2011 (4) TMI 1168 - AT - Central Excise

Dutiability to ferrous waste - ferrous waste is generated out of worn out items like nuts and bolts, valves and other parts which were used as part of the capital goods in the factory premises of the appellants. - generation of ferrous waste during the manufacturing process or not - Held that - it cannot be accepted that such wearing out of the product was not in relation to the process of manufacturing of the final product. It is not that merely a product which goes directly in the manufacturing process those can generate the ferrous waste which can be subjected to duty liability. Even the part of the capital goods which periodically wear out on account of manufacturing process then such wearing out will be in relation to the manufacturing process. Determination of assessable value - held that - While ascertaining the assessable value, the duty remain will have to be deducted from the assessable value, items nuts and bolts procured by the appellants, duty paid thereon has been merged as credit of the appellants, decision about dutiability of the products does not call for any interference. However, regarding ascertaining the assessable value, the matter will have to be remanded to adjudicating authority, as regard of penalty no interference is warranted, appeals disposed of

Summary

Issues:
1. Challenge to dutiability of ferrous waste rejected by Commissioner (Appeals).
2. Interpretation of Section Note 8 to Section XV of the Central Excise Tariff Act.
3. Duty liability on worn out products including parts of capital goods.
4. Application of Chapter Note 7 to Section XV of the Central Excise Tariff Act.
5. Waste and scrap generated in the course of manufacture.
6. Applicability of duty liability on waste and scrap.
7. Assessable value determination and duty liability quantification.
8. Penalty imposition.

Detailed Analysis:
1. The appeals arose from a common order passed by the Commissioner (Appeals), rejecting the challenge to the dutiability of ferrous waste. The appellants contended that the ferrous waste was not generated in the process of manufacturing final products and should not be subjected to duty liability. The Assistant Commissioner and Commissioner (Appeals) rejected this contention, leading to the appeals.

2. The appellants argued that according to Section Note 8 to Section XV of the Central Excise Tariff Act, worn out items forming part of capital goods should not be considered as items manufactured as waste or scrap. They claimed that since the ferrous waste was neither manufactured nor generated in the manufacturing process, it should not be subjected to duty liability.

3. The dispute centered on whether worn out parts of capital goods, such as nuts and bolts, which were periodically replaced and sold as ferrous waste, should be subject to duty liability. The Tribunal emphasized that if parts of capital goods wear out in the manufacturing process of the final product, such wear and tear are considered part of the manufacturing process, justifying duty liability on the resulting waste and scrap.

4. The Tribunal distinguished the applicability of Chapter Note 7 to Section XV of the Central Excise Tariff Act in the context of waste and scrap generated in the course of breaking locomotives. It was held that the waste generated in the factory did not fall under the categories covered by Chapter Note 7, emphasizing the specific circumstances of the case.

5. Referring to past judgments, the Tribunal highlighted that waste and scrap generated in the manufacturing process are not subject to duty liability. Cases involving the rejection of duty liability on waste and scrap, such as rubber compound waste and polyethylene film scrap, were discussed to support the principle that waste generated in manufacturing processes is typically not dutiable.

6. The Tribunal concluded that the ferrous waste generated from worn out nuts and bolts in the manufacturing process should be subjected to duty liability, as it is considered waste and scrap resulting from the manufacturing activities. The duty liability was upheld, and the matter of ascertaining the assessable value for quantifying the duty liability was remanded to the adjudicating authority.

7. Regarding penalty imposition, the Tribunal found no interference warranted based on the facts and circumstances of the case. The appeals were disposed of accordingly, with the duty liability upheld and the assessment of assessable value remanded for further determination in accordance with the law.