2011 (1) TMI 95 - AT - Central Excise

CENVAT Credit Whether scrap generated at the job worker end out of the processing of the inputs is required to be returned to the supplier and, if it is not returned back whether the supplier of inputs is required to pay appropriate Central Excise thereon - in the case of M/s Emco Ltd. Vs. CCE Mumbai, laying down that waste and scrap used at the end of job worker cannot be held to be dutiable in the principal manufacturer s hands - duty confirmed against the appellant was not justified - demand of duty set aside, interest and imposition of penalty upon the appellant by holding that the appellant was under no obligation to pay the duty on waste and scrap used at the job worker s end and sold by him

Summary

Issues:
Confirmation of duty against the appellant for waste and scrap generated at job worker end and sold to independent buyers.

Analysis:
The appellant, engaged in the manufacture of balls and roller bearings, availed CENVAT Credit on inputs supplied to job workers. Waste and scrap generated at the job worker end were sold by them, not returned to the appellant. The Commissioner confirmed duty on the actual quantity of scrap generated, initiating proceedings under Section 11A of the Central Excise Act, 1944, along with interest and penalty. The appellant contested the demand, citing Rule 4 and Rule 4(5)(a) of CENVAT Credit Rules, 2002/2004.

The Commissioner relied on Rule 4(5)(a) to conclude that waste and scrap generated at the job worker's end should be returned to the appellant's factory for duty payment. However, the Tribunal found that the rule required goods to be received back within 180 days, with non-receipt resulting in credit reversal, not duty liability on the principal manufacturer.

The appellant argued that they were not the manufacturer of waste and scrap, and duty liability should be on the job worker, who actually manufactured the goods. The Commissioner clarified that this was a case of short levy of Central Excise duty under Section 11A, not wrongly taken CENVAT Credit, invoking the extended period for recovery of differential duty.

The Tribunal referenced previous decisions to establish that duty cannot be demanded from the principal manufacturer when no manufacturing process of waste and scrap occurred at their end. The judgment in the case of M/s Rocket Engineering Corpn. Ltd. was crucial in determining that waste and scrap used at the job worker's end should not be considered dutiable in the principal manufacturer's hands.

Despite the Commissioner's reliance on a Supreme Court judgment, the Tribunal found it irrelevant to the present case. Upholding the decisions in previous cases, the Tribunal set aside the confirmation of duty, interest, and penalty, ruling that the appellant was not obligated to pay duty on waste and scrap used at the job worker's end and sold by them. The duty already paid based on a 15% generation rate was not addressed in the appeal.

In conclusion, the appeal was allowed, and the duty confirmed against the appellant was deemed unjustified, emphasizing that waste and scrap used at the job worker's end should not be subject to duty in the principal manufacturer's hands.