DIN 1623-1972
------------------------------------------------------------------------------
NOTE 1. (S) Indicates analysis is done by spark or by spectroscope
or by spot lost. Hence these results are approximate.
2. Figures in ( ) indicate no of samples checked for the test.
3. (A) Indicates Analysis on Atomic Absorption.
Dy. GENERAL MANAGER LAB No. M8863/2
LABORATORY REPORT
Item Description Trimminig of Body Half, Tool Box Side
(Scrap) Code No.
Ref No. XXXXXX Inward QC/Tool Room Ref.
No.XXX Quantity XXX Heat No. XXX
1. CHEMICAL ANALYSIS
On Mn% Al% Remarks
------------------------------------------------------------------------------
.04 0.14 0.04 Chemistry conforms to RRST 14
grade as per 28 DIN 1623-1972
------------------------------------------------------------------------------
2. HARDNESS (AS RECEI- 3. HARDNESS (AS QUENCHED) VED) () ( )
------------------------------------------------------------------------------
4. VISUAL INSPECTION/ 5. MECHANICAL TESTING (gl-
MAGNETIC CRACK 80 mm)
T.S. Elongation Breaking K
Kg/mm2 10-00 Load factor
40.5
------------------------------------------------------------------------------
7. GENERAL REMARKS Hardness, tensile & % elongation value have considerably changed as compared to the original sheet, and the same don't conform to RRST 14 as per DIN 1623-1972.
------------------------------------------------------------------------------
Note 1. (S) Indicates analysis is done by spark or by spectroscope or by spot lost. Hence these results are approximate.
2. Figures in () indicate no. of samples checked for the test.
3. (A) Indicates Analysis on Atomic Absorption.
DY. GENERAL MANAGER"
20. The appellants have produced the extracts of the following authorities to plead that the material change and do not retain their characteristics on certain conditions. The extracts are from the following :-
(i) "Source Book on Forming of Steel Sheet"
A discriminative selection of outstanding articles from periodicals and reference literature complied by consulting Editor, Johan R. Newby Senior Staff Metallurgist Research and Technology Division Armco Steel Corporation. American Society for Metals.
(ii) "The Making Shaping and Treating of Steel" Edited by William T. Lankford, Jr. & three other published by United States Steel Chapter 8.
(iii) 1985 SAE The Engineering Resource for Advancing Mobility. Product of the operative Engineering programme. Vol. I Materials,
(iv) 'Press Work & Presses', A treatise on the problems of light press work, press-tool design, and press operation by J.A. Grainger second Edition Published by 'The Machinery Publishing Co. Ltd., London & Brighton.
(v) AIDA Press Hand Book by V.S. Chandhari published by Aida Engineering Ltd.
(vi) Indian Standard Specification for Cold Rolled Low Carbon Steel Sheets and Strips (Third Revision) IS: 513-1986 (superseding IS: 4030-1973)
(vii) British Standard 1449 :1956 Steel Plate Sheet and Strip published by British Standards Institution.
21. The extracts from "Source Book on Forming of Steel Sheet" pages 93, 95, etc. is given below :-
"Cold Reduction, Annealing & Temper Rolling
1. The percentage of cold reduction to final thickness is important. A greater reduction results in a finer, harder grain; a lesser reduction results in a coarser, softer grain, Too fine a grain size can cause breakage; too coarse can cause surface-granulation (roughening) on forming. The amount of reduction is approximately 50% - 70% to produce an optimum ferritic grain size of ASTN numbers 6 to 8 (approx.). For example, the cold reduction of 0.100" thick hot rolled coil to 0.040" is 60%. Reduction to 0.020" is 80% and results in finer grain, harder sheet; to 0.060" is 40% and results in a softer, but coarser grain sheet. Likewise, reductions from thicker or from thinner hot bands to the same final thickness (e.g. to 0.040") results in finer and harder, or coarser and softer cold-rolled sheets.
2. Proper annealing temperature (approximately 1200° - 1300° F for drawing quality) along with proper heating, hold and cooling rate determines the optimum in properties, grain size and carbon spheroidization.
3. Although cold-rolled sheets are sometimes used in the annealed last or dead soft condition (for unexposed applications), most cold-rolled sheets are temper rolled (skin rolled), especially when used for exposed applications. The amount of temper rolling is important and is determined by the and part application. Where formability is not important but as much as 2.0% which decreases drawability. Where deep drawing is required the amount of temper rolling is approximately 1.0% or less but sufficient for sheets to be free from stretcher strains when drawn.
The actual percentages of temper rolling can be regulated very closely, for 0.50% or 0.75% or 1.25%. The amount is usually a compromise between drawability and non-straining propensity. With rimmed and capped steel the effects of temper rolling are temporary, therefore, for optimum results, the sheets should be used as promptly as possible.
Mechanical Properties Hot-rolled and cold-rolled sheets, when specified as commercial quality, drawing quality or drawing quality special killed, are generally produced to make identified parts without guarantees on mechanical properties as rejection limits. However, after years of experience, producers and consumers have established guidelines of inspection, testing and acceptance which are usually negotiated and mutually agreed upon, based upon knowledge of end part application.
Some interesting observations are these :-
1. Thickness tolerances have been reduced in recent years as a benefit derived from improved automatic equipment. Also, a higher percentage of the material will generally be closer to the desired thickness than heretofore. Thickness tolerance can be applied equally or unequally, over and under but a recent trend has been to specify a minimum thickness with zero tolerance on the minus side.
