2004 (2) TMI 545 - AT - Central Excise

Summary

Issues:
Demand of duty on plastic scraps cleared to job workers under Rule 57F(3) of Central Excise Rules, 1944.

Analysis:
The issue in this case pertains to the demand of duty on plastic scraps cleared by the appellants to their job workers under Rule 57F(3) of the Central Excise Rules, 1944. The appellants manufacture plastic containers from plastic granules and take input credit for the duty paid on the granules. During the manufacturing process, plastic cuttings emerge, which are sent to job workers for conversion into plastic granules. The departmental authorities considered these cuttings as "waste and scrap," arguing that duty should have been paid on them. On the other hand, the appellants contended that these materials are reusable and can be sent to job workers under Rule 57F(2) of the Central Excise Rules. The show cause notice alleged that the waste material is neither an "input" nor a "partially processed input" and therefore cannot be cleared under Rule 57F(2), leading to the lower authorities ruling against the appellants and prompting the appeal.

Upon hearing both sides, the judge noted that the lower authorities emphasized that the material under removal is deemed "waste and scrap," suggesting that removal under Rule 57F(3) without duty payment is impermissible. However, the judge observed that even though the material may be classified as "waste and scrap," it is derived after subjecting virgin plastic granules to a manufacturing process, making it an input obtained through processing. The waste material in question qualifies as a partially processed input, as the final goods, i.e., containers, were obtained by subjecting the plastic granules to molding. Therefore, the removal of the plastic waste to a job worker falls under sub-clause (b) of Rule 57F(2), allowing for the removal of partially processed inputs for the manufacture of intermediate products and their return to the appellant factory. In this case, the waste material was ground by the job worker into reusable granules, which were returned to the appellant factory for further processing. Thus, demanding duty payment based on Rule 57F(3) conditions when the removal falls under Rule 57F(2)(b) is deemed incorrect.

Consequently, the judge held that no duty is necessary for the removal of scrap and waste, leading to the setting aside of the lower authorities' orders. As a result, the appeal was allowed, and the orders of the lower authorities were overturned, with consequential relief to be provided in accordance with the law.