2008 (1) TMI 308 - AT - Central Excise

Manufacture of Sugar & Molasses - appellant received insurance claim against surrendering of damaged machine to the Insurance Co. revenue alleged that the transaction amounted to the clearance to the damaged machine and duty is payable on the amount of insurance claim u/r 57S(2)(c) Rule 57S(2)(c) was not in force during relevant period - held that when there was no provision for demand of duty on the waste & scrap of the capital goods during the material period, demand is not sustainable

Summary

Issues:
1. Liability to pay duty on insurance claim received for damaged machines during financial year 2000-2001.
2. Applicability of Rule 57S(2)(c) of the erstwhile Central Excise Rules, 1944.
3. Barred by limitation for issuing show cause notice.
4. Interpretation of provisions regarding duty on clearance of damaged capital goods.

Analysis:

Issue 1: Liability to pay duty on insurance claim for damaged machines
The case involved the appellants, engaged in the manufacture of Sugar and Molasses, who received an insurance claim for a damaged Cane Milling plant during the financial year 2000-2001. The dispute arose regarding whether the transaction of surrendering the damaged machine for the insurance claim amounted to clearance of the damaged machine, attracting duty payment under Rule 57S(2)(c) of the erstwhile Central Excise Rules, 1944.

Issue 2: Applicability of Rule 57S(2)(c)
The appellant argued that the insurance claim was received after 1-4-2000, and Rule 57S(2)(c) was applicable only until 31-3-2000. Citing precedents, the appellant contended that there was no provision for duty payment for clearance of capital goods post the specified period. The Tribunal's decision in similar cases supported the appellant's argument regarding the absence of duty liability on waste and scrap arising during the use or dismantling of capital goods.

Issue 3: Limitation for issuing show cause notice
The appellant raised the issue of limitation, asserting that the demand was time-barred as the show cause notice was issued on 26-8-2004. This limitation aspect was crucial in determining the validity of the demand for duty payment on the insurance claim received for the damaged machines.

Issue 4: Interpretation of duty provisions on clearance of damaged capital goods
The Tribunal analyzed the provisions under Rule 57S(2)(c) and relevant precedents to conclude that during the material period, there was no provision for demanding duty on waste and scrap of capital goods. The absence of a manufacturing process and the nature of wear and tear, waste, and scrap arising during the use or dismantling of capital goods were deemed not chargeable to duty. Consequently, the Tribunal set aside the impugned order, allowing the appeal with consequential relief.

In conclusion, the Tribunal's judgment revolved around the interpretation of duty liability on insurance claims for damaged machines, applicability of specific rules, limitation for issuing notices, and the absence of duty provisions for waste and scrap of capital goods during the relevant period. The decision provided clarity on the duty implications in such scenarios, emphasizing the legal framework and precedents to support its findings.