1998 (2) TMI 215 - AT - Central Excise

Summary

Issues:
Deemed credit availability for waste and scrap of iron and steel under Government order dated 7-4-1986.
Appellants' entitlement to deemed credit under the Government order.
Interpretation of Heading No. 72.03 of the Central Excise Tariff Act, 1985.
Appellants' compliance with departmental instructions regarding deemed credit.
Penal action against the appellants for contravening Central Excise Rules.

Analysis:
The appeal was filed against the order of the Additional Collector of Central Excise, Meerut dated 18-9-1997. The appellants, who are manufacturers of Steel Ingots, sought deemed credit for waste and scrap of iron and steel under the Government order dated 7-4-1986. Despite their belief in entitlement to the credit, the Additional Collector directed them not to take credit on 'old and used' scrap of iron and steel. The appellants argued that the waste and scrap they used fell under Heading No. 72.03 of the Tariff and should be eligible for deemed credit as per the Government's order. However, subsequent Government orders excluded waste and scrap falling under tariff Heading No. 72.03, leading the appellants to reverse the credited amount and pay back the sum, claiming they acted in good faith.

The contention arose regarding the interpretation of Heading No. 72.03, with the appellants asserting that the adjudicating authority's view was unsupported by legal basis. They argued that the deemed credit scheme was designed to address the inability of manufacturers to produce duty paying documents for inputs purchased externally. The Government's clarification letter dated 1-12-1986 emphasized that the restricted meaning of 'waste and scrap' excluding 'old and used' waste and scrap was applicable only from the subsequent order dated 29-8-1986.

The Departmental Representative highlighted that the appellants were explicitly advised against taking credit on old and used scrap, which they disregarded, leading to intentional contravention of Central Excise Rules. The issue at hand was whether deemed credit was available for waste and scrap of iron and steel under the Government order dated 7-4-1986. The order specified that certain inputs purchased from outside were not entitled to credit if they were non-duty paid or charged at nil rates. The appellants were instructed not to take deemed credit on old and used scrap, which they continued to do despite warnings.

The Additional Collector's decision was upheld, emphasizing that Heading No. 72.03 covered fresh scrap of iron and steel, not old and used material. The definition of 'waste and scrap' in Chapter 72 supported this distinction. The appellants' failure to comply with departmental instructions and their continued pursuit of deemed credit without obtaining a stay from appropriate authorities led to the rejection of their appeal. The argument of bona fide belief was deemed insufficient under the circumstances, resulting in the confirmation of the original order and the dismissal of the appeal.