9911796707
TMI Blog1994 (10) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, has granted redemption on payment of a fine of Rs. one lakh. The facts of this case are that a show cause notice dated 31-12-1988 was issued to the appellant and two others namely M/s. Precimex Engineers and M/s. Proficient Die Maker, Pune. It is alleged in the show cause notice that the appellant procured the excisable goods vis. MS sheets on which appropriate duty of excise or additional duty under Section 3 of Customs Act, 1962 have been discharged. They had declared these goods as their inputs under Rule 57G(1) of Central Excise Rules, 1944 to be used in the manufacture of their products (vis. Motor Vehicle and components thereof) for the purpose of Rule 57A in order to avail the credit of duty paid on the said inputs as per the procedure prescribed under the said Rule. It is alleged that they had removed part of the said inputs for home consumption declaring it as Waste arising from the processing of inputs after discharging the duty on the said inputs in the manner as provided under sub-rule (4) of Rule 57F, although they were liable to pay duty on such inputs in the manner as provided under Rule 57F(i)(ii). It is alleged that they have failed to make adjustments of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of irregular dimensions, Circles, patties/strips, all retaining the essential characters of Sheets, as MS Waste and Scrap" by misusing the provisions of Rule 57F(4). (II) While disposing such inputs in the manner stated above, M/s. Bajaj Auto Ltd., Akurdi, Pune have not discharged full duty liability on the said goods in terms of Rule 57F(i)(ii) i.e. duty payable to the extent of Credit availed or the appropriate rate applicable to the said goods. The term Waste and Scrap has been defined under the Central Excise Tariff Act, 1985 effective from 1-3-1986 and incorporated under Section XV Chapter 72 of the Central Excise Tariff Act. The Note 1(ix) to Chapter 72 defines Waste Scrap of base metals as under : Waste and Scrap of Iron or steel fit only for the recovery of metal or for use in the manufacture of chemicals, but does not include slag, ash and other residues . This definition, effective from 1-3-1986, underwent minor change with effect from 1-3-1988. The revised definition applicable with effect from 1-3-1988 onwards is contained in Section Notes 6(a) to Section XV of the Central Excise Tariff Act and is as under : Metal waste and scrap from the manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is observed that they have received such letters and have also received such type of material for making the components/parts out of it for M/s. Bajaj Auto Ltd., Akurdi, Pune. The fact that the said material is not scrap but usable input for manufacture of small press-parts has been accepted by the various concerned Personnel of M/s. Bajaj Auto Ltd., Akurdi, Pune in their respective statements recorded in this behalf. It is also observed that such type of letters have been issued periodically by M/s. Bajaj Auto Ltd., Akurdi, Pune to almost all their Vendors/Job Workers". The annexure summarises the statement of various persons from whom the department has recorded in para 5 of the show cause annexure. The department admits that there are instances where scrap, such as M.S. turning and boring has genuinely gone for re-melting. In para 9 of the annexure, it is alleged that the evidence brought on record lead to the conclusion that the assessee has been indulging in the illicit practices, with due knowledge of law and procedures, in removing the inputs or portion of inputs in the form of Circles, Strips/patties/off-cuts etc. at reduced rate of duty by describing such material as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has also imposed a penalty of Rs. 5 lakhs under Rule 173Q of Central Excise Rules, 1944. The department has alleged that the assessee, manufacturers of Motor Vehicles and components thereof were processing the raw-material vis. M.S. Sheets falling under sub-heading 7212.32 upto 29-2-1988 and under 7209.20 from 1-3-1988 onwards, on which appropriate duty of excise and/or additional duty under Section 3 of Customs Act, 1962 had been paid. They had declared the said M.S. Sheets as their inputs under Rule 57G(1) of Central Excise Rules, 1944, to be used in the manufacture of motor vehicles and components thereof for the purpose of Rule 57A in order to avail the credit of duty paid on the said inputs. It is alleged in the show cause notice dated 20-9-1989 issued to the appellants and 12 others that they had removed part of the said goods for home consumption declared it as Waste and Scrap arising from the process of said inputs after discharging the duty liability @ Rs. 365/- per M.T. upto 28-2-1989 and thereafter @ Rs. 500/- per M.T. on the said inputs in the manner as provided under sub-rule (4) of Rule 57F, although they were liable to pay duty at the rate of Rs. 715/- per M.T. u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panchnama. The statements of various functionaries of the assessee and the statement of scrap dealers and vendors/job workers of the assessee were recorded under Section 14 of the Central Excises Salt Act, 1944. In view of the investigations carried out and evidence collected (details mentioned in the show cause notice) it was alleged that the major portion of inputs so cleared by the assessee as Waste and Scrap , as defined under the Central Excise Tariff in as much as the so-called scrap cleared was neither fit for recovery of metal nor sent any time for the said purpose but actually used as such for further manufacture of parts/components. Therefore, it was alleged that the assessee and its functionaries had contravened the provisions of the Central Excises Salt Act, 1944 and rules made thereunder and thus has evaded Central Excise duty to the extent of Rs. 53,94,522/- during the period 1-3-1986 to 31-5-1989. 