2017 (5) TMI 1342 - AT - Central Excise

Valuation - scrap - job-work - scrap generated at the job workers end should have been returned to appellant, but the same was retained by job workers who sell the same directly, for which value at ₹ 4/- per kg is predetermined and adjusted for calculating and paying machined rates to the job workers - Held that - the adoption of assessable value of ₹ 4/- per kg by the appellant for calculating their duty liability on the scrap generated at the job workers end cannot be then disputed by the department. There can be no further demand of duty on the generated physically available scrap other than that discharged by appellant on value of ₹ 4/- per kg. In consequence, there will also be no penalty in respect of the duty liability discharged by this manner. Coming to the duty liability on burning/transportation loss, irrecovable scrap, we find that the learned counsel has conceded the same. However, he prays for cum-duty benefit - Held that - while maintaining the notional value of the quantum involved on such process loss etc. at ₹ 4/- per kg., the appellants are extended cum-duty benefit for purposes of calculating their duty liability thereon - the matter is remanded back to the adjudicating authority for revised calculation of duty liability. Penalty - Held that - it is not in dispute that the appellants have paid the entire duty liability at the rate of ₹ 4/- per kg even before issue of SCN, hence, in our considered opinion, the beneficiary provisions of Section 11AC can be applied and the appellants will have to pay penalty equal to only 25% of the duty liability. Appeal allowed by way of remand.

Summary

Issues:
- Discharge of duty liability on scrap value
- Discrepancy in duty payment on scrap generated
- Dispute over assessable value of scrap
- Cum-duty benefit on burning loss/irrecoverable scrap
- Penalty imposition and calculation

Discharge of duty liability on scrap value:
The appellants, manufacturers of components, sent forged components to job workers for machining operations under CENVAT Credit Rules. The job workers retained scrap generated and sold it directly, with a predetermined value of ?4 per kg adjusted for calculating and paying machined rates. The duty was discharged monthly based on the scrap generated. The department found a discrepancy in duty payment on the scrap generated at job workers' premises. The Commissioner confirmed the duty liability but redetermined it to ?21,73,538, imposing penalties. The appellant argued for cum-duty benefit on irrecoverable scrap.

Discrepancy in duty payment on scrap generated:
The department alleged duty non-payment on 36.75% of scrap generated at job workers' premises. The appellant contended that 20% of the quantity was irrecoverable scrap. The department insisted on a higher assessable value of ?5.80 per kg for the scrap. The tribunal found no grounds for adopting a higher value, stating that the value of scrap generated at the appellant's factory differed from that at job workers' premises. The department failed to prove the higher value's necessity or the job workers' actual selling price.

Dispute over assessable value of scrap:
The tribunal upheld the appellant's use of ?4 per kg for duty liability calculation on scrap generated at job workers' premises. It ruled out any further demand for duty beyond what was discharged at ?4 per kg. The absence of evidence supporting the department's claim for a higher value led to the dismissal of the demand for additional duty.

Cum-duty benefit on burning loss/irrecoverable scrap:
The tribunal agreed to extend cum-duty benefit to the appellants for burning loss/irrecoverable scrap. Since no duty liability was collected on such losses, the duty liability was calculated at ?4 per kg. The matter was remanded for revised duty liability calculation based on this consideration.

Penalty imposition and calculation:
The tribunal applied Section 11AC beneficiary provisions, reducing the penalty to 25% of the redetermined duty liability on irrecoverable scrap due to the appellants' prior payment of the entire duty at ?4 per kg. The penalty was imposed only on the quantum of duty liability related to irrecoverable scrap.