2. Flatness is a standard rather than a process. Generally, there are two standards of flatness (commercial and stretcher levelled) which can be obtained by the use of various flattening methods such as roller levelling, tension levelling, special roller back-up levelling or by gripping and stretching. Flatness usually is not as critical for forming or drawing operations. In an effort to obtain better flatness, ductility must sometimes be sacrificed.
In the case of sheet steel, the thickness tolerance includes crown which is the amount that the sheet is thicker at the center than at the edge. Thickness is measured at any point across the width not less than 3/8 in. From a side, cut edge and not less than 3/4 in. From a mill edge (hot-rolled). The crown on hot-rolled sheets is generally not in excess of 0.004". The crown on cold-rolled sheets is generally not in excess of 0.001".
AGING Aging is a phenomenon in low carbon steel sheets that progressively changes their as rolled characteristics over a period of time. Aging can be expected with rimmed or capped steel. It can be minimized (in hot-rolled sheet) or nullified (in cold-rolled sheet) by the use of special killed steel, properly processed.
In rimmed or capped steels, its effect can be minimized by:
1. Prompt use of sheets, including proper rotation of stock so that older material is used first.
2. Effective roller levelling immediately before use. Roller levelling cannot restore ductibility lost by aging but it can minimize flating and stretcher straining, although not indefinitely.
Typical mechanical properties of the products are shown in the table that follows. For the same chemical composition, the properties are different for hot-rolled sheet and cold-rolled sheet, as well as from coil to coil or lot to lot of each product and each dimension, especially thickness. The variations in properties are greater for hot-rolled than for cold-rolled and the variations are greater for commercial quality than for drawing quality with variations at a minimum for special killed steel. An important point to bear in mind is that commercial quality does not connote a common set value for all sheets in shipment since some sheets would be as good as drawing quality. There is an overlap of property values for all qualities. The higher the quality the better and more uniform the properties.
Typical Mechanical Properties of Low Carbon Sheet Steel Hot-Rolled (0.2298" to 0.2299")
------------------------------------------------------------------------------
Hardness Tuekd Oiubt Tensile Tot. Elong.
Rockwell B 1000 psi Str.1000 in 2"
psi
------------------------------------------------------------------------------
CQ 50/70 28/40 45/56 28/56 DQ 44/60 26/36 42/52 34/42 DQSK 48/65 28/38 42/54 36/44------------------------------------------------------------------------------
Cold-Rolled (0.0239" to 0.1345")
------------------------------------------------------------------------------
CQ 40/60 28/36 40/48 36/41 DQ 38/48 25/32 40/46 38/43 DQSK 36/45 23/28 40/46 40/45------------------------------------------------------------------------------
CQ : Commercial Quality
DQ : Drawing Quality
DQSK : Drawing Quality Special Killed
Other test values are sometimes determined to better assess the formability of steel sheets such as uniform elongation (prior to local neck down), plastic strain ratio "r", work hardening exponent, along with test values obtained by various cup-drawing tools and procedures, such as the Olsen, Erichsen, Swift and Fukui tests.
DIMENSIONAL CHARACTERISTICS The tolerances for thickness, width, length, flatness, etc. are listed in various publications, such as ASTM A-568, AISI Carbon Sheet Manual (available in small pocket size) and in commercial brochures. In some cases, restricted tolerances are available, subject to negotiation.
3. Reduction of delay between draws. Insofar as possible, progressive forming and drawing, should be completed in prompt, successive stages. The frictional heat of the draw coupled with the delay between draws accelerates the aging.
4. By avoiding exposure of sheets to over-heated storage conditions.
Ageing progresses with TIME and with TEMPERATURE. It results in two major changes:
1. Loss of ductility accompanied by increase in hardness, yield point and tensile strength, with decrease in elongation.
2. Stretcher staining and flating when formed.
Although ageing occurs to some extent in hot-rolled sheets it is more critical in the case of cold-rolled sheets because of the thinness of the material and because of the importance of surface appearance when used for exposed applications.
The following is a simplified example of the phenomenon, illustrating the elimination of the yield point elongation (Y.P.E) by (Y.P.) and by the return of the yield point elongation (fluting and stretcher straining) in the case of rimmed or capped but never changing in the case of special killed steel. Special killed steel retains the same yield point, (Y.P.) as well as the same hardness and ductility, and when skin-passed as strain-free, retains its original non-fluting, non-staining characteristics. Curves B, E and F remain the same, therefore, formability and freedom from surface disturbances remain the same."
22. At page 154 of extract of '1968 Campbell Memorial Lecture' produced by the appellant, it is stated thus :
"Although strain ratio and strain hardening are the principal property parameters that determine the success in stamping a part without fracture, other properties are also important to the acceptability of a successfully formed part. For instance, if the sheet has a large yield elongation, areas of a stamping that are only slightly deformed plastically will show surface markings. These are variously called liiders lines, stretcher stains or probert lines, they disfigure the surface and may be the cause for rejection of the stamping.
Also, high yield strength in a sheet makes it necessary to increase hold-down pressures on the blank. This can change the draw-stretch situation, lead to buckling, and may even cause fracture."
23. At page 109 of Chapter 7 'Deep Drawing' in the Book "Press Work and Presses" it is stated :
"Die Design"
"Many factors come into play when designing dies on tools for deep drawing, and to use hit-and-miss methods or to delve blindly into a job without first giving due consideration to all the possible pitfalls and the means to be adopted in avoiding them, is to ask for trouble-and get it.