4. The assessee filed reply vide letter dated 9-2-1992 in which they submitted that for the manufacture of final products viz. the vehicles, M.S. Sheets were procured through import and some small percentage locally; i.e. the M.S. Sheets so procured were brought i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Akurdi Works and also for its Waluj Works, filed declaration under Rule 57G, obtained dated acknowledgments and on getting the approval under 57F(2) they cleared the processing waste and in respect of clearances under Rule 57F(4) duty was paid on Iron and Steel waste and scrap; that once again the Supdt. Central Excise Akurdi had issued show cause notice alleging contravention of Rule 9(1) and 173(2) read with Rule 52A alleging that they had not paid duty on scrap inter alia of Iron and Steel generated during the course of manufacture of finished excisable goods and had demanded duty for the period from 1-3-1986 to 21-2-1987; that after considering the cause shown the Assistant Collector vide his order dated 30-11-1987 had confirmed that the assessee had paid duty correctly on the processing waste. Therefore, they had filed classification lists in respect of waste and scrap being generated in the course of manufacturing of vehicles to both the Collectorates, which had been approved by the jurisdictional Assistant Collector. Therefore, they submitted that all along the value, type of goods i.e. nomenclature and volume of their clearances of waste and scrap was known to and rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndependent and self contained and occupy the entire field. 5.We reproduce herein below the findings given by the Collector in E.A. No. 2346/93-B1 and Appeal No. E/2259/93-B1. In the case of E/2346/93-B1, the Collector had raised two issues whether : (i)It was in the form of original inputs like steel sheets procured under Rule 57-A or have retained the character of said inputs at the stage of removal as held in the investigation and (ii) It was in the form of Waste and Scrape of steel generated in the process and eligible to be removed under the procedure laid down under Rule 57F(i)(ii) read with Rule 57F(4), as claimed by the party. The ld. Collector after referring to the definition of Waste and Scrap for the relevant period as appearing in Chapter Note XVI has held that Wa ste and Scrap of metal is only that type of scrap which is fit for recovery of metal. The samples shown to me did not show that they were melting scrap and therefore, the party had mis-declared, thus there is justification to extend the larger period . Ld. Collector has noted the admission of the party that the scrap removed were being used by manufacturers for manufacture of steel articles or for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to the Book The Making, Shaping and Treating of Steel published by United States Steel which was produced by the appellants for perusal. The Collector has also referred the result of cross-examination, then to the various witnesses of the appellants. On the basis of this evidence, he has drawn the following questions : (i) whether the so-called waste and scrap cleared by party was in the form of original inputs like steel sheets/CRCA sheets procured for which Modvat credit taken under Rule 57A or have retained the said inputs at the stage of removals as alleged in the show cause notice. (ii) whether the said waste and scrap of steel sheets cleared was in the nature of partially processed goods or capable of manufacture of an intermediate products. (iii) whether the said waste and scrap of steel sheets generated in the process could be termed as waste and scrap within the statutory definition given under Chapter 72 and eligible to be removed under Rule 57F(4) as claimed by the party. Considering the evidences on record, the ld. Collector has held that there is no substance to allege that M/s. Bajaj Auto Ltd., Waluj had at any time cleared or removed M.S. Sheets in or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le as such in the definition of waste and scrap has significant meaning. It has to be interpreted to mean if not usable as such (not in the factory itself even outside) the ultimate use is melting for recovery of metal and that case it is not used as such. In this case, from the very description and nature of the material as borne out by the panchanama and samples drawn is not for the purpose of melting but was having capability of further use in most of the cases. It, therefore, has to be construed that the party never disposed off the said material in the manner as required to deal with melting scrap. The identity of the material so disposed of is proved .... that it was not the scrap as defined under