2023 (2) TMI 138 - AT - Central Excise

Process amounting to manufacture or not - plastic scrap - One of the raw materials used by the respondent is the lead scrap which is not duty paid and no CENVAT credit was availed on it, this scrap needs cleaning to separate non-lead elements such as plastics before it can be molten to manufacture lead ingots/lead rods - Revenue felt that duty should be paid on the plastic scrap so separated and sold by the respondent because it had arisen during the process of manufacture of the final products, viz., lead ingots or lead rods. HELD THAT - According to the respondent, manufacture begins after the scrap is segregated manually. This manual segregation of scrap is neither manufacture by itself nor can it be called a process ancillary to manufacture. Since there is no process of manufacture, no central excise duty can be charged. The submission of the respondent deserves to be accepted - We do not agree with the revenue that segregation of scrap to remove the unwanted components from the lead scrap is a process of manufacture. It is only a process of segregation of raw materials; manufacture begins thereafter. Therefore, no duty can be charged on the plastic and other scrap segregated from the input scrap. CBEC s circular dated 10.05.2016 does not carry the case of Revenue any further. This circular dealt with two questions. First, where a mixed scrap is fed into the foundry and some components of the scrap with higher melting points such as iron, steel, slag, etc. get separated as foundry waste it has been clarified to be a process waste as it arises out of the process. Second, where CENVAT credit availed scrap is segregated before feeding into the plant, the circular clarified that the removed unwanted scrap cannot be treated as removal of inputs as such under Rule 3(5) of the CENVAT Credit Rules, 2004 and therefore, there is no need to reverse the credit - In the present case, no CENVAT credit was availed at all on the input scrap. If duty has to be determined on merits, it needs to be first of all examined if the charging section of the Act applies. Section 3 levies duties of excise on excisable goods produced or manufactured in India. In the factual matrix of this case, the respondent is neither manufacturing nor is it producing the plastic scrap. The plastic scrap already exists and the respondent is only separating it manually from the rest of the scrap. Therefore, even if this circular is considered, no central excise duty can be charged. Appeal of Revenue dismissed.

Summary

Issues:
1. Whether excise duty is applicable on plastic scrap separated during the manufacturing process?
2. Interpretation of the definition of "manufacture" under section 2(f) of the Central Excise Act, 1944.
3. Applicability of CBEC's circular dated 10.5.2016 on the case.

Analysis:
1. The case involved a dispute regarding the applicability of excise duty on plastic scrap separated during the manufacturing process of lead ingots/lead rods. The Revenue contended that the plastic scrap arising during the segregation process should be treated as manufactured and subjected to excise duty. On the other hand, the respondent argued that the manual segregation of scrap is not a manufacturing process, and hence, no duty should be charged on the separated scrap.

2. The interpretation of the definition of "manufacture" under section 2(f) of the Act was crucial in determining the tax liability. The definition includes processes incidental to the completion of a manufactured product. The Revenue argued that the segregation process qualifies as manufacture under this definition, warranting the imposition of excise duty. However, the respondent maintained that the segregation process is merely a preparatory step and does not constitute manufacturing, hence excise duty should not apply.

3. The applicability of CBEC's circular dated 10.5.2016 was also contested. The circular addressed scenarios involving the segregation of scrap materials. While the Revenue relied on the circular to support their claim for duty imposition, the respondent argued that the circular was not relevant to the manual segregation process in question. The Tribunal concluded that the circular did not support the Revenue's position and upheld the respondent's argument that no excise duty should be charged on the separated plastic scrap.

In conclusion, the Tribunal upheld the impugned order, ruling in favor of the respondent. It was determined that the manual segregation of scrap to remove unwanted components did not amount to manufacturing, and therefore, no excise duty was applicable on the plastic scrap sold by the respondent. The Tribunal dismissed the Revenue's appeal, emphasizing that the process of segregation was not tantamount to manufacturing under the Central Excise Act.