Very careful consideration should be given to every individual job, and all the snags liable to be encountered during manufacture disposed of, as far as possible before starting to tool-up. Tentatively, the number of operations and the sequence in which they are to be performed should be laid down, taking into account such things as the size and shape of the finished product, and the finished required or to be applied.
Any draw tool, whether for first, second or subsequent metal is stressed past its yield point to cause plastic flow, any considerable variation in the material will have a serious effect on its performance. Variation may exist in the consistency of grain structure, temper ductility, strength, analysis and guage size."
24. Indian Standard Specification for Cold Rolled Low Carbon Steel Sheets and Strips IS: 513: 1986 (Third Revision) has been approved by the Structural and Metals Division Council: para 0.2.1 states that:
"0.2.1 In this revision, the chemical composition requirements for the various grades have been, modified in line with the requirements of the consuming industries and the requirements for tensile properties have also been included.
0.3 Steel sheets and strips conforming to this standard are of weldable quality and are suitable both for fusion welding and resistance welding.
0.4. Cold rolled steel strips are available in a variety of types and finishes. In order to assist the manufacturers, it is recommended to the purchaser to indicate on the enquiry or order the purpose for which the material to be used. A drawing of the part in question would be useful.
0.4.1 Cold rolled steel strip is produced by cold rolling descaled hot rolled strip between plain rolls to obtain a bright surface, closely controlled thickness and variety of tempers. If it is intended to weld the strip, it should be clearly stated in the enquiry and order.
0.5 In cases where the manufacturer guarantees that the 'steel sheets or strips are suitable to make a particular part or for a given purpose' the steel should not be subject to rejection if there are minor variations from the specified chemical composition and/or mechanical properties for that steel. In such cases the purchaser when ordering the steel shall add the words 'suitable for making the part'.
0.5.1 If mutually agreed to between the manufacturer and the purchaser, material may be supplied only on a guarantee of performance in which case the rejection rate during processing and attributable to the quality of the material shall not exceed a mutually agreed limit.
0.6 For the purpose of deciding whether a particular requirement of this standard is complied with, the final value, observed or calculated, expressing the result of a test or analysis, shall be rounded off in accordance with IS: 2-1960. The number of significant places retained in the rounded off value should be the same as that of the specified value in this standard."
25. On a perusal of this IS: 513:1986, it is seen that a very strict specification and standards have been laid for sheets and strips and only of those standard and sheets are required to be utilised for manufacture of tools, and parts.
Para 3.3. lays down the tempers under which sheets and strips are required to be supplied.
3.3.2. States 'unless otherwise specified, cold rolled sheets and strips shall be supplied in annealed and skin passed conditions.
3.4 Non-ageing Characteristics 3.4.1. The manufacturer shall guarantee the absence of stretcher strains on being coif worked in the case of non-ageing quality D and DD grade material for a period of 6 months from the date of despatch.
3.4.2. EDD grade sheets and strips shall be supplied in non-ageing quantity with a non-ageing guarantee for 6 months from the date of despatch.
Para 6 lays down Mechanical and Physical Properties.
Para 7 lays down the specification for surface finish.
Para 8 Freedom From Defects 8.1 The finished sheets and strips shall be free from harmful defects, such as scales, rust, blisters, aminations, pitting, porosity, cracked or torpedges or any other defects which will impair spot welding and unified appearance of painted, electroplated and enamelled surface.
8.2 The degree or amount of surface defects in a coil may be expected to be more than in cut lengths because of the impossibility of rejecting portions of a coil. This shall be taken into account by the purchaser in his assessment of the material. An excessive amount of defects may be cause for rejection.
8.3 The sheets shall be reasonably flat and edges cleanly sheared and squared to the specified dimensions.
Para 9 deals with Dimensions and Dimensional Tolerances.
Para 10 deals with Sampling for Tests.
Para 11, Delivery Para 11.2, Packing Para 11.2.1 Each sheet shall be treated on both sides with non-hardening type rust preventive oil, which can be easily washed with aqueous alkali solution.
Para 11.2.2 Sheets and strips shall preferably be supplied in bundles or packages not weighing more than 3 tonnes as agreed to between the purchaser and the manufacturer.
Para 11.2.3 Sheets and strips shall be securely packed in waterproof material, and covered all over with steel envelope and securely tied round with steel strips and preferably with wooden battens underneath to prevent the sheets from rusting and damage during transit.
26. The British Standard Specifications for steel plate sheet and strip BS : 1449 :1956 also likewise lays down very strict specifications for the manufacture, supply, packing and handling of the material.
Para 3 states that :-
"The finished material shall be free from harmful defects, and flate, sheet and strip in flat cut lengths shall be commercially straight and flat.
If sheet is required specifically flat it shall be ordered as 'flattened'.
Strip supplied in coils shall be reasonably flat across the width and hot rolled strip shall be commercially straight along the edges."