Central Excise Tariff Act, 1985 and even within the provisions of Rule 57F of the Central Excise Rules, 1944. As held above that so-called waste and scrap of steel sheet cleared was not in the form of waste and scrap as defined under the Central Excise Tariff Act, 1985, therefore, the disposal under Rule 57F(4) is rulled out. There is no doubt the assessee did process the inputs and generated the goods for which present demand. Such material was admittedly not the original input ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he factory. On the basis of these materials, ld. Counsel submitted that the demands are barred by time. Ld. Counsel pointed out to the show cause notice dt. 5-3-1983 which pertained to similar issue of generation of scrap in the process of manufacture which pertained to the period 5-7-1978 to 5-7-1983. The Asstt. Collector had confirmed the show cause notice by his order dt. 31-12-1984 taking note of the manner in which the waste arises in the appellant s activity of manufacturing of final product. The appellant had preferred an appeal before the Collector of Appeals, who by his letter dt. 5-11-1985 inter-alia had held that payment of duty should be restricted only for a period of six months, prior to the issue of show cause notice and that there was no warrant to invoke the extended period of limit, as the Deptt. was aware of the complete facts and the manner in which the said waste arises in the appellant s factory. The Counsel submitted that the appellants being aggrieved by the said order, had filed a writ petition before the High Court in writ petition No. 1646 of 1985. The High Court had directed the appellants to pursue the appellate remady [remedy] and with that direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of the intelligence report. He pointed out to the material on record to show that there was no question of any intelligence report in this case as the transactions were recorded and had been within the knowledge of the Department. He pointed out to the letter dtd. 29-1-1993 addressed by the Advocates to the Collector wherein they have sought clarification as to when the alleged intelligence was received by the Department and whether the intelligence was oral or written. The Deptt. by their letter dt. 12th February, 1993 had stated that nature and contents of the intelligence collected while booking the case cannot be disclosed, as it being secret. Pointing out to these materials, the Counsel submitted that there was nothing secret about the whole issue as the appellant themselves had noticed the advertisement as of sale of scrap being bringing out in the newspaper dt. 9-12-1985 and on subsequent dates. (ii) Ld. Counsel took up the issue of the bona fide belief held by the appellant in considering the waste and scrap. He submitted that in the market and trade, the items were considered as scrap and was also dealt as scrap and all the evidence produced by the Department clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to several witnesses who have not been classed opted for cross examination by the Department". 8. On the question of merits, ld. Counsel relied on the definition of the waste and scrap itself appearing in the Section Note XV of the Central Excise Tariff, 1985. He pointed out to the definition appearing in Central Excise Tariff, 1986 as on 1-3-1986 in Chapter 72 which describes Waste and Scrap : Waste and Scrap of iron or steel fit only for the recovery of metal or for use in the manufacture of chemicals, but does not include slag, ash and other residues. He pointed out that to this definition and submitted that this definition was modified by the Central Excise Tariff, 1988 as on 1-3-1988, which read : Metal Waste and Scrap from the manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting up, wear or other reasons. He submitted that the period in question was from 1-3-1986 to 31-5-1989. Therefore, the Tribunal was required to give interpretation of waste and scrap as prior to 1-3-1988 in the Tariff and after 1-3-1988. Pointing out to the first definition appearing in the Tariff, ld. Counsel submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion should not be made redundant by stating that they are not meant for utilising metal. All the three types of scrap arising from the definition were definitely useful for recovery of metals. The affidavit of Dr. Choudhary disclosed that when steel sheets undergo drawing operations in press shop, their tensile strength, elongation and hardness are always affected as indicated by tests carried out on the fresh material and those generated as a scrap. He submitted that the scrap was hard and it made the material brittle. Hardness are not improved by this quality and therefore, such material was not as per the ISI specification or understanding of M.S. Steel Sheets. The scrap arising from press cuttings were also not recognised and accepted for manufacture of quality goods. These scrap materials were utilised for making only odd quality goods which did not require any ISI specification or quality. He pointed out to test results of goods which was manufactured from good material and also those goods manufactured from scrap. He also referred to the Technical Literature Source Book on Forming of Steel Sheet published by American Society for Metals (Pages 136 to 140); The Making, Sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not relevant. On time bar, ld. JDR submitted that the appellants had not fully described the goods and also had not given the details and therefore, mere visits to their factory by departmental officials cannot be a ground to hold that the department was aware of the proceedings. There was a clear mis-declaration and hence larger period was invokable. He relied on the rulings rendered by the Supreme Court in the case of : (1) Jayshri Engineering Co. (P) Ltd. v. Collector of Central Excise - 1989 (40) E.L.T. 214 (2) Shri Hanuman Metal Industries v. Collector of Central Excise, Delhi - 1984 (18) E.L.T. 652 10. We have carefully considered the submissions and have perused the records, impugned orders, citations and the literature produced before us. We have already noted the questions raised by the ld. Collectors in these appeals and their findings and the grounds raised by the appellants. The definition of the Waste Scrap as appearing in Section XV prior to 1-3-1988 and subsequent to this date has also been noted. The issue for our consideration is : (i) whether the demands raised in this case or barred by time as contended by the appellants on account of previo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Collector has gone through the entire aspect of the generation of scrap and has confirmed the duty for the period 5-7-1978 to 31-7-1983 in terms of show cause notice dated 5-7-1983 and 4-1-1984. The appellants had filed a writ petition before Bombay High Court. The same was disposed of directing them to seek appellate remedy. Therefore, they filed a appeal before Bombay Collector (Appeals) who by his order dated 5-11-1985 restricted the demand to only 6 months on the ground that there had been no suppression of facts. We have also gone through the correspondence between the appellants and the department on this subject. There is a letter dated 13-6-1986 from the Supdt. with regard to payment of duty on steel/iron scrap (7203-10/7203.20). The appellants have replied by their letter dated 18-6-1986. By this letter, they have stated that stock of scrap which was in existence on 1-3-1986 is exempt from payment of duty. They have also referred to the stocks of scrap arising out of the processing inputs which were in stock in the factory as on 1-3-1986. The deptt. again issued another show cause notice on 1-3-1986, by their letter dated 21-2-1987. This has been replied by their letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he department. The department has proceeded on the ground that the inputs which are removed under Rule 57F(i)(ii) or part of the input for home consumption declaring it as waste and scrap arising from the process of said goods. It is the departments case that these inputs cannot be considered as waste and scrap, as they had been utilised for manufacture of finished goods in the premises of vendors/job workers and other manufacturers to manufacture the articles, locks, cycle parts, motor vehicle parts, domestic kitchen articles, electric parts, cycle parts by treating inputs as waste and scrap. The assessee has explained that they were holding a bona fide belief that this type of sale constitute only 2% of the entire sale of waste and scrap. They have also explained that they have held the bona fide belief on the ground that these items were also waste and scrap, in the light of the understanding in the trade in respect of such materials, technical understanding, as well as description of ISI specification in respect of such materials. In support of these contentions, the appellants have relied on the test results, affidavit of Dr. Choudhary, Professor of Metallurgy and extracts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided under sub-rule (4) of Rule [57F], although the appellants were liable to pay the duty on such inputs in the manner as provided under Rule 57F(i)(ii). It is the department s case that the M.S. Sheets of irregular dimensions, circles, patties/strips all retain the essential characteristic of sheets, and that they are not waste and scrap and hence full duty as on inputs is required to be paid and not the duty as on the waste and scrap and hence the differential duty has been demanded in these proceedings. We have held that the recoveries are barred by time for reason noted supra. However, the question still remains to be answered as to whether, these inputs i.e. M.S. cuttings, trimmings and circles retains all the characteristics of the M.S. Sheet or they have lost the characteristics tensil strength, mechanical and physical properties, dimensional characteristics, temperature changes and, therefore, they are to be treated as waste and scrap alone, as urged by the appellants. It is the appellant s contention that 2% of the waste and scrap has been removed for manufacture of materials to their job workers and other manufacturers. It has been pointed out by them through the ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctory in his cross examination has denied having cleared good steel sheets. The samples were shown to him, which was a piece 470 x 985 mm. He denied this piece to be called as Scrap, as this type of pieces, were used in the factory for manufacturing smaller components. He admitted generation of scrap in