2016 (12) TMI 1114 - AT - Central Excise

Levy of duty - Clandestine removal - recovery yield ratio - finished goods processed as job worker under Rule-4 (5) (a) of the Cenvat Credit Rules 2004 - Whether RFPL is required to discharge duty on intermediate goods manufactured on job work basis when inputs are received from EIL under Rule-4 (5) (a) of the Cenvat Credit Rules 2004? - Held that - the issue is no more res-integra and is decided in the case of Wyeth Laboratories Ltd. Vs CCE Bombay 2000 (7) TMI 109 - CEGAT, NEW DELHI , where it was held that there is no question of holding scrap as final product and disallowing the benefit of clearance of scrap for converting into ingots, under Rule 4(5)(a) - no duty liability is attracted when goods are processed by the appellant under Rule-4(5)(a) of Cenvat Credit Rules 2004. Annexure-II challans prepared by M/s EIL contain the description of inputs, its quantity, etc and Part-II of this challan filled in by the appellant also contained the quantity of finished goods sent back to M/s EIL. In view of the above appellant is not required to discharge Central Excise duty on the finished goods processed as job worker under Rule-4 (5) (a) of the Cenvat Credit Rules 2004. Whether standard input-output norms have been rightly made applicable by the department for calculating the yield of Alloy Lead ingots manufactured by the appellant out of the raw materials supplied by EIL under job work challans? - Held that - input output norms of 1 kg of lead for every 1.07 kg of waste & scrap can not be made applicable to all categories of waste & scrap and can be made applicable only to standards waste & scrap where metal content in the waste and scrap is 97% or more. If the department was not agreeable to the % recovery prescribed by M/s EIL then the only way to reject that could have been to have sample yield studies done by the investigation to determine recovery yield percentages. There is no evidence that any lead ingots have been cleared clandestinely except presumptions surmises & theoretical calculations based on standard Input-output norms which does not apply to the waste & scrap received by the appellant from M/s. EIL. There is no justification either for demanding duty or for imposition of penalties against the appellants - appeal allowed - decided in favor of assessee.

Summary

Issues Involved:
1. Whether RFPL is required to discharge duty on intermediate goods manufactured on a job work basis when inputs are received from EIL under Rule-4(5)(a) of the Cenvat Credit Rules 2004?
2. Whether standard input-output norms have been rightly made applicable by the department for calculating the yield of Alloy Lead ingots manufactured by the appellant out of the raw materials supplied by EIL under job work challans.

Issue-wise Detailed Analysis:

1. Duty on Intermediate Goods Manufactured on Job Work Basis:
The first issue pertains to whether RFPL is required to discharge duty on intermediate goods manufactured on a job work basis when inputs are received from EIL under Rule-4(5)(a) of the Cenvat Credit Rules 2004. The Tribunal referenced the Larger Bench decision in the case of Wyeth Laboratories Ltd. Vs CCE Bombay, which clarified that no duty is chargeable from the job worker under Rule 57F (2) & F (4) of the Central Excise Rules 1944. This precedent was further supported by subsequent case laws such as Shakti Wire Products Vs CCE Mumbai-V and CCE Belapur Vs Plastika Industries. The Tribunal noted that the scrap sent to the job worker is returned as ingots, which are further processed and cleared on payment of duty, resulting in no loss of revenue to the government. The Tribunal concluded that RFPL is not required to discharge Central Excise duty on the finished goods processed as a job worker under Rule-4(5)(a) of the Cenvat Credit Rules 2004.

2. Applicability of Standard Input-Output Norms:
The second issue involves whether the standard input-output norms were rightly applied by the department for calculating the yield of Alloy Lead ingots. The department used a ratio of 1 kg of lead alloy from 1.07 kg of lead scrap, based on Input-Output Norms, to calculate the quantum of lead ingots manufactured and alleged clandestine removal. However, the Tribunal observed that these norms are applicable to highly refined waste and scrap of lead with a metal content of 97% or more, as per Foreign Trade Policy Input-Output Norms and ISRI scrap specifications. The Tribunal noted that the waste and scrap received by RFPL from EIL were of inferior quality with varying recovery percentages, which were significantly lower than the standard norms. The Tribunal emphasized that the department should have conducted sample yield studies to determine accurate recovery yield percentages instead of relying on theoretical calculations. The Tribunal found no evidence of clandestine removal of lead ingots and concluded that the input-output norms used by the department were not applicable to the waste and scrap received by RFPL.

Conclusion:
The Tribunal held that there was no justification for demanding duty or imposing penalties against the appellants. The appeals filed by the appellants were allowed, and the order passed by the Adjudicating authority was set aside. The operative part of the order was pronounced in the open court.