27. We have to examine the case in the entire background of oral, documentory and scientific evidence in the form of literature, ISI and British Specification produced before us. It is pertinent to observe that the Section XV or Chapter 72 or Rule 57F does not lay down any criterion to determine the goods as "Waste and Scrap", except to use certain terminology and merely give a definition. It does not lay down any rules by which it could be determined as to whether the goods are rejected, thrown away worthless material as contended by the manufacturer, or they are still goods in its original form and should be considered for all purposes, and more particularly for discharge of duty. It is seen from the facts of this particular case that the department has not produced any evidence, to determine the 'waste and scrap' of the appellant's factory is not so, but it is the original goods alone. There is a great love for labour, to collect the statements from several persons, but unfortunately no efforts have been done either to analyse the statements or to consider the entire contentions of the appellants in the light of the controversy and evidence placed by them. It is a settled law that one who alleges should prove his case, and in absence of any proof or materials placed in support of the allegation, then, it is to be presumed that the allegations are bald and that there is no substance in the case and that case is. required to be rejected. It is also well settled that when material facts are not controverted and placed by either side, then also it should be presumed that there is no substance in the allegation or the defence taken and, therefore, the case is required to be rejected or accepted, as the case may be. In this case, the department has not sent the samples for any chemical analysis for test, nor have they produced any expert opinion or evidence on trade or commercial understanding of the term 'waste and scrap' vis-a-vis MS. Sheet. Besides, the department has not also controverted the evidence produced by the appellants. Therefore, on this ground alone, the contentions of the appellants required to be accepted and impugned order are required to be set aside.
27A. The department's allegation is :
(1) That the appellants had cleared the part of the said inputs for home consumption by declaring them as waste and scrap generated from processing of such inputs in the manner as provided under Rule 57F(4) by discharging the duty liability at the rate of Rs. 365/- PMT, as applicable to waste and scrap instead of paying duty in the manner under Rule 57F(i)(ii) for such inputs.
(2) That they were exploiting the benefit of reduced rate applicable to waste and scrap by fraudulently misusing the provisions of Rule 57F(4), in as much as they were clearing the pieces of M.S. Sheets usable for further manufacture of finished goods like locks, cycle parts, m.v. parts etc. by treating such inputs i.e. pieces of M.S. Sheets as waste and scrap and by applying the rate of duty pertaining to the scrap and thereby the differential duty is illegally pocketed by them. The allegation is that on verification of these samples that it was observed that they do not represent waste and scrap as statutorily defined but consists of M.S. Strips, Circles and Pieces.
28. Now, the department has referred to the utilisation by the buyers of these waste and scraps, namely, by M/s. Ramashan Engineering, M/s. Ajanta Press, Kirti Enterprises, A.M. Enterprise, M/s. Manas Industries, M/s. Prakash Engineering, and others to show that these removals of waste and scrap was wrongly described as such, all the while the materials were M.S. Strips, cutting and circles. It is also the case of the department that the M.S. strips, circles retain the essential characteristic of the M.S. sheet. As stated earlier, the department has failed to produce any technical evidences, expert opinions nor has sent the materials for test to obtain results of such chemical test, nor has controverted the enormous evidence of the appellants.
29. It is admitted position that there is a scrap yard in the appellants' factory, and all possible waste and scrap gets accumulated in open yard, and it gets mixed up. It is open to sky and exposed to atmospheric air, sun, light and rain. As can be seen from the ISI Specification and the British specification, such exposed materials are not fit for manufacture of parts. Both the specifications have laid down strict standards, including for packing and transporting. The technical books also refer to the strict manner in which the M.S. Sheets are to be manufactured and it should be to the specifications for use, for manufacture of the parts and accessories. The extract from the 'Source Book of Forming of Steel Sheet' points-out to the technical details of cold, reduction, annealing and Temper Rolling, to the mechanical properties, Ageing, process, dimentional characteristics. The/reading of other technical literature also emphasise the need to have the Steel Sheets to the standards and speaks about the problems, hazards and difficulties posed in using worthless materials or those technical flaws and repurcussiqns about it. It has also been pointed out that the drawing cutting of the steel sheets leaves on the cutting waste portions stresses, strains and also speaks of the structural and composition changes, which occurs, making the cut sheets as scrap and waste and also it loses its qualities. The extracts and figures from 'Campbell Memorial Lecture' gives details on such matters. The extract from 'The Making, Shaping and Treating of Steel' Chapter 8 deals about 'scrap for steel making'. The details from Tress Work and Presses' is a treatise on the problems of light press work, press tool design and press operations. This is a masterly work on the materials with standards and specifications to be chosen for manufacture of tools, parts through use of press work, press design and press operations. V.S. Chandhari's Book 'AIDA Press Handbook' deals about the mechanical changes, Age hardening, which comes about in M.S. Sheets. The appellants have produced test results to demonstrate that material manufactured from scrap are totally different in strength and quality, in as much as that they are brittle and hard. Therefore, it is seen that such scraps, do not satisfy several technical requirements, in the light and context of these technical materials, opinion on affidavit by Dr. R.D. Chandhari, Professor of Metallurgy, College of Engineering, Pune. The department has not brought any material to counter it, nor the ld. Collectors have discussed all these materials including the oral evidence on record. Thus the department have failed to prove their case. By a reading of these materials on record, it is clear that the materials cleared by the appellants is nothing but 'waste and scrap'.
