2016 (3) TMI 1137 - AT - Central Excise

Levy of duty - MS Scrap - manufacture of Sponge Iron, falling under Chapter 72 of the Central Excise Tariff Act, 1985 - During the process, MS Scrap generated, which were sold by the appellant without payment of Central Excise duty. Non-payment of Central Excise duty on the MS Scrap was disputed by the Central Excise Department - decision in the case of Hindustan Zinc Ltd. vs CCE Jaipur-II, 2011 (5) TMI 715 - CESTAT, NEW DELHI relied upon by the learned DR - Held that - It is an admitted fact on record that MS Scrap was generated from MS Plate, Angles, Channels etc. Since generation of scrap was not arisen out of any manufacturing process, in my view, the appellant is not required to pay any Central Excise duty on removal of those scrap items. I find from the available records that the Department has alleged contravention of Rule 4 and 8 of the Central Excise Rules, 2002. Since scrap is not manufactured by the appellant, the said provisions have no application, because the said Rules provide for payment of duty on removal of excisable goods from the factory. In the present case, Rule 14 of the Cenvat Credit Rules has not been invoked for demanding the irregularly availed cenvat credit on the M.S. Plates, Angles, Channels etc. The decision of this Tribunal in the case of Hindustan Zinc Ltd. cited by Ld. DR is distinguishable from the facts of the present case inasmuch as the issue involved in that case relates to reversal of cenvat credit on removal of waste and scrap from the factory. Whereas, the issue involved in this case relates to payment of duty on removal of scrap from the factory and not reversal of cenvat credit. Since M.S. Scrap is not excisable goods for the appellant, I am of the considered view that invocation of Section 11A is not proper and justified for confirmation of duty demand. Therefore, I do not find any merits in the impugned order. Appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
1. Availment of cenvat credit on steel items and sale of MS Scrap without payment of Central Excise duty.
2. Interpretation of Rule 4(1) and Rule 8(1) of the Central Excise Rules, 2002 regarding duty payment on scrap items.
3. Applicability of Rule 14 of the Cenvat Credit Rules in demanding irregularly availed cenvat credit.
4. Comparison of the present case with the decision in Hindustan Zinc Ltd. vs CCE Jaipur-II regarding duty payment on scrap items.

Analysis:
1. The appellant availed cenvat credit on various steel items for repair and maintenance activities, resulting in the generation of MS Scrap, which was sold without payment of Central Excise duty. The Central Excise Department disputed the non-payment, leading to the issuance of a Show Cause Notice (SCN) and subsequent adjudication confirming duty demand, interest, and penalties.

2. The appellant argued that the scrap generated from cenvated steel items used for repair and maintenance activities should not be subject to Central Excise duty as they are not excisable goods. The Department invoked Rule 4(1) and Rule 8(1) of the Central Excise Rules, 2002, claiming that the scrap should be considered manufactured goods, thus liable for duty payment.

3. The Tribunal observed that since the scrap was not a result of a manufacturing process, the appellant was not obligated to pay Central Excise duty on its removal. Rule 4 and 8, which pertain to payment of duty on removal of excisable goods, were deemed inapplicable as the scrap was not manufactured by the appellant.

4. Rule 14 of the Cenvat Credit Rules was not invoked in demanding the irregularly availed cenvat credit on the steel items. The Tribunal distinguished the present case from the Hindustan Zinc Ltd. judgment, noting that it involved the reversal of cenvat credit on waste and scrap removal, unlike the duty payment issue in the current case. The Tribunal concluded that since MS Scrap was not excisable goods for the appellant, invoking Section 11A for duty confirmation was unwarranted, leading to the allowance of the appellant's appeal.