2021 (9) TMI 655 - HC - Central Excise

Recovery of rebate claims already sanctioned - scrap generated in the manufacture of the hand tools - removal of such waste on payment of duty as if such waste is manufactured or processed in the factory of the manufacturer or processor - whether such scrap was liable to payment of duty on its clearance - denial of rebate on the ground of non-fulfillment of paragraph 4(c) of the notification No.21/2004-CE(NT) dated 06.09.2004 - HELD THAT - A clear reading of paragraph 4 to become applicable the conditions sine quo non was the material as such or at partially processed stage had to be moved outside the factory and only and only then paragraph 4 and its sub-paragraphs (a), (b) and (c) would become applicable. Once there is no finding that the material or partially processed goods were moved outside the factory, there will be no applicability of paragraph 4 or its sub-paragraphs of the notification dated 06.09.2004. There is no non-fulfillment of the condition prescribed in paragraph 4(c) of the notification dated 06.09.2004 and the respondents have wrongly applied paragraph 4(c) of the notification dated 06.09.2004. Therefore, the impugned orders are vitiated in law and cannot be sustained. Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Applicability of Paragraph 4(c) of Notification No.21/2004-CE(NT) dated 06.09.2004.
2. Requirement and legality of payment of duty on scrap generated during manufacturing.
3. Validity of rejection of rebate claims based on non-fulfillment of condition 4(c).

Issue-wise Detailed Analysis:

1. Applicability of Paragraph 4(c) of Notification No.21/2004-CE(NT) dated 06.09.2004:
The core issue was whether Paragraph 4(c) of Notification No.21/2004-CE(NT) dated 06.09.2004 applied to the petitioners' case. The notification specifies conditions for removal of materials or partially processed materials for processing. Paragraph 4(c) states that any waste arising from the processing of materials may be removed on payment of duty as if such waste is manufactured or processed in the factory of the manufacturer or processor.

The court found that Paragraph 4 and its sub-paragraphs (a), (b), and (c) become applicable only when raw materials or partially processed materials are moved outside the factory during the manufacturing process. Since there was no evidence or finding that the materials were moved outside the factory, Paragraph 4(c) did not apply.

2. Requirement and Legality of Payment of Duty on Scrap Generated During Manufacturing:
The petitioners argued that the scrap generated during manufacturing was exempt from duty under Notification No.89/95-CE dated 18.05.1998. This was confirmed by the Department of Central Excise in 2005, which stated that both the final product and the waste/scrap arising from its manufacture were exempt from duty.

The court agreed with the petitioners, noting that there was no requirement to pay duty on the scrap as per the clarification provided by the Department in 2005. The court held that the rejection of rebate claims based on non-fulfillment of condition 4(c) was unsustainable.

3. Validity of Rejection of Rebate Claims Based on Non-Fulfillment of Condition 4(c):
The petitioners' rebate claims were initially rejected on the grounds of non-fulfillment of condition 4(c) of Notification No.21/2004-CE(NT). The court observed that the adjudicating, appellate, and revisional authorities had all based their decisions solely on this ground without considering whether the condition was applicable.

The court found that since the materials were never moved outside the factory, the condition 4(c) did not apply. Consequently, the rejection of rebate claims on this basis was invalid. The court set aside the impugned orders and allowed the rebate claims, leaving it open for the Department to initiate independent proceedings if permissible under law.

Conclusion:
The court concluded that Paragraph 4(c) of Notification No.21/2004-CE(NT) dated 06.09.2004 was not applicable as there was no movement of materials outside the factory. The rejection of rebate claims based on non-fulfillment of this condition was invalid. The court allowed the petitions, set aside the impugned orders, and granted the rebate claims to the petitioners. The Department was permitted to initiate independent proceedings for recovery of duty on scrap if permissible under law.