2010 (1) TMI 1059 - AT - Central Excise

Summary

Issues:
Department's appeal against the order of Commissioner (Appeals) upholding respondent's favor due to clearance of CRGO scrap treated as unused CRGO sheets.

Analysis:
The Department filed an appeal against the Commissioner (Appeals) order favoring the respondent, who is a manufacturer of AMT Transformers procuring CRGO sheets as inputs. The audit revealed clearance of 2,940 kgs. of CRGO scrap, leading to a show cause notice proposing a demand of Rs. 65,950 under Rule 3(5) of Cenvat Credit Rules. The original authority dropped proceedings after considering the respondent's submissions, but the Commissioner reviewed the order under Section 35E(2) of Central Excise Act, directing appeal filing before Commissioner (Appeals), who also upheld the original authority's decision.

The Department argued that the scrap of CRGO sheets cleared by the respondent should be treated as CRGO sheets under Section Note 8 to Section XV of Central Excise Tariff Act, 1985. However, the Commissioner (Appeals) detailed the manufacturing process undertaken by the respondent, clarifying that the waste and scrap cleared were not unused CRGO sheets but remnants from the manufacturing process. The CRGO strips developed defects during manufacturing, rendering them unsuitable for transformer core production, thus classified as waste and scrap under the Tariff Act.

The Tribunal noted that the Department's contention that the cleared items were CRGO sheets was incorrect. The respondents were users, not manufacturers, of CRGO sheets, and the waste and scrap arising during transformer manufacture were sold as CRGO waste and scrap. Therefore, treating the clearance as CRGO sheets and invoking Rule 3(5) was unjustified. Upholding the Department's appeal would only lead to unnecessary litigation without merit. Consequently, the appeal by the Department against the Commissioner (Appeals) findings was rejected, maintaining the decision in favor of the respondent.