2008 (7) TMI 79 - HC - Central Excise

Excisibility of Waste and Scrap arising out of cutting of M.S. Sheet Plates for repair and maintenance of the plant and machinery - Any process incidental to completion of manufactured product also amounts to manufacture so, activity of bringing about a part in work-shop by mechanical process (from plated and sheets) amount to manufacture hence waste and scrap arising due to manufacturing of spare parts are excisable revenue s appeal allowed

Issues Involved:
1. Leviability of excise duty on waste and scrap generated by cutting of plates, sheets, etc. during the course of repair and maintenance of plant and machinery.
2. Categorization of scrap into three categories by the Commissioner (Appeals).
3. Applicability of the definition of waste and scrap under Section Note 8(a) of Section XV of the Central Excise Tariff Act.
4. Interpretation of the term "manufacture" under Section 2(f) of the Central Excise Act, 1944.
5. Reliance on previous judgments by the Tribunal and their applicability to the present case.

Detailed Analysis:

1. Leviability of Excise Duty on Waste and Scrap:
The primary issue in this case was whether the waste and scrap generated by the assessee during the repair and maintenance of plant and machinery were liable to excise duty. The Tribunal had previously ruled that such scrap did not arise from any manufacturing activity and hence, was not subject to excise duty. However, the High Court disagreed, stating that the process undertaken by the assessee was covered by the expression "mechanical working of metal" as given in the definition of waste and scrap under Section Note 8(a) of Section XV of the Central Excise Tariff Act.

2. Categorization of Scrap:
The Commissioner (Appeals) categorized the waste and scrap into three categories:
- Waste & scrap generated by cutting of plates, sheets, etc. during repair and maintenance.
- Waste & scrap generated by dismantling of capital goods/machinery.
- Waste and scrap of containers/packing material of inputs.
The High Court upheld this categorization and focused on the first category, which was found to be liable to excise duty.

3. Definition under Section Note 8(a):
The definition of waste and scrap under Section Note 8(a) includes "metal waste and scrap from the manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting-up, wear or other reasons." The High Court interpreted this to mean that the metal waste and scrap generated in the process of repair and maintenance, which involves mechanical working of metals, falls under this definition and is therefore excisable.

4. Interpretation of "Manufacture" under Section 2(f):
Section 2(f) of the Central Excise Act defines "manufacture" to include any process incidental or ancillary to the completion of a manufactured product. The High Court held that the process of creating spare parts for plant and machinery during repair and maintenance qualifies as a manufacturing process. Consequently, the waste and scrap generated in this process are considered to have arisen from manufacturing activity and are subject to excise duty.

5. Reliance on Previous Judgments:
The Tribunal had relied on the judgment in Commissioner of Central Excise Vs. Birla Corporation, which dealt with scrap arising from wear and tear of machinery. The High Court found this reliance misplaced as the Birla Corporation case related to the second category of scrap (dismantling of capital goods) and not the first category (cutting of plates and sheets). The High Court also considered other judgments, including those in Budhewal Co-op Sugar Mills Ltd. and SIV Industries Ltd., which supported the Revenue's position that waste and scrap generated from mechanical working of metals are excisable.

Conclusion:
The High Court concluded that the Tribunal erred in dropping the demand and penalty on the clearance of waste and scrap arising from the cutting of M.S. Sheet Plates during repair and maintenance. The judgment of the Tribunal was set aside, and the order of the Commissioner (Appeals) was restored, confirming the excise duty liability on the first category of scrap.

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