2010 (2) TMI 396 - AT - Central Excise

Cenvat Credit- The appellants use SS flats as primary raw materials for manufacture of cold rolled patta/patti falling under sub-heading 7219.90. The said scrap is being treated by the Department as SS scrap and sought to be classified under sub-heading 7204.21 which attracted nil rate of duty as per the tariff till 28th February, 2005 and thereafter exempted by Notification No. 3/2005-C.E., dated 24th February, 2005. The original authority held that the appellants are manufacturing dutiable SS cold rolled patta/patti and exempted SS scrap and that they have not maintained separate accounts in respect of SS flats which go into manufacture of exempted SS scrap and therefore, they are required to pay the amounts in terms of Rule 6(3)(b) of Cenvat Credit Rules, 2004. Accordingly, he confirmed the duty and interest and imposed penalties. The orders of the original authority stand upheld by the Commissioner (Appeals). Held that- Waste and the scrap have arisen in an integrated process and the entire inputs of SS flats stands utilised for the purpose of manufacture of SS cold rolled patta/patti. This fact is not in dispute. The scrap has arisen only as a by-product. The ratio of the decision of the Tribunal in the case of Narmada Gelatines Limited and the decision of the Hon ble Bombay High Court in the case of Rallis India Limited will apply to the facts of the present case. In view of the above, the orders of the Commissioner (Appeals) are set aside and the appeals are allowed with consequential relief as per law.

Summary

Issues:
1. Classification of scrap under sub-heading 7204.21
2. Application of Rule 6(3)(b) of Cenvat Credit Rules
3. Interpretation of Cenvat Credit Rules and imposition of penalties

Classification of Scrap under Sub-heading 7204.21:
The appeals involved the classification of scrap under sub-heading 7204.21, which attracted nil rate of duty until February 28, 2005, and was exempted thereafter. The original authority held that the appellants were manufacturing dutiable SS cold rolled patta/patti and exempted SS scrap, requiring them to pay amounts under Rule 6(3)(b) of Cenvat Credit Rules, 2004. The Commissioner (Appeals) upheld the duty demand, interest, and penalties. The Chartered Accountant for the appellants argued that they did not intend to manufacture scrap, as the SS flats were fully utilized in the production of SS cold rolled products, and any arising scrap was incidental. The Tribunal considered the entire inputs were used for the intended purpose, and since the inputs were fully utilized in the manufacture of dutiable final products, denying credit for the exempted by-product did not apply.

Application of Rule 6(3)(b) of Cenvat Credit Rules:
In Appeal No. E/2348/2007, the original authority dropped proceedings, but the Commissioner (Appeals) applied Rule 6(3)(b) of Cenvat Credit Rules, confirming the duty demand, interest, and penalties. The Chartered Accountant argued that part of the demand was time-barred and that the issue related to the interpretation of Cenvat Credit Rules, not penalties. The Department sought to uphold the Commissioner (Appeals)'s order, emphasizing that there was no provision disallowing credit for inputs wasted in the manufacturing process. The Tribunal considered the issue and found that the waste and scrap arose in an integrated process, with the entire inputs utilized for the production of SS cold rolled patta/patti, leading to the allowance of the appeals.

Interpretation of Cenvat Credit Rules and Imposition of Penalties:
The Chartered Accountant cited various decisions to support the appellants' position, emphasizing that the inputs were fully utilized for the intended manufacturing purpose. The Department reiterated the Commissioner (Appeals)'s findings, arguing against the applicability of certain provisions. The Tribunal analyzed the submissions, noting that the waste and scrap were incidental to the manufacturing process and that the inputs were entirely used for the production of dutiable final products. Citing relevant precedents, the Tribunal set aside the Commissioner (Appeals)'s orders, allowing the appeals with consequential relief as per law.

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