press shop. In press shop, pieces were cut to the required size, by forming, deep drawing, piercing trimming etc. He stated that the scrap which is so generated in press shop does not retain the same properties of the steel sheets; as these cut pieces get generated after various operations, therefore, the size, shape and physical properties like tensil strength, thickness etc. changes while sheets are processed in the press shop. He has further explained that when there is change in size, the cut piece cannot be used unless a small part is made. Change of thickness, change in tensile strength is not acceptable for processing any further and hence becomes unsuitable for any of their processes in the factory. He has denied having sold any steel sheets, unless the sheets get deeply pitted, rusty and deformed in handling. (ii) Shri Chandrashekhar Narayan Athawale, Deputy Manager (Mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment were scrap. They procure M.S. Sheets of size of 1000 mm x 2000 mm, 125 mm x 2500 mm, 1500 mm x 3000 mm. The scrap is generated in press shop and in three wheeler body shop and that is stored in scrap yard, which is 30,000 square feet, and in open plot of land with roads on all the three sides. He submitted about the procedure laid down by the General Manager for determining the scrap and the procedures laid down by them. He also stated that the portion sent to scrap yard were not steel sheets. (iv)Sh. Shankar Bayaji Madane, Manager Press Shop was also examined by department on 21-10-1988. In this statement he has given the details of different parts manufactured and the extent of M.S. Scrap generated, therein, which is to a tune of 900 to 1000 MT per month. He stated that 600 MT is reusable being of good quality and the selling ratio of such M.S. Scrap is much lighter than the rate of the melting M.S. Scrap, that is to say about 500/- or above. He was shown one seized sheet, from M/s. Proficient Die Makers for which he stated that it could not be considered as scrap. He was also cross-examined. He has stated that remnant of steel sheets after due punching could be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of any components. In his further statement dt. 2-11-1988 he confirmed that this piece could be used for manufacture of components and this was also a raw material for their factory also. He spoke about a loaded tempo with rectangular steel sheets measuring approximately 1 feet 11/2 feet, which had been intercepted at the main gate, and the material was brought back and sent to press shop for further use. Later, after this incident they had adopted procedure for strict checks in consultation with general manager. He was also cross examined. (vii)Sh. J.J. Mehta, Material Manager had also been examined and statement recorded on 4-11-1988. He was also cross examined. Likewise C. Dawsan, Assistant Manager (Materials), statement was recorded on 12-8-1988 and he had also been cross examined. The answers were all same as given by other witnesses. (viii) Mr. Prasad, Junior Stores Officer in his cross examination has stated that the nature of scrap sold was M.S. Scrap, M.S. Turnings, assorted scrap, Aluminium borings, wooden scrap, M.S. Patties, M.S. Scrap meant off cuttings, trimmings, punching, circles etc. 15.We note below the evidence collected from the purchasers of scrap mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parts etc. and these sheet cuttings or wheel Reem Circles were not used for melting purposes, as it is not economically possible. He submitted that in his letter dt. 20-7-1988, admitted that during the period 1-7-1986 to 30-6-1988 had purchased 20,800 mts of M.S. Scrap from M/s. Bajaj Auto. They had lifted types of scrap, such as strips, patties circles etc. from July, 1986 to June, 1988 at the press ranging from Rs. 4617/- to Rs. 9687/- PMT, after the acceptance of tenders. In his cross examination he had stated that he had purchased scrap from M/s. Hindustan Motors, Calcutta, M/s. Telco, Pune and from M/s. Premier Auto Mobile Bombay. The scrap stored in Darmkhana gets mixed up and it is not possible to separate. They sell the scrap to manufacturer of key, locks, hardware items etc. and also to cycle parts. He denied having purchased M.S. Sheets from Bajaj Auto Ltd., Pune. (iv) Similar statements have been recorded from Sh. Vishnu Prakash Mall, Director of Konkan Steel Ltd., Bombay. He has also confirmed purchase of M.S. Scrap from Bajaj Auto Ltd. In cross examination he stated that he had purchased only steel turnings and bornings and not steel sheets. (v) Shri A.V. Desai, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction material such as Tor Steel, Angles, Channels etc. on which MODVAT credit was not available. He explained that rejected CRCA Press components were not included in Assorted Steel Scrap. Steel Scrap was generated in press shop. M.S. Sheet Metal scrap generated in the press shop was dumped continuously into the scrap yard adjacent to press shop. From where the scrap dealers/vendors lifted the clearance were made on payment of duty. Scrap of M.S. Patties, and scrap of Wheel Reem Circles were sorted out and dumped in separate location in scrap yard. Scrap lifting was supervised to ensure correct type of scrap alone is loaded by the scrap dealer in the trade. He stated that M.S. Scrap