2009 (11) TMI 391 - AT - Central Excise

Cenvat Credit- Show cause notices were issued alleging that the said scrap sold by them known in common trade parlance as waste and scrap of iron and steel products were clearly different in terms of its characteristics and usages and therefore classifiable under Chapter sub-heading No. 7205.90. The disputed goods have arisen out of capital goods on which Cenvat credit was not taken by them. Therefore, the question of treating them as waste and scrap arisen during the course of manufacture does not arise. Held that- impugned items not to be treated as generated during course of manufacture. Note 8(a) of Section XV of central Excise Tariff not relevant to such operation. Impugned item not liable to duty.

Summary

Issues:
Classification of M.S. Scrap under Central Excise Tariff Act - Chapter sub-heading No. 7205.90.
Levy of duty on scrap arisen during dismantling of old machinery.
Applicability of Section Note regarding scrap arisen during manufacture.
Interpretation of relevant case laws on scrap generation during dismantling.

Analysis:

Issue 1: Classification of M.S. Scrap under Central Excise Tariff Act
The appeal involved the classification of M.S. Scrap generated from dismantling worn-out machinery under Chapter sub-heading No. 7205.90 of the Central Excise Tariff Act. The dispute arose as to whether the scrap should be classified as waste and scrap of iron and steel products, leading to the imposition of duty.

Issue 2: Levy of duty on scrap arisen during dismantling of old machinery
The appellant argued that they were not manufacturers of iron and steel products but had only dismantled old machinery during repair and maintenance, resulting in the generation of scrap. The contention was that since the scrap arose from capital goods on which no Cenvat credit was taken, it should not be treated as waste and scrap arising during manufacture, thereby challenging the duty imposition.

Issue 3: Applicability of Section Note regarding scrap arisen during manufacture
The Department relied on Section Note No. 8(a) of Section-XV of the Central Excise Tariff Act to allege that the scrap generated during dismantling constituted goods arisen during the course of manufacture, justifying the duty imposition. However, the Tribunal found that the scrap in question had arisen out of capital goods on which no credit was taken, leading to a different interpretation of the applicability of the Section Note.

Issue 4: Interpretation of relevant case laws on scrap generation during dismantling
The Tribunal referred to the decision in the case of Commissioner of Central Excise v. Birla Corporation Ltd. and the High Court decision in Hindustan Zinc Ltd. to support the appellant's argument that waste and scrap generated during dismantling or repair activities do not amount to the manufacture of goods. This interpretation played a crucial role in determining that the scrapping of capital goods during dismantling does not constitute generation during the course of manufacture, ultimately leading to the setting aside of the impugned orders and allowing the appeal with consequential relief.

This comprehensive analysis of the judgment highlights the key legal issues, arguments presented by both sides, relevant legal provisions, and the Tribunal's interpretation of case laws, resulting in the decision to allow the appeal and provide relief to the appellant.