30. Now, coming to the definition of the 'waste and scrap' as appearing in the Tariff and in Rule 57F. The definition of 'waste and scrap' as extracted above, is for the purpose of classification and the one appearing in Rule 57F is for the purpose of utilisation of MOD VAT. The appellant's understanding of ' the materials dumped in the scrap yard, and its trade understanding including the persons, who have dealt with it, is that it is a scrap material. The scrap dealers have purchased it as a waste and scrap. They have graded and separated those which could be purchased by persons, who could utilise it for making certain goods. Now, the question is with regard to the fact of utilising these waste and scrap material for manufacture of goods, will it make this as M.S. Sheet, strip, circles or cutting. The answer is in the negative. The technical literature, ISI Specification, British Specifications clearly states the quality, standard and specifications of M.S. Sheets, cuttings and for circles. A waste is a material, which could not be utilised for manufacture of original goods, for which it is intended. More particularly, these scraps, has lost all its scientific properties, requirements, technical and mechanical properties to be called as M.S. Sheet strips, circles or cuttings. Merely because they have same dimensions and sizes that by itself is not enough to grant such 'waste and scrap', the status of M.S. Strips, circle or a cutting. It requires to conform to high standards both technically, as and understood in trade circles. If scrap is considered as a good material, and which does not have any technical qualifications, then it would lead only to fraud, as such sale of junk would get passed off as good and standard materials. It would bring in ruination to the Engineering Standards. Mere use by some small manufacturer to manufacture some technically substandard goods, by itself is not the criteria to call a scrap as a technically sound M.S. Strips, circles or cutting. The criteria for giving the nomenclature of M.S. Sheets, strips, cuttings, circles etc. is not the utilisation of thrown away scrap and worthless materials by same SSI manufacturers, but it is the understanding given by technical and scientific understanding, the standards and specifications laid down by persons dealing with it by scientific institutions like ISI, British Specifications. The most important reason for establishing these institutions is to bring in Engineering and scientific standards in the use of raw materials in the manufacture of goods. The trade understanding in this case is also that these materials are waste and scrap materials.
31. The definitions in the Tariff prior to 1986 is: 'waste and scrap of iron or steel fit only for the recovery of material'. Undoubtedly, these materials are fit only for recovery of metal. The appellants has utilised a portion of such cut materials for manufacture of a few parts and also removed about 1% to 2% of their job workers for manufacture of parts. The department is claiming these items to be M.S. Sheets. However, we have disagreed on this aspect on the basis of enormous evidence and we hold that they cannot be called as M.S. Sheets, cuttings or circles. The further question is, can they be categorised as 'waste and scrap' in the light of the above definition in respect of these materials, alone, i.e. those which are utilised by appellants themselves and those removed to job workers. The answer is to be found in the wordings used in Rule 57F. The charge in the show cause notice is also pertaining to Rule 57(F) alone and that this is not the case of the classification of Classification List. Therefore, the issue is also to be examined in this limited perspective. The show cause notice also refers to the declaration filed under Rule 57(G)(1) for utilising the inputs in the manufacture of MV and components thereof for the purpose of Rule 57A. Therefore, the terms of 'waste and scrap' as employed in Rule 57F assumes importance and not the definition, given in the Central Excise Tariff Act, 1985, which is for the purpose of classification of goods. As noted by us, the M.S. scrap cutting cannot be called as M.S. Sheets, strips, circles or cuttings and circles, on account of the technical understanding referred to by us. The appellants are treating these items as 'waste and scrap'. They have dealt it as 'waste and scrap' and the same is also understood by all the parties, as scrap alone, including the job workers, the manufacturers, and the scrap dealers. Therefore, the goods have to be treated as 'waste and scrap' and not M.S. cuttings, and circles, even for the purpose of Rule 57F.
32. The Rule 57F(2)(a) permits of inputs for the purpose of test, repairs, refining, reconditioning or carrying out any other operations necessary for the manufacture of the final products and return to the factory, for further use in the manufacture of the final products, provided that the waste, if any, arising in the course of such operation is also returned to the said factory. The Rule 57F(2)(b) refers to the return of the waste, if any, arising in the course of manufacture, of such intermediate products, is also returned to the said factory, it need be returned, if the appropriate duty of excise leviable thereon has been paid. In this case, the party had removed 'waste and scrap' as input to the job worker and they had paid duty on the waste arising in the course of manufacture of final products, when the same has not been brought back.
33. Rule 57F(3) speaks of utilisation of credit of specified duty allowed in respect of any inputs, towards payment of duty of excise - (ii) on the waste, if any, arising in the course of manufacture of the final products.
Rule 57F(4) also states that:
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 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 VILA, 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 general or special order with regard to manner of disposal of such waste.
34. It is the department's case that what has been removed under Rule 57F(4) is not waste but M.S. Sheets. We have held that department has not proved their case, and that appellants have shown through evidence, that the material is not M.S. Sheets but waste and scrap. The department has not disputed that these 'waste and scrap' emerged in the course of manufacture. What Rule 57F contemplates is the emergence of waste in the course of manufacture of final products. In the manufacture of final products of Motor Vehicles, these M.S. scrap cuttings have undoubtedly emerged as waste and scrap, as these M.S. scrap cuttings cannot be again utilised for the manufacture of final products. It loses its utility as the M.S. Sheets, technically, as well as in trade parlance. It is fit only for recovery of metal. Incidentally, its utilisation for manufacture of other goods, from waste and scrap is of no consequences. A waste and scrap material does not become original material, it continues to be waste and scrap and its mere utility for further manufacture of some goods, does not make it a fresh original material. A similar view has been expressed by South Regional Bench in the case of Collector of Central Excise, Bangalore v. Mysore Polymers and Rubber Products (P) Ltd. as reported in 1990 (15) E.T.R. 757 at para (6) at page No. 759-760. The same is reproduced herein below:
"6. It is observed that the provision in Sub-rule (2) to Rule 56-A by Explanation make available the credit in respect of the inputs which may be contained in the waste, refuse or by-product came into the force sometime in 1981 and this provision has been specifically made to take care that the assessees may not be required to vary the credit because some waste, etc. arise 'during the process of manufacture' has to be understood with reference to the various processes, which take place culminating in the production at the end, of the product in respect of which benefit under Rule 56-A was allowed. Any defective product, which is accepted by the authorities as not marketable end-product, has to be considered as waste. A defective tyre and tube emerges because of some defect left in the product during the process of manufacture and hence it has to be considered that the cut tyres and tubes which are cleared, are the result of the activity during the manufacturing process. The departmental authorities themselves in the context of MODVAT credit under Rule 57-D(1), as evidenced by the Trade Notice No. 197/89, dated 20-10-1989 of Karnataka Collectorate, have taken this view. The Explanation added to Sub-rule (2) of Rule 56-A is of later date and it is to give relief to the manufacturers who, no doubt had utilised the inputs in the manufacturing stream for the intended purpose of manufacturing the end-product for which the credit had been allowed, but because of some defects in the manufacturing process or because of the inherent nature of the activity has to lose part of the inputs in the waste and by-products etc. In the face of the specific relief given the status of waste by-product and the credit to be taken in respect of the inputs contained therein has to be taken to be available to the appellants. In view of this I find no infirmity in the lower appellate authority's order and I uphold the same and dismiss the appeal of the Revenue."