is not their input and that they were not sending such scraps on 57F(2) Challan. Cut blanks were sent on 57F(2) Challan. He further stated that CRCA Steel Scrap is retained at the job worker s end which is generated out of raw material supplied by them under Rule 57F(2). However, by their letter dt. 25-8-1987, they had informed the superintendent, that they were liable to pay Excise duty on such scraps retained at job workers end and that they were regularly paying duty for the scrap retained at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tool box side 39.2 10 121 4. T-2 Trimming of body half tool box side 39.1 12 132 Remarks : -The samples serial No. 1 and 2 conform to DIN 1623, RR st 14 grade. The samples serial No. 3 and 4 do not conform to DIN 1623, RR st 14 grade, which indicates that properties of original sheets have changed during processing." 19. The appellants have also produced the copy results of laboratory report in respect of fresh sheets and those of scrap. The same is reproduced herein below : Date 12-10-1992 LAB No. M588 LABORATORY REPORT Item Description Sheet for Body Half, Tool Box Side (Fresh Sheet) Code No. 98020198 Quantity 2006 Kg. ANALYSIS CHEMICAL 1. Sheet size: D 9x1065x2085 mm On Mn.% Al% Remarks 0.04 0.14 0.04 Chemistry conforms to RRST14 grade, 28 DIN 1623-1972 HARDNESS (AS 2. RECEIVED) 85/90 HV 5 kg HARDNESS (AS QUENCHED) ( ) VISUAL INSPECTION/ MAGNETIC CRACK MECHANICAL TESTING (GL 80mm T.S Elongation Break ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Editor, Johan R. Newby Senior Staff Metallurgist Research and Technology Division Armco Steel Corporation. American Society for Metals. (ii) The Making Shaping and Treating of Steel Edited by William T. Lankford, Jr. three other published by United States Steel Chapter 8. (iii) 1985 SAE The Engineering Resource for Advancing Mobility. Product of the operative Engineering programme. Vol. I Materials. (iv) `Press Work Presses , A treatise on the problems of light press work, press-tool design, and press operation by J.A. Grainger second Edition Published by `The Machinery Publishing Co. Ltd., London Brighton. (v)AIDA Press Hand Book by V.S. Chandhari published by Aida Engineering Ltd. (vi)Indian Standard Specification for Cold Rolled Low Carbon Steel Sheets and Strips (Third Revision) IS: 513-1986 (superseding IS: 4030-1973) (vii)British Standard 1449 : 1956 Steel Plate Sheet and Strip published by British Standards Institution. 21. The extracts from Source Book on Forming of Steel Sheet pages 93, 95, etc. is given below :- Cold Reduction, Annealing Temper Rolling 1. The percentage of cold reduction to final thickness is important. A greater reduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have been reduced in recent years as a benefit derived from improved automatic equipment. Also, a higher percentage of the material will generally be closer to the desired thickness than heretofore. Thickness tolerance can be applied equally or unequally, over and under but a recent trend has been to specify a minimum thickness with zero tolerance on the minus side. 2. Flatness is a standard rather than a process. Generally, there are two standards of flatness (commercial and stretcher levelled) which can be obtained by the use of various flattening methods such as roller levelling, tension levelling, special roller back-up levelling or by gripping and stretching. Flatness usually is not as critical for forming or drawing operations. In an effort to obtain better flatness, ductility must sometimes be sacrificed. In the case of sheet steel, the thickness tolerance includes crown which is the amount that the sheet is thicker at the center than at the edge. Thickness is measured at any point across the width not less than 3/8 in. From a side, cut edge and not less than 3/4 in. From a mill edge (hot-rolled). The crown on hot-rolled sheets is generally not in excess of 0.004". The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exponent, along with test values obtained by various cup-drawing tools and procedures, such as the Olsen, Erichsen, Swift and Fukui tests. DIMENSIONAL CHARACTERISTICS The tolerances for thickness, width, length, flatness, etc. are listed in various publications, such as ASTM A-568, AISI Carbon Sheet Manual (available in small pocket size) and in commercial brochures. In some cases, restricted tolerances are available, subject to negotiation. 3. Reduction of delay between draws. Insofar as possible, progressive forming and drawing, should be completed in prompt, successive stages. The frictional heat of the draw coupled with the delay between draws accelerates the aging. 4. By avoiding exposure of sheets to over-heated storage conditions. Ageing progresses with TIME and with TEMPERATURE. It results in two major changes : 1. Loss of ductility accompanied by increase in hardness, yield point and tensile strength, with decrease in elongation. 2. Stretcher straining and flating when formed. Although ageing occurs to some extent in hot-rolled sheets it is more critical in the case of cold-rolled sheets because of the thinness of the material and because of the importance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , second or subsequent metal is stressed past its yield point to cause plastic flow, any considerable variation in the material will have a