2015 (1) TMI 489 - AT - Customs

Levy of duty on burning loss - whether the burning loss arising in the manufacturing process carried out in the custom bonded warehouse is leviable to custom duty in terms of section 65(2)(b) of Customs Act, 1962 - Held that - It can be seen from the notification and condition-35 appended thereto that the exemption in respect of raw material has been provided for manufacturing the goods in accordance with the provision of section 65 of the Customs Act, 1962. The burning loss is occurring during the course of manufacture of final product i.e. seamless pipes. The burning loss is nothing but quantity consumed in the manufacture and become invisible. Therefore, exemption notification is applicable even on the quantity of the burning loss. Burning loss does not exist physically, therefore it is neither capable of being cleared from the warehouse nor factually cleared from the warehouse. Therefore, the burning loss occurred in the manufacturing process is nothing but the consumption in the manufacture, though physically not available, hence, the same does not get cleared from the warehouse. With this fact, the burning loss will not fall under the clause (b) of Section 65(2). Accordingly, no duty can be charged on nonexistent quantity of burning loss. It is very important to note that in any processing industry, apart from recoverable waste and scrap, smaller part of the burning loss is also generated. Keeping this aspect into mind the legislators consciously made explicit provision for levy of custom duty on the waste and scrap, which is physically available and cleared from the warehouse. However, as regard the burning loss, no such explicit provision was made. This might be for the reason that the quantity of imported material consumed in the final product includes burning loss also as it has same nature as the raw material which gets consumed in the manufacturing of final product. I am therefore of the considered view that the custom duty cannot be charged on the quantity of the burning loss for two reasons i.e. This quantity stands consumed in the manufacture of final product and it does not contain in the quantity of waste and scrap and second, it is not cleared physically for home consumption from the custom bonded warehouse. Quantity of burning loss, since, neither cleared out of the custom bonded warehouse for home consumption nor otherwise disposed of, but factually it got consumed in the manufacturing, no custom duty is leviable on the same. - orders of the lower appellate authority are unsustainable in the facts and in law, and the same are set aside - Decided in favour of assesse.

Summary

Issues:
1. Whether burning loss arising in the manufacturing process in a custom bonded warehouse is liable to custom duty under section 65(2)(b) of Customs Act, 1962.

Analysis:
1. The appellant imported raw materials for manufacturing seamless pipes under a customs license and notification. The burning loss occurred during manufacturing, which the revenue claimed to be part of waste and scrap subject to custom duty. The appellant argued that burning loss, being consumed in the process and not physically cleared from the warehouse, should not attract duty. The Tribunal analyzed the exemption notification and found that burning loss, being consumed and not cleared, does not fall under the provision of section 65(2)(b) for duty levy on waste and scrap physically cleared for home consumption. The Tribunal cited a judgment supporting that imported goods used for manufacturing in a bonded warehouse are not considered removed for home consumption, thus not subject to duty.

2. The Tribunal distinguished a previous judgment cited by the revenue, which concerned physical waste and scrap cleared for home consumption, unlike the invisible burning loss in this case. Consequently, the Tribunal held that the lower appellate authority's decision upholding duty on burning loss was legally unsustainable. The appeals were allowed, and the application for stay extension was deemed infructuous.

This detailed analysis of the legal judgment showcases the Tribunal's reasoning behind determining the liability of burning loss to custom duty in the context of a manufacturing process in a custom bonded warehouse under the Customs Act, 1962.