35. In the case of I.C. & E. Morton (India) Limited and Ors. v. Superintendent of Central Excise, Chopra and Ors. as reported in 1980 (6) E.L.T. 99 the Hon'ble Calcutta High Court considered the question of dutiability of fallen bits and crusts taken from the floor or cleared from trays and dumped. The appellants had contended that their waste products are known as "scraps". The said scraps are unfit for human consumption and its consumption would be detrimental to human health. The Hon'ble High Court examined the question of manufacture in the light of Hon'ble Supreme Court's judgment rendered in the case of South Bihar Mills Ltd. v. Union of India, A.I.R. 1968 S.C. 922, and that of Union of India v. Delhi Cloth & General Mills, A.I.R. 1963 S.C. 791 and held that these scraps are broken parts of the boiled sweets and certainly they would not come within the definition of "confectionery" and excise duty is hence not leviable. The Court upheld the appellants' contention that the scraps are obtained 'in course of manufacture' and not 'out of manufacture' of confectionery. This ruling of the High Court is also relevant for the purpose of this case, as the 'Waste and Scrap' are different from the original M.S. Sheets as pointed out by us in the light of evidence on record. Likewise, the Hon'ble Bombay High Court in the case of Indian Aluminium Co. Ltd. and Ors. v. A.K. Bandyopadhyay and Ors. as reported in 1980 (6) E.L.T. 146 has held that dross and skimmings are merely the refuse, scum or rubbish thrown out in the process of manufacture of aluminium sheets and cannot be said to be arising as a result of treatment, labour or manipulation, thereby a new different article emerges with a distinctive name and character or use, which can ordinarily come in the market to be bought and sold. The Court has further held that merely because such refuse or scum may fetch some price in the market, it does not justify to be called as a by-product, much less as an end-product or a finished product. Therefore, the Court has held that they are neither 'goods' nor 'end-products' nor 'finished products' liable to duty under Item 27 of Central Excise Tariff. This ruling is also very relevant for the purpose of this case. As the refuse i.e. waste and scrap thrown out during the process of manufacture cannot by any stretch of imagination be considered as final original product i.e. M.S. Sheets, merely because the waste and scrap is being used by some small scale industrialists for manufacture of some items.
36. In the case of L.M.L. case, (supra) the Tribunal, on examination of the materials had found that the materials were M.S. cuttings and scrap. There had been no evidence placed by the appellants in that case both of technical, as well as trade and of understanding in commercial parlance, with regard to the material to be treated as scrap. Therefore, the Tribunal held the item to be not waste or scrap. Therefore, the facts of the cited case is clearly distinguishable.
37. In the amended Central Excise Tariff Act, 1988 in Section XV Note 6(a), 'waste and scrap' is defined as :
"Metal waste and scrap from manufacture or mechanical working of metals, and metals goods definitely not usable as such because of breakage, cutting up, wear or other reasons."
In this case the 'waste and scrap' has arisen from manufacture as well as from the mechanical working of metals. Therefore, we uphold the appellant's contention that the 'waste and scrap' arising in the course of manufacture satisfy the above definition on the basis of the evidence produced before us.
38. In the result the appellants succeed and the appeals are allowed.
Sd/-
(S.L. Peeran)
Dated 29-4-1994 Member (J)
ORDER
P.C. Jain, Member (T)
39. I have carefully perused the judgment proposed by my learned Brother, Shri S.L. Peeran. I regret with respect that I do not agree to all what has been said in the judgment nor to all the conclusions reached by him in respect of the various issues. I pass the following orders on the various issues involved herein.
39.1 Detailed facts have been set out in the proposed order of the learned Brother. I need not, therefore, recapitulate them. Briefly stated, both the units - at Aurangabad and Pune - of the appellant company bring duty paid steel sheets for manufacturing components of Motor Vehicles and Motor Vehicle Parts. For this purpose, they take MODVAT credit of duty paid on sheets. After making sheet metal parts for Motor Vehicles in their press shop out of such steel sheets, residue of the sheets is cleared as waste and scrap by debiting the duty payable on such scrap. Department's case that such so-called scrap should have been cleared by debiting the duty payable on sheets. This case is based on certain pieces of evidence such as (i) all the scrap has not been sold to scrap dealers, but to the appellant company's owner vendors/job-workers who, after making sheet metal parts out of such so-called waste and scrap, has sold such sheet metal parts to the appellant company's two units, (ii) even where the so-called scrap has been sold to scrap-dealers, those dealers, in turn have further sold such so-called scrap to various manufacturers for utilisation by the latter in manufacture to various steel articles of sheet metal of non-ISI grade; in the same way a steel sheet would have been put to use for manufacture of other articles.
