2019 (9) TMI 1499 - AT - Central Excise

CENVAT credit - removal of input as such - segregation of Aluminium scrap before charging the scrap to furnace and removal of unwanted items like iron, etc. - removal on payment of applicable rate of duty - applicability of Rule 3 (5) of CCR Rules - HELD THAT - Although the activities of manual segregation of the scrap does not amount to manufacture, but in view of the Board s Circular dated 10.05.2016, which is binding on the Authorities and the same being clarificatory in nature will have retrospective affect, it is held that the appellants have rightly cleared the segregated scraps at the transaction value as per its appropriate classification and the rate of duty given in the Central Excise Tariff. The demand is bad and the show cause notice is not maintainable - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the demand raised by the Revenue treating the removal of foreign materials from Aluminium scrap as removal of inputs under Rule 3(5) of CCR Rules is correct.

Analysis:
The case involved a manufacturer of Aluminium Extrusions using Aluminium scrap as raw material. The Revenue raised a demand by considering the removal of foreign materials like iron, steel, etc., from the scrap before feeding it into the furnace as removal of inputs under Rule 3(5) of CCR Rules. The Revenue contended that the appellant had short paid duty by not reversing the duty at the same rate as the segregated metals were removed and duty was paid on the transaction value. The show cause notice was adjudicated, confirming a demand of ?1,65,00,887/- along with interest and penalty.

In the earlier round of litigation, the Tribunal allowed the appeal by remanding the case based on a Board's Circular clarifying that segregating impurities from scrap does not amount to removal of inputs as such under Rule 3(5) of CCR 2004. The Tribunal directed the Adjudicating Authority to reconsider the issue in light of the Circular. The Revenue appealed to the High Court, which directed the Authority to determine whether the segregation activity amounts to manufacture and if the Circular applies to the case.

The Commissioner, in the impugned order, found that the Circular was not applicable as the appellant procured Aluminium Mix Scrap and sold the segregated iron scrap without reversing the Cenvat credit. The Commissioner held that the segregation process did not amount to manufacture and the iron scrap was required to be cleared in accordance with Rule 3(5) of the Central Excise Rules 2004.

Upon hearing the contentions, the Tribunal held that the manual segregation of scrap did not constitute manufacture. However, considering the binding nature of the Board's Circular and its clarificatory retrospective effect, the appellants were deemed to have correctly cleared the segregated scraps at the transaction value and appropriate classification rate. Consequently, the demand was deemed invalid, the show cause notice was held not maintainable, and the appeal was allowed with consequential benefits as per law.