2005 (4) TMI 495 - AT - Central Excise

Demand - Waste and scrap - Cenvat/Modvat - Job work - Words and Phrases - Appropriate duty - Penalty and interest - Imposition of

Summary

Issues:
1. Duty liability on waste and scrap generated during the manufacturing process.
2. Interpretation of Rule 57F(5) regarding duty payment on waste and scrap.
3. Applicability of larger period of limitation.
4. Discharge of duty liability by the main manufacturer.
5. Penalty under Section 11AC and interest under Section 11AB.

Analysis:

Issue 1: Duty liability on waste and scrap generated during the manufacturing process
The appellant, a manufacturer of Steel Products, sent inputs to a job worker for further processing. The contention was whether the duty liability on waste and scrap generated during this process falls on the job worker or the main manufacturer who availed the credit. The Tribunal held that under the Modvat scheme, the duty on such waste and scrap is to be paid by the person who took the credit, i.e., the main manufacturer. The requirement of bringing back the scrap to the manufacturer's premises is essential to maintain a complete account of inputs. The duty liability cannot be shifted to the job worker, as emphasized in previous judgments.

Issue 2: Interpretation of Rule 57F(5) regarding duty payment on waste and scrap
The Tribunal rejected the appellant's argument that the duty liability should be on the job worker if eligible for SSI exemption. It clarified that "appropriate duty" in Rule 57F(5) refers to duty payable by the principal manufacturer, not the job worker. The duty liability under the Modvat scheme rests with the main manufacturer, irrespective of the job worker's exemption status.

Issue 3: Applicability of larger period of limitation
The Tribunal ruled that the larger period of limitation is applicable in this case, as there was no suppression on the part of the appellant. Consequently, no penalty under Section 11AC was imposed due to the period of dispute being before September 1996.

Issue 4: Discharge of duty liability by the main manufacturer
The lower authority rightly rejected the appellant's claim that duty on scrap was partially discharged by the job worker. The burden of proof lies on the main manufacturer to demonstrate duty payment on the scrap generated during processing, not through mere assertions but by producing relevant documents.

Issue 5: Penalty under Section 11AC and interest under Section 11AB
The Tribunal set aside the penalty under Section 11AC and demand for interest under Section 11AB, as they were not deemed demandable for the period before September 1996.

In conclusion, the appeal was partly allowed, and the matter was remanded to the original authority for accurate determination of duty on the scrap, specifically verifying the duty paid on a portion of the inputs removed for processing. The main manufacturer was directed to discharge the duty liability accordingly, with a reminder to hear the appellants before making a final decision.