2019 (1) TMI 1513 - HC - Customs

100% EOU - Vires of CBEC Circular No.62/2001-Cus dated 12.11.2001 - meaning of Manufacture held by judiciary - input output ratio - relevancy of CBEC Circular No.1029/17/2016-CX dated 10.05.2016 issued in respect to Cenvat Credit Rules, 2004 - clearance of foundry scrap beyond the ratio/norms of scrap laid down by the Norms Committee - N/N. 52/2003-Cus dated 31.03.2003. Whether clearance of imported scrap after segregation can be said to be clearance as such ? - Held that - While the Circular 1029/2016-/CX dated 10th May, 2016 clarifies whether segregated foreign materials from imported honey grade brass scrap can be treated as inputs as such as contemplated in rule 3(5) of the CENVAT Credit Rules, 2004, the principle involved is the same. In this case also, the segregated material has an altogether different character and use vis- -vis the brass scrap. The value per unit and classification of the segregated foreign materials is also different from that of the imported brass scrap. As a necessary corollary therefore, the segregated foreign material cannot be treated as input as such for the purpose of levy of customs duty. The Tribunal, therefore, did not commit any error in placing reliance upon Circular No.1029/2016-/CX dated 10th May, 2016. Whether clearance of such scrap upon payment of excise duty would fall within the ambit of paragraph 3 of Notification No.52/2003-Cus dated 31.03.2003? - Held that - Waste and scrap arising in the course of production or manufacture of finished goods are also exempt from the duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 and the additional duty, if any, leviable thereon under section 3 of the said Customs Tariff Act - Reverting to the facts of the present case, the segregated waste has arisen in the course of production/manufacture of the finished goods viz. brass articles; the Commissioner of Customs has recorded that the segregated waste had in fact been cleared on payment of duty after being duly permitted by the Development Commissioner in accordance with the provisions of the EXIM Policy. The requirements of clause (3) of Notification 52/2003-Cus dated 31st March, 2003 are therefore, wholly satisfied. Under the circumstances, there does not appear to be any legal infirmity in the view adopted by the Tribunal. It is not possible to state that the impugned order passed by the Tribunal suffers from any legal infirmity so as to give rise to any question of law, much less, a substantial question of law, warranting interference - appeal dismissed.

Summary

Issues Involved:
1. Whether the segregation of imported brass scrap into foundry and non-foundry scrap amounts to "manufacture."
2. Whether CBEC Circular No.62/2001-Cus dated 12.11.2001 or Circular No.1029/17/2016-CX dated 10.05.2016 is applicable to the case.
3. Whether the clearance of foundry scrap beyond the ratio/norms laid down by the Norms Committee contravenes Notification No.52/2003-Cus dated 31.03.2003.

Detailed Analysis:

1. Segregation as "Manufacture":
The Tribunal held that the segregation of imported mixed brass scrap into foundry and non-foundry scrap is covered by the CBEC Circular No.1029/17/2016-CX dated 10.05.2016. The non-foundry scrap cleared in the Domestic Tariff Area (DTA) on payment of excise duty cannot be considered as clearance of imported scrap "as such." The court observed that the imported brass scrap was segregated into brass and foundry items, which were used for manufacturing brass articles, and non-foundry scrap, which was cleared in the DTA. The non-foundry scrap, derived from segregation, cannot be said to be articles imported "as such" because the essential character of the scrap, viz. brass, is absent. Therefore, the Tribunal was justified in holding that the segregated scrap cannot be considered clearance of inputs "as such."

2. Applicability of CBEC Circulars:
The appellant argued that CBEC Circular No.62/2001-Cus dated 12.11.2001, which deals with the valuation of plastic waste and scrap, should apply. However, the court noted that this circular pertains to plastic waste reprocessors and does not apply to the segregation of brass scrap. The Tribunal relied on Circular No.1029/17/2016-CX dated 10.05.2016, which clarifies that segregation of impurities from honey grade brass scrap is an essential process related to manufacturing brass articles. The segregated foreign material, having a different character and use, cannot be treated as inputs "as such." Therefore, the Tribunal did not err in relying on Circular No.1029/17/2016-CX.

3. Clearance Beyond Norms and Notification No.52/2003-Cus:
The court examined whether the clearance of foundry scrap beyond the norms laid down by the Norms Committee contravenes Notification No.52/2003-Cus dated 31.03.2003. Clause (3) of the notification allows goods used in the manufacture of finished goods, including byproducts, rejects, waste, and scrap, to be sold in the DTA on payment of appropriate excise duty, subject to conditions specified by the Development Commissioner or other authorities. The segregated waste in this case arose during the production of brass articles and was cleared on payment of duty with the Development Commissioner's permission. Therefore, the requirements of Clause (3) of Notification No.52/2003-Cus were satisfied, and no customs duty was recoverable on the excess quantity of scrap.

Conclusion:
The High Court concluded that the Tribunal's order did not suffer from any legal infirmity and did not give rise to any substantial question of law. The appeals were summarily dismissed.