2022 (11) TMI 793 - AT - Central Excise

Reversal of CENVAT Credit - credit attributable to the inputs contained in waste and scraps, which have not been received from the job-worker - shortages in quantity of processed inputs received back by the Appellant - Rule 4(5)(a) of the Cenvat Credit Rules, 2004 - HELD THAT - The duty is being demanded by treating them as a manufacturer of waste and scrap, which is factually incorrect. The present provisions of Rule 4(5)(a), when compared with erstwhile Rule 57F(4) of Central Excise Rules, 1944, makes a clear distinction, inasmuch as the said Rule nowhere requires the return of waste and scrap generated at the job worker s end. The issue stands settled by the Tribunal s decision in the case of ROCKET ENGINEERING CORPORATION LTD. VERSUS COMMISSIONER OF C. EX., PUNE-II 2005 (6) TMI 184 - CESTAT, MUMBAI . By relying upon the Tribunal s decision in the case of INTERNATIONAL TOBACCO CO. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, GHAZIABAD 2003 (10) TMI 171 - CESTAT, NEW DELHI , it was held that when no process of manufacture of waste and scrap has taken place at the end of principal manufacturer, duty cannot be demanded from the principal manufacturer. The waste and scrap are not manufactured goods whether they are generated at the premises of the principal manufacturer or at the premises of job-worker and accordingly, the legislature have consciously not made any provisions for reversal of any credit taken on duty paid inputs in case of clearance of waste and scrap and/or, there non-return from the job worker s premises under the Central Excise Rules, 2002 read with Cenvat Credit Rules, 2002/2004. The demand of duty, interest and imposition of penalty upon the Appellant is set aside by holding that the Appellant was under no obligation to pay duty on waste and scrap used at the job worker s end - appeal allowed.

Summary

Issues Involved:
1. Whether the credit attributable to the inputs contained in waste and scraps, which have not been received from the job-worker, is required to be reversed or not.

Issue-Wise Detailed Analysis:

1. Reversal of Credit for Inputs in Waste and Scraps Not Received from Job-Worker:

Background:
The appellant, M/s Forgings (India) Iron and Steel Limited, engaged in manufacturing steel forgings, sent inputs/semi-finished inputs to job-workers under Rule 4(5)(a) of the Cenvat Credit Rules, 2004, after taking Cenvat Credit. The processed inputs were returned to the appellant, but there were consistent shortages in the quantity received back. The Department issued five show-cause notices covering April 2011 to March 2013, alleging that the appellant did not reverse the Cenvat credit attributable to the inputs contained in the material not received back (waste and scraps).

Department's Case:
The Department contended that the appellant did not receive back the waste and scrap from the job-workers, which amounted to clearance without payment of duty by the job-worker. They argued that the appellant was liable to pay Cenvat Credit of Rs.17,71,944/- under Rule 14 of the Cenvat Credit Rules, 2004, read with Section 11A of the Central Excise Act, 1944, for violating Rule 4(5)(a). Interest and penalties were also proposed under Rule 15 of the Cenvat Credit Rules read with Section 11AC of the Central Excise Act, 1944.

Appellant's Defense:
The appellant argued that during manufacturing, they sent materials to job-workers for processes like machining, cutting, grinding, etc., as their factory lacked the required machinery. Waste and scrap generated at the job-workers' premises were not returned but retained by job-workers. The appellant maintained proper records and paid duty on such scrap. They contended that there was no obligation to bring back waste and scrap under Rule 4(5)(a) of the Cenvat Credit Rules, 2004, and that the new rules effective from 01.04.2000 did not require reversing credit on waste and scrap generated at job-workers' premises. They cited the case of Fag Engineering (I) Ltd. Vs. Commissioner of Central Excise, Vadodara: 2011 (266) ELT 193 (Tri.-Ahmd.).

Tribunal's Analysis:
The Tribunal noted that the current provisions under Rule 4(5)(a) of the Cenvat Credit Rules, 2004, did not require the return of waste and scrap generated at the job-worker's end. The issue had been settled by the Tribunal in the case of M/s. Rocket Engg. Corpn. Ltd. v. CCE, Pune, where it was held that waste and scrap used at the job-worker's end could not be held dutiable in the principal manufacturer's hands. This decision was upheld by the Hon'ble Bombay High Court.

Conclusion:
The Tribunal concluded that waste and scrap are not manufactured goods, whether generated at the principal manufacturer's premises or the job-worker's premises. Therefore, the legislature did not mandate any provisions for reversing credit taken on duty-paid inputs in case of clearance of waste and scrap or their non-return from the job-worker's premises. Consequently, the demand for duty, interest, and penalty against the appellant was not justified. The appellant was under no obligation to pay duty on waste and scrap used at the job-worker's end.

Final Order:
The appeal filed by the appellant was allowed with consequential relief, if any, as per law. The confirmation of demand of duty, interest, and imposition of penalty upon the appellant was set aside.

Pronouncement:
The judgment was pronounced in the open court on 17.11.2022.