1997 (2) TMI 104 - SC - Central Excise

Whether the input of pig iron ultimately bears the full burden of excise duty as leviable on the said pig iron at a stage when the said input results into the final product? Held that - When the amount of excise duty so recovered on 90 metric tons of steel ingots which had exhausted the entire pig iron, accounted for full duty on the entire quantity of input of pig iron, it is difficult to appreciate as to how the very same quantity of 100 metric tons of pig iron as input can again be subjected to excise duty because a further unintended product of 10 metric tons of steel scrap also resulted from the very same process of manufacture undertaken by the appellant in its steel making furnace. Consequently, it must be held that the impugned demands of excise duty clearly resulted in seeking to recover excise duty twice on the input of pig iron utilised by the appellant in manufacturing the final product of steel ingots and which in the same process as a by-product gave rise to steel scrap which was fully exempted from excise duty on account of the concerned exemption Notification. Thus the impugned demand of duty on the supposed embedded input of pig iron which resulted into the steel melting scrap were clearly unauthorized and incompetent. The appellant is entitled to succeed on this ground alone. In the result, the appeal is allowed.

Issues Involved:
1. Classification and duty on steel melting scrap.
2. Exemption and set-off under relevant notifications.
3. Validity of show cause notices and demand for excise duty.
4. Double taxation on input materials.

Issue-wise Detailed Analysis:

1. Classification and Duty on Steel Melting Scrap:
The appellant, a government-owned company, manufactures pig iron, steel ingots, and steel products at its Durgapur Steel Plant (DSP). The process involves converting iron ore into pig iron, which is then used to produce steel ingots. During this process, steel melting scrap is generated. The appellant argued that steel melting scrap should be classified under Tariff Item 26 and is exempt from duty due to Notification No. 150/77. The Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) upheld the demand for duty on iron in crude form used in manufacturing steel melting scrap, which was contested by the appellant.

2. Exemption and Set-off Under Relevant Notifications:
The appellant contended that the clearance of steel melting scrap was governed by Notification No. 150/77, which allowed exemption from duty. Additionally, Notification No. 18/71-C.E. provided a set-off for duty paid on iron in crude form against the duty payable on steel ingots and steel melting scrap. The appellant argued that the entire input of pig iron was used in manufacturing steel ingots, which had already borne full excise duty, and thus, no further duty should be imposed on the steel melting scrap.

3. Validity of Show Cause Notices and Demand for Excise Duty:
The show cause notices issued to the appellant alleged non-payment of duty on iron in crude form contained in steel melting scrap. The notices covered periods from December 1977 to September 1980 and April 1981 to October 1981, demanding a total duty of approximately Rs. 25.50 lakhs. The CEGAT quashed demands for periods beyond six months from the issue of the notices but upheld demands within the six-month period, amounting to about Rs. 6 lakhs. The appellant argued that these demands were unauthorized and not sustainable in law.

4. Double Taxation on Input Materials:
The Supreme Court found that the CEGAT erred in sustaining the impugned demands. The court noted that the entire input of pig iron was used in manufacturing steel ingots, which bore full excise duty. The steel melting scrap, being a by-product, was exempt from duty under Notification No. 150/77. The court held that imposing duty on the input of pig iron embedded in the steel melting scrap would result in double taxation, as the same input had already been taxed when it was used to produce steel ingots.

Conclusion:
The Supreme Court allowed the appeal, setting aside the CEGAT's order and quashing the impugned demands. The court directed the Collector of Central Excise, Bolpur, to process the refund of Rs. 6 lakhs deposited by the appellant in accordance with the law and the decision in Mafatlal Industries Ltd. v. Union of India. The court emphasized that the appellant should not be placed in a disadvantageous position due to the "later the better" principle followed with the concurrence of the excise authorities. The judgment highlighted that the entire input of pig iron had been accounted for in the duty paid on steel ingots, and thus, no further duty could be imposed on the steel melting scrap.

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