2017 (12) TMI 1296 - AT - Central Excise

Demand of duty - defective components - Held that - it is not in dispute that the defective / damaged components have not been manufactured in the appellants factory - similar issue came for consideration before the Tribunal in the case of Panasonic Energy India Co. Ltd. vs. CCE, Indore, 2016 (11) TMI 1283 - CESTAT-New Delhi , where it was held that These scrap/waste/paring also cannot be considered as intermediate product or by product during the course of manufacture of any excisable goods, scrap of paper cannot be considered as a product different from the paper and Mere mentioning in the tariff is not sufficient to attract excise levy - demand not sustained - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Duty liability on defective components procured from outside for use in manufacturing tractors exempt from excise duty.

Analysis:

The appeal before the Appellate Tribunal CESTAT NEW DELHI revolved around the duty demand raised by the Revenue on defective components procured from outside by the appellant for use in manufacturing tractors exempt from excise duty. The dispute stemmed from the Revenue's contention that the appellant was required to discharge duty on such unfit or damaged components found during the manufacturing process. Initially, the duty demand was dropped by the adjudicating authority, but it was later confirmed by the Commissioner(A), leading to the filing of the present appeal.

During the hearing, the appellant's counsel argued that the demand was unsustainable as the defective or damaged components were never manufactured by the appellant but were procured from external sources. It was emphasized that since these components did not arise from the mechanical working of metals process, they could not be classified as scrap. On the other hand, the Revenue justified the duty demand by referring to the definition of waste and scrap under section note 8(a) of Section Note 2 of Section XV, which covers metal goods rendered unusable due to breakage or other reasons.

After considering the arguments and examining the records, the Tribunal found that the defective or damaged components in question were not manufactured in the appellant's factory but were purchased for use in the manufacturing of tractors. These components, upon being found unfit or damaged during the manufacturing process, were treated as waste and scrap. The Tribunal concluded that since the damaged goods were procured from outside after duty payment and were not manufactured by the appellant, the section note invoked by the Revenue did not apply to these goods.

In support of its decision, the Tribunal cited a similar case involving Panasonic Energy India Co. Ltd., where it was held that the appellant, not being engaged in the manufacture of the relevant goods but merely using them as inputs, could not be considered as manufacturing waste or scrap. Relying on this precedent and the principle that the emergence of waste or scrap must result in a new product to attract excise levy, the Tribunal set aside the impugned order and allowed the appeal, emphasizing that the duty demand on the defective components was unjustified in the circumstances presented.

In conclusion, the Tribunal's decision clarified that duty liability on defective components procured from external sources for use in manufacturing exempt goods does not apply, as long as the defective goods were not manufactured by the appellant but were purchased and treated as waste and scrap during the manufacturing process.