2013 (3) TMI 605 - HC - Central Excise

Denial of MODVAT Credit - Capital goods - Held that - Iron scrap and metal scrap arise in the process of repair and maintenance of machinery and cement manufacturing plant has no contribution or effect on the process of manufacturing cement, which is excisable end-product. Repairing activity cannot be called as part of manufacturing activity in relation to production of end-product - In case of cement manufacture, the metal scrap and waste arise only when the assessee undertakes repairing and maintenance work of capital goods and do not arise during the course of regular manufacturing. But in the case of manufacturing of ribbed bars or other goods, the aforesaid scraps are necessary products which generate during the course of process and therefore the case of Grasim Cement (2011 (10) TMI 2 - SUPREME COURT OF INDIA) is distinguishable on the ground of facts. - in absence of any declaration required under Rule 57G of the Rules, 1944, by passing the order impugned, the CEGAT has not committed any illegality requiring any interference. - Decided against assessee.

Issues:
1. Invocation of supervisory jurisdiction under Article 227 for quashing of certain orders.
2. Denial of MODVAT credit due to failure to declare processed scrap under Rule 57G.
3. Maintainability of petition due to alternative remedy before the Supreme Court.
4. Distinction in the contribution of iron scrap in different manufacturing processes.
5. Interpretation of rules regarding MODVAT credit and declaration requirements.
6. Application of legal principles from the case of Grasim Industries Limited.
7. Consideration of facts and legal arguments in deciding on the legality of orders.

Analysis:
1. The petitioner sought to use supervisory jurisdiction under Article 227 to challenge the denial of MODVAT credit for not declaring processed scrap under Rule 57G. The respondent argued the availability of an alternative remedy before the Supreme Court under Section 35L of the Act of 1944.

2. The petitioner, engaged in manufacturing iron and steel products, faced denial of MODVAT credit for not declaring processed scrap. The Collector affirmed the liability, imposing a penalty later modified by respondent No. 2. The petitioner's application for rectification was rejected, leading to the current petition.

3. The respondents contended that the petition was not maintainable as the petitioner had an alternative remedy before the Supreme Court. The issue revolved around the essential declaration requirements under Rule 57H of the Rules, 1944, and the distinction between waste material and usable scrap in manufacturing processes.

4. The argument centered on the contribution of iron scrap to the manufacturing process of ribbed bars compared to its role in cement manufacturing, referencing the case of Grasim Industries Limited. The distinction was crucial in determining the excisability and declaration obligations under the rules.

5. The CEGAT's observation highlighted the importance of specific inclusion of scrap in the declaration under Rule 57G for availing MODVAT credit. The denial of credit was based on the failure to declare various types of scrap, emphasizing the necessity of compliance with declaration requirements.

6. Legal principles from the Grasim Industries case were invoked to distinguish the contribution of scrap in different manufacturing processes. The Supreme Court's interpretation emphasized the distinction between incidental scrap arising from repair activities and essential products generated during regular manufacturing processes.

7. Considering the arguments and facts presented, the CEGAT found no illegality in the orders passed by the authorities. The absence of required declarations under Rule 57G justified the decisions made, leading to the dismissal of the petition without costs.

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