40. From the evidence brought on record, it is apparent that the department was fully aware of the generation of the so-called 'waste & scrap' and its clearance by the appellants right from 1983 onwards in the case of Pune Unit and March 1986 in the case of Aurangabad Unit. Correspondence exchanged in the course of earlier adjudications, though no doubt on the dutiability of scrap rather than on the nature of scrap, clearly shows that the department was aware of the nature of so-called 'scrap' and yet never raised the issue, which it could, that such 'scrap' was not really 'scrap' but sheets. No allegation of wilful mis-statement or suppression of facts or contravention of any rule with intent to evade payment of duty can be sustained against the appellant company. Accordingly, I hold that the demand of duty would be confined to six months period as stipulated under Section 11A of the C.E. & S.A, 1944. There is thus an agreement with my learned brother on this point.
41. As regards the current issue of whether the so-called scrap is really 'waste and scrap' so that MODVAT credit is debited on the basis of the duty payable on waste and scrap or it is a 'sheet' warranting debit of duty payable on sheet, I am of the view that it is question of fact to be determined on examination of the goods. Thus question was examined by the Tribunal in the case of LML (supra). In this connection para 9 of the judgment is reproduced below for the guidance of the assessee and the assessing authority: -
"9. Nevertheless, on perusal of the samples produced during the course of hearing, we observe that there is bound to be a very thin line of difference between the off-cuts and 'waste and scrap'. No hard and fast rules for determining what is waste and scrap or what is off-cuts can be laid down. Each consignment of what is described as off-cuts by the appellants will have to be examined by the departmental officers and the use to which such a consignment is put has to be taken into account by such officers before they can be termed as 'off-cuts' or 'waste and scrap'. In the alternative since the appellants' factory is undertaking standard operations regularly in respect of sheets brought by them it may be possible by appointment of an export panel by .the Collector to examine which of the residues after undertaking the standard operations by the factory are 'off-cutts' or 'waste and scrap'. There can be a third alternative and that is that the appellants undertake to reduce off-cuts in such a manner to waste and scrap that it is fit only for recovery of metal and not for any other purpose to the satisfaction of the departmental officers. In that event the appellants can clear the goods on payment of appropriate duty applicable to waste and scrap.
9.1. There can be yet another alternative in that the appellants' unit undertakes to process the off-cuts into separate pieces of rectangular shapes in accordance with the definition in Chapter Note 1 (xviii) and the residue left thereafter can be cleared as 'waste and scrap' and pieces of rectangular shaped conforming to definition of sheets on payment of duty applicable to sheets.
9.2. We have suggested the foregoing various alternatives with a view to finding a solution to the problem keeping in view the operational necessity of an assessee and the need to prevent the possibility of an abuse. It is, however, essentially for the authorities to find an appropriate solution. We have no intention to impose procedure through a judgment in this appeal."
42. Learned Advocate, however, points out that the judgment of the Tribunal in LML's case would not be of much relevance in view of the changed definition of the expression 'waste and scrap' from "fit only for recovery of metal or for use in the manufacture of chemicals ... " is no longer current. Present definition as given in Section Note 6 to Section XV is :
"Metal waste and scrap from the manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting up, wear or other reasons."
Learned Advocate has stated that the 'waste and scrap' under consideration in this case is undoubtedly a result of the mechanical working of metal on account of press-shop work on the steel sheets. Since this part of the definition is satisfied, we need not go to the second part of the definition i.e. "metal goods definitely not usable as such... ". Another argument is that the definition envisages distinction between "metals" and "metal goods". Metal goods according to the learned advocate are articles of iron & steel available in the market such as steel utensils, pails, knifes, manhole covers etc. When these goods, over a long use are scrapped, these are to be treated as, metal waste and scrap
43. On the other hand, learned JDR, Shri S.K. Sharma, states that sheets are metal goods and if the left out portion after working on duty paid steel sheets is still capable of being used as sheets for which sheets are generally meant, such left out portion cannot be treated as waste and scrap. Duty is charged on sheets as flat-rolled products under Tariff Heading 72.08 sub-heading 7208.21 or 72.08.29). He submits that it is on record that the so-called 'waste and scrap' has been used - thus pointing out to the usability - for making sheet metal parts. In other words, the so-called scrap is usable as 'sheets'. Therefore, the so-called 'waste and scrap' cannot be treated as 'waste and scrap' for the purpose of clearance under Rule 57F.
44. I have carefully considered the pleas of both sides. MODVAT Credit Scheme is a Procedural Scheme for avoiding cascading effect of duty. Assessment of 'inputs' under that scheme is done on the basis of definition, description, interpretative rules etc. of the CETA, 1985. Therefore, there is no doubt that when 'waste and scrap' is required to pay duty under Rule 57F(4), it must conform to the definition of that expression in the CETA, 1985. If no definition is provided in the statute, then we may fall upon the commercial parlance test. This is the clear enunciation of law laid down by the Supreme Court in the case of Krishna Carbon, 1988 (37) E.L.T. 480. It is , therefore, clear that goods which are sought to be cleared under Rule 57F(4) as 'waste and scrap' must fulfill 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 1 of Chapter 72 and Heading 72.06 which speaks of "iron & non-alloy steel ingots or other Primary forms...". It is significant to note that 'Ferrous waste & scrap' falls under Heading 72.04 is Sub-section 1 of Chapter 72 pertaining to Primary materials etc. and is clubbed with remelting scrap ingots of iron & steel. Subsequent Headings 72.07, 72.08 describe the 'goods' as products. There is, therefore, substantial force in the learned 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.
