Non- Melting Controversy on Melting Scrap- Part-II

[Pradeep Jain]

By: - CA. Pradeep Jain

Sukhvinder Kaur LLB[FYIC]

And CA. Ridhi Anchalia

Introduction: -

It is truly said that litigation never stops. Litigation and law are twins and will go along. It is immaterial how perfectly a provision is framed. We have already written an article on the controversy of melting scrap of stainless steel titled as "Non melting controversy on melting scrap". It can be viewed on our website www.capradeepjain.com. There are certain latest developments on this issue which has prompted us to write this article. The first development is regarding latest Tribunal decision on this issue on which we have already prepared a case study no. PJ/CASE STUDY/2010-11/04 which can also be viewed on our website. The second development is reduction of BCD on scrap of stainless steel from 5% to 2.5% by Notification no. 54/2010-Cus, dated 29.04.2010 introduced while passing the Finance Bill. We will discuss the implications of these latest developments on this issue. But before proceeding further, let us bring the history of amendments of this issue to have a better understanding of the subject.

Brief history of amendments: -

Amendments relating to 'Melting scrap of Iron or Steel' & 'Melting scrap of stainless steel': -

In the year 2002, the entries relating to 'Melting scrap of Iron or Steel' and 'Melting scrap of stainless steel' in the Notification read as under:

S. No.	Chapter Heading No. or sub - heading No.	Description of goods Con‑	Standard Rate	Additional Rate	Condition no.
200	72.04	Melting of scrap of iron or steel (other than stainless steel or heat resisting steel), for use in, or supply to, a unit for the purpose of melting.	5.00%	-	20
202	7204.21	Scrap of stainless steel for the purpose of melting	5.00%	-	-

In the year of 2003, the rate of basic customs duty for melting scrap of iron or steel at serial number 200 was reduced to 'Nil' rate vide Notification No. 83/2004-Cus, dated 20.08.04. The entries read as under:

S. No.	Chapter Heading No. or sub - heading No.	Description of goods Con‑	Standard Rate	Additional Rate	Condition no.
200	72.04	Melting of scrap of iron or steel (other than stainless steel or heat resisting steel), for use in, or supply to, a unit for the purpose of melting.	NIL	-	20
202	7204.21	Scrap of stainless steel for the purpose of melting	5.00%	-	-

The next amendment to the entries relating to melting scrap of steel were brought in the year 2006 vide Notification No. 11/2006-Cus dated 01.03.2001. The entries read as under: -

S. No.	Chapter Heading No. or sub - heading No.	Description of goods Con‑	Standard Rate	Additional Rate	Condition no.
200	72.04	Melting scrap of iron or steel	5.00%	-	-
202	7204.21	Scrap of stainless steel for the purpose of melting	5.00%	-	-

Thus, in the year the rate of basic customs duty for melting scrap of iron and steel was restored to 5%. Another change effected in the year 2006 was that the specific exclusion of stainless steel from entry 200 was removed. This was done by removing the words "(other than stainless steel or heat resisting steel)" from the said entry. Till 2006, scrap of steel was expressly excluded from entry 200 of the said Notification.

The next amendment related to the said entries was effected in the year 2008. The entries read as under: -

S. No.	Chapter Heading No. or sub - heading No.	Description of goods Con‑	Standard Rate	Additional Rate	Condition no.
200	72.04	Melting scrap of iron or steel	NIL	-	-
202	7204.21	Scrap of stainless steel for the purpose of melting	5.00%	-	-

Thus, the rate of basic customs duty for the entry 'Melting scrap of iron and steel' at serial number 200 was reduced to 'Nil' rate. However, no change was introduced in the rate of duty for 'scrap of stainless steel for melting' at serial no. 202.

Dispute Involved: -

The entries relating to scrap of steel and stainless steel in the year 2008 were to the effect that rate of duty for steel was reduced to 'Nil' rate. Thus, the problem started with this difference of duty. The importer pleaded that the scrap of steel covers the stainless steel also and there are two exemptions available to him. When two exemption notifications are available then the option lies with the assessee to choose any of them. But the department pleaded that firstly "steel" does not cover the "stainless steel". Secondly, when there is specific exemption for stainless steel scrap then the assessee can not opt for the general exemption.

Judgment passed by the Tribunal: -

So here came the Hip Hip Hurrah for the assessee as the Hon'ble Tribunal accepted the contention of the assessee that steel covers stainless steel. Although there is difference in their composition but the base metal is steel in both goods. It was held that stainless steel is only a form of steel.

It was also held by the Highest tribunal in matters of Custom and Central Excise that deletion of words "Other than stainless steel scrap" from the entry at serial no.200 clearly includes the stainless steel scrap in this entry.

It was further held that the appellant (assessee) could claim exemption under the entry 200 or 202 in view of the judgments delivered in the cases of Share Medicine Vs. UOI [2007 (209) ELT 321 (SC)], CCE Vs. Indian Petrochemicals [1997 (92) ELT 13 (SC)], HCL Vs. CCE [2001 (130) ELT 405 (SC)], Coca Cola India Pvt. Ltd. v/s CCE, Pune-III 2009 -TMI - 34433 - Bombay High Court and IOCL v/s CCE [1991 (53) ELT 347 (Tri)].

Thus, the assessee was allowed to avail the benefit of exemption which is more beneficial to the assessee. As already stated we have prepared the case study on the same case wherein complete details of the case is available. {See PJ/CASE STUDY/2010-11/04 in Case Study section}

New Development: -

We have already narrated above that litigation never stops. The amendments and litigations are twin brothers. This has happened here also. Again came a new amendment in the Notification for the same entries.

Now, the Board has brought an amendment in the entry at serial number 202 relating to "scrap of stainless steel for melting purposes". The duty at serial number 202 was reduced from 5% to 2.5%. We have reported on the same in our weekly updates available on our website. The entry read as under: -

S. No.	Chapter Heading No. or sub - heading No.	Description of goods Con‑	Standard Rate	Additional Rate	Condition no.
202	7204.21	Scrap of stainless steel for the purpose of melting	2.5%	-	-

The amendment has been introduced vide Notification No. 54/2010-Cus, dated 29.04.2010. Even it was said by the department that it has been done on the representation of the associations.

Outcome of Amendment: -

We have to see what will be the outcome of this amendment. The future will reveal about the same. We are tax experts and not Jyotishi. However, we try to analysis the situation of this amendment on the basis of our knowledge and belief. The department will contend that the intention of the Government is clear that there should be separate levy for stainless steel scrap. And the assessee will contend that the law is not based on intentions. If the intention of the Government was to have separate entry for stainless steel scrap then they should have not deleted the words "other than stainless steel scrap" from the entry 200. This deletion has underlined the intention of the Government in that year only.

But one thing is granted that the litigation will not end here. Let us wait and see the future.

Before parting: -

The only possible solution to end this litigation that can be taken by the Government in a view with cognizance of the judgment passed by the Hon'ble Tribunal in the case of M/s Mangalam Alloys is to prudently delete the entry at serial number 202 from the Notification No. 21/2002-Cus. Only then the controversy will come to complete rest. Else the helpless assessee will have to face the burden of the amendments made by the government. So what about such litigations that are just created by the government because of their carelessness while drafting the notifications? What about such situations that are faced by the assessee? These are some of the questions that remain unanswered.