2012 (6) TMI 640 - AT - Central Excise

Demand of duty on scrap - scrap arising in the course of cutting the new plates, pipes etc. for being replaced in the place of corroded portion of the plant, pipe, vessel - Held that - The only work undertaken with respect to the new metal plates and pipes is process of cutting them to the required size - the Asst. Commissioner erred in assuming that the remnants in the process of cutting has arisen due to mechanical working of metals - The Asst. commissioner has not given any reason as to why he considered such scrap as arising from mechanical working as there can be no mechanical working when the new plates and pipes are cut and used as a replacement for the worn out and corroded portion of the vessels, pipes etc. - the scrap has arisen on account of cutting of new sheets, plates, pipes for the purpose of replacing worn out pipes and it cannot be said that the respondents have manufactured the scrap so as to pay duty on the same in favour of assessee.

Summary

Issues:
Demand of duty on scrap arising from repairing pipes, tubes, vessels in a chemical plant.

Analysis:
The issue in this case pertains to the demand of duty on scrap generated during the repair of pipes, tubes, and vessels in a chemical plant. The respondent's unit, a chemical plant, regularly replaces corroded/rusted parts of vessels, pipes, etc., by procuring duty paid plates and pipe fittings of base metal ferrous and non-ferrous. The worn-out portions are cut away and replaced by new plates and pipes, resulting in the generation of waste and scrap metal sold to scrap dealers. The scrap arises in two categories: (a) portions cut away from the plant, pipe, vessel, and (b) scrap generated during the cutting of new plates and pipes for replacement. The Assistant Commissioner held that duty was not chargeable for category (a) scrap as it did not arise from manufacturing but considered category (b) scrap dutiable, deeming it to arise from mechanical working of metals.

Upon appeal, the Commissioner (Appeals) set aside the Assistant Commissioner's decision by referring to the definition of mechanical working from the Chambers of Science & Technology Dictionary, which includes processes like rolling, spinning, pressing, and hammering a metal to change its shape. The Commissioner (Appeals) concluded that the scrap generated from cutting new metal plates and pipes did not result from mechanical working, as claimed by the Assistant Commissioner. The Tribunal's decision in a similar case supported this interpretation, emphasizing that the nature of the scrap (re-rollable or melting) is irrelevant for duty levy if it did not result from a manufacturing process. The Tribunal ruled in favor of the respondent, stating that the scrap remnants from cutting new plates and pipes for replacement do not attract duty liability, regardless of whether they are remnants of new or old metal.

The Revenue, in its appeal, reiterated the Assistant Commissioner's grounds for demanding duty on the scrap. They argued that the scrap generated by another entity in a different context was different, but the Commissioner (Appeals) rightly held that the origin of the scrap (building dismantling or pipe replacement) does not affect duty liability. Since the scrap in question arose from cutting new sheets, plates, and pipes to replace worn-out parts, it was not considered a result of manufacturing, leading to the rejection of the Revenue's appeal. The Tribunal upheld the decision, emphasizing that the scrap's origin from the replacement process exempts it from duty payment.