2017 (1) TMI 283 - AT - Central Excise

Recovery of CENVAT credit - removal of miscellaneous waste and scrap as cenvatable goods - Held that - as regards the packing materials removed as waste and scrap by the appellant, it was held that such waste cannot be treated as arisen out of any manufacturing process and no duty is required to be paid / cenvat credit to be reversed - duty demand on packing material is liable to be set aside. With regard to oily cotton canvas, which were removed in the form of scrap, cannot be considered as input for the appellant, who manufactures biscuits. Thus, I am of the firm opinion that said goods are not the input for the appellant. Thus, removal of such goods as scrap will not attract payment of central excise duty/ reversal of cenvat credit. with regard to the wooden scrap namely, doors, windows, iron rods etc., which have no relation with the manufacture of the final product and obviously there was no scope on the part of the appellant to avail the cenvat credit. Thus, duty liability cannot be fastened on removal of those goods as waste and scrap. With regard to plastic scrap, the Ld. Advocate states that the same were generated during the course of manufacture/ packing of the final product. Since, initial procurement of plastic were not input as such and were not generated during the course of manufacture of the final product, on removal of the same as waste and scrap, no duty is required to be paid. With regard to iron and steel items removed as scrap, the appellant has not produced adequate documents to demonstrate that no cenvat credit were taken. The matter should go back to the original authority for verification of records/ documents maintained by the appellant - matter remanded. Imposition of penalty u/s 11AC of the Central Excise Act, 1944 - Held that - Since, the information were gathered by the department from the balance sheet of the appellant, no malafide can be attributed, justifying imposition of penalty under Section 11AC ibid - penalty set aside. Appeal diposed off - decided partly in favor of assessee - part of matter on remand.

Summary

Issues:
Recovery of cenvat credit on sale of waste and scrap under Central Excise Tariff Act, 1985.

Analysis:
The appeal challenges the order passed by the Commissioner (Appeals) regarding the recovery of cenvat credit on the sale of waste and scrap by the appellant, a biscuit manufacturer. The Central Excise officers observed the inclusion of miscellaneous income from waste and scrap sales in the balance sheet during an audit. The department treated the removal of waste and scrap as cenvatable goods, leading to a demand of Central Excise duty, interest, and penalty on the appellant. In the appeal, the Ld. Commissioner (Appeals) upheld the demand, prompting the appellant to approach the Tribunal.

The Ld. Advocate for the appellant argued that waste and scrap were broadly classified into categories, such as waste packing material, plastic scrap, oily cotton canvas, and wooden furniture items. Citing legal precedents, the Advocate contended that certain items like waste packing material and plastic scrap did not require reversal of cenvat credit or payment of duty upon removal as waste and scrap. However, the Advocate acknowledged the lack of documentation regarding the cenvat credit on iron and steel items removed as scrap, suggesting a need for verification.

Upon review, the Tribunal held that waste packing material and certain other items removed as waste and scrap did not necessitate duty payment or cenvat credit reversal. Items like plastic scrap, not initially procured as inputs, also did not attract duty upon removal. However, due to insufficient documentation on iron and steel items, the matter was referred back to the original authority for verification. The Tribunal also set aside the penalty imposed under Section 11AC of the Central Excise Act, 1944, as no malafide intent was found in the appellant's actions.

In conclusion, the Tribunal ruled in favor of the appellant on several grounds, setting aside the duty demand on certain items and the penalty imposed, while also ordering further verification on the issue of cenvat credit for iron and steel items removed as scrap.