45. But as stated in the judgment of LM.L, supra, there is a very thin line between 'waste and scrap' and 'sheet' (described as off-cut in that case). Each consignment will have to be examined to determine the usability of the 'goods' sought to be cleared.
46. Since the goods have already been cleared, for determining duty liability in terms of past six months from the show cause notices, documentary evidence will have to be taken into account to arrive at the findings of 'usability'. For this purpose, the matter is remanded to the adjudicating authority.
47. Appeals disposed of in the above terms.
Sd./-
(P.C. Jain)
Dated : 10-5-1994 Member (J)
POINT OF DIFFERENCE
Whether in the facts and circumstances of the case the residue left after mechanical operations on steel sheets undertaken by the appellants in their factory are to be treated as waste & scrap and duty is payable as at the rate applicable to waste and scrap in terms of Rule 57F, as held by the Judicial Member.
OR Whether such residue, as aforesaid, is to be treated as different from waste and scrap in terms of the said expression under Note 6 to Section XV of the CETA, 1985 on the basis of examination of each consignment claimed by the appellants as waste and scrap, as held by the Technical Member.
Sd./- Sd./-
(S.L. Peeran) (P.C. Jain)
Dated: 12-5-1994 Member (J) Member (T)
ORDER
K.S. Venkataramani, Member (T)
48. Shri Barucha, ld. Sr. Counsel for the appellants addressing his arguments on the point of difference, referred to the definition of the term 'waste and scrap' appeared in Section XV of the Central Excise Tariff Act, 1985 as has been reproduced in the proposed order. He made a detailed reference to the textual authorities already cited before the Referring Bench and brought out in the proposal order of Hon'ble Member (Judicial). The ld. Sr. Counsel urged that these authorities would clearly show that steel sheets have certain mechanical properties and specifications. These properties undergo changes during the processing of the steel sheets in the press. The Affidavit of Dr. R.D. Choudhari based on tests carried out also bears out this point. These changes are brought about by high temperature during the pressing operation and also ageing. There is also the mechanical strain ratio and the aspect of work hardening and strain hardening of the sheets. The textual authorities show that the changes in the mechanical properties during the metal working is an accepted feature. The ld. Sr. Counsel relied upon the Hon'ble Member (Judicial) order from paras 27 to 30 and para 34 in this regard. Referring to the order of the Hon'ble Member (Technical), para 44 thereof, the ld. Sr. Counsel submitted that the sheets cannot be held as metal goods as has been found by the Hon'ble Member (Tech.) The tariff deals with metal in Chapter 72 and metal goods in Chapter 73 and in this context, the ld. Sr. Counsel pleaded that the sheets are only metal and not metal goods. He has, further, contended that even taking them as metal goods, they will still be waste and scrap after being put to use as sheets and having undergone cutting up and thereby became scrap and it is not usable as such thereafter. The evidence of scrap dealers was also referred to for saying that the goods are not metal sheets. The appellants themselves regarded the goods as scrap which is evident in their own advertisement for the disposal of the sheets.
49. The ld. S.D.R., Sh. B.K. Singh supported the order of the Hon'ble Member (Technical) and argued that the definition of the term 'waste and scrap' in the tariff as given in Section XV, Section Note 6 is paramount and relied upon the case law reported in 1990 (45) E.L.T. 490 in the case of Collector of Central Excise v. ESKAYEF Limited to say that statutory definition is to be preferred in place of commercial understanding. He also in this context relied upon the Supreme Court decision in the case of Collector of Central Excise v. Krishna Carbon Paper -1988 (37) E.L.T. 480. The question to be answered is only whether the sheets, herein, answer to the definition of waste and scrap as given in the Central Excise Tariff Act. The ld. S.D.R. urged that the changes of mechanical properties in processing is not, in such a context, material. He also relied upon the Supreme Court decision in the case of Akbar Badruddin Jiwani v. Collector of Customs -1990 (47) E.L.T. 161 (S.C.) to say that where there is a tariff definition, recourse to commercial understanding and trade parlance is not warranted. The ld. S.D.R. also contended that the definition of the term in the HSN Explanatory Note is also relevant. Chapter 72 covers products like angles, sheets and sections. The ld. S.D.R. pointed out that the ratio of the Tribunal decision in the case of LML Ltd. v. Collector of Central Excise -1989 (44) E.L.T. 119 clearly applied to this case.
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 Harmonised System which would help reduce classification disputes." The Budget instructions by the Finance Ministry explaining the changes 1988 (15) E.C.R. 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 powder form; (b) iron and non-alloy steel (c) Stainless Steel and (d) Other alloy steel; hollow drill bars 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 of the Explanatory Note under Heading 72.04. The definition of the term 'waste and scrap' under SI. 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 refashioned into other goods without first being recovered as 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 Cannonore Spg. & Wvg. Mills v. Collector of Central Excise, Cochin -1978 (2) E.L.T. 0 375) 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, in as much 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 aides 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 usable 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 finding of "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.
Sd/-
(K.S. Venkataramani) Member (T) 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 'Wasted Scrap' is usable as sheet, it cannot be termed as 'Waste and Scrap'. On clearance of 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.