2016 (8) TMI 389 - AAR - Central Excise

Liability of duty - processing of secondary raw materials (steel scrap of difference and variable composition) into blended steel scrap - Held that - the input is unprocessed steel scrap and output is blended steel scrap. The blended steel scrap is produced with required chemical composition by mixing various Low manganese and High manganese scraps and is fit to be used as raw material in the manufacture of various products of steel. Further, blended steel scrap is not put to the same use to which the unprocessed steel scrap is put and vice versa. Therefore, input i.e. unprocessed steel scrap is distinct from output i.e. blended steel scrap. Though both (input and output) would fall under the category of scrap, but are completely different types of scraps. Further, processing of unprocessed stainless steel scrap into blended stainless steel scrap would result into input (unprocessed stainless steel) losing its identity and new commodity i.e. blended stainless steel scrap coming in existence. Therefore, when said unprocessed steel scrap undergoes above process, a new product saleable in the market, which is having a distinct identity and use, comes into existence and is known in the commercial market by a different name. Further, blended steel scrap possesses higher utility than the unprocessed scrap steel. Therefore, applicant s contention that the production of blended steel scrap by processing unprocessed scrap steel amounts to manufacture under the Central Excise Act, 1944, is correct followed by the judgment of AAR in the case of ELG India Private Limited Vs. CCE, Chandigarh 2013 (8) TMI 537 - AUTHORITY FOR ADVANCE RULINGS . Classification - blended metal scrap - whether to be classifiable under Chapter 72044900 of the CETA, 1985 - Held that - classification of blended metal scrap under Chapter 72044900 of the Central Excise Tariff Act, 1985 has rightly not been opposed by the Revenue. It is noticed that blended metal scrap is covered under Chapter Head No. 72044900 in the First Schedule Others Ferrous waste and scrap under the Central Excise Tariff Act, 1985.

Summary

Issues:
1. Liability for Central Excise duty on processing steel scrap into blended scrap.
2. Classification of blended metal scrap under the Central Excise Tariff Act.

Analysis:

*Issue 1:*
The applicant sought clarification on the liability for Central Excise duty on processing steel scrap into blended scrap. The Revenue argued that the processed scrap would still be categorized as scrap and not a new product, hence not liable for duty. However, the Authority disagreed, highlighting that the transformation of raw material into a new product with distinct characteristics constitutes manufacture under the Central Excise Act. Citing judicial precedents, the Authority emphasized that any change resulting in a new commodity with unique attributes amounts to manufacture. The process of blending and baling steel scrap by the applicant involves significant transformation, creating a distinct product suitable for use in foundries and steel mills. The Authority drew parallels with a Supreme Court case involving the manufacturing of surgical cotton from raw cotton to support its ruling that the production of blended steel scrap qualifies as manufacture subject to Central Excise duty.

*Issue 2:*
Regarding the classification of blended metal scrap under the Central Excise Tariff Act, the Revenue did not contest the applicant's assertion that it falls under Chapter 72044900 as "Others - Ferrous waste and scrap." The Authority concurred with this classification, affirming that blended metal scrap is appropriately categorized under this chapter. Consequently, the Authority ruled that the produced blended metal scrap can indeed be classified under Chapter 72044900 of the Central Excise Tariff Act, 1985.

In conclusion, the Authority ruled that the processing of steel scrap into blended scrap is subject to Central Excise duty and that the blended metal scrap can be classified under Chapter 72044900 of the Central Excise Tariff Act, 1985. The judgment underscores the concept of manufacture under the Central Excise Act, emphasizing the creation of a new product with distinct characteristics through processing, thereby establishing liability for duty.