2007 (1) TMI 18 - AT - Central Excise

Cenvat/Modvat Revenue alleged that iron ore fines were not used in the manufacture of sponge iron and therefore the modvat credit relatable to such fines could not have been availed after considering the fact authority rejected the revenue allegation

Summary

Issues Involved:
1. Eligibility of Modvat/Cenvat credit on iron ore fines.
2. Classification of iron ore fines as waste.
3. Limitation period for issuing show cause notices.
4. Applicability of Rule 57AB for clearance of iron ore fines.

Detailed Analysis:

1. Eligibility of Modvat/Cenvat Credit on Iron Ore Fines:
The primary issue revolves around whether the iron ore fines generated during the manufacturing process of sponge iron can be considered as waste and thus eligible for Modvat/Cenvat credit. The Tribunal analyzed the generation of iron ore fines in three stages:
- Stage 1: Iron ore pellets received in the factory contain fines, which are separated by screening.
- Stage 2: Fines generated during internal handling and transportation.
- Stage 3: Unreacted fines generated post-reduction process during washing.

The Tribunal concluded that the fines generated in these stages are a natural phenomenon and an inevitable part of the manufacturing process. Since the fines cannot be used in the manufacturing process and are considered waste, they fall under the purview of Rule 57D, which allows credit for inputs that become waste in or in relation to the manufacture of final products.

2. Classification of Iron Ore Fines as Waste:
The Tribunal examined whether iron ore fines could be classified as waste. It was noted that the fines were not usable in the manufacturing process of sponge iron and were considered waste by the appellant. The Tribunal supported this classification by referencing affidavits and technical details provided by the appellant, which demonstrated that fines could cause operational issues if used in the reactor. The Tribunal also noted that the fines were eventually sold to cement factories, further supporting their classification as waste.

3. Limitation Period for Issuing Show Cause Notices:
The Tribunal addressed the issue of the limitation period for issuing show cause notices. It was argued that the appellant had informed the authorities about the sale of iron ore fines and had filed classification lists for clearing such fines on payment of duty. Therefore, the Tribunal concluded that the extended period for limitation could not be invoked as the appellant had acted transparently and with the knowledge of the department.

4. Applicability of Rule 57AB for Clearance of Iron Ore Fines:
The Tribunal examined whether the clearance of iron ore fines should be treated as the clearance of inputs as such, which would require reversing the credit availed as per Rule 57AB. Since the fines were classified as waste and not as inputs, the Tribunal held that Rule 57AB was not applicable. The fines were correctly cleared on payment of applicable duty at the price at which they were sold.

Conclusion:
The Tribunal dismissed the Revenue's appeals and allowed the appellant's appeal, concluding that the iron ore fines generated during the manufacturing process were indeed waste and eligible for Modvat/Cenvat credit. The Tribunal also upheld that the clearance of these fines did not attract the provisions of Rule 57AB. The appeals were disposed of accordingly, with the Tribunal pronouncing the judgment in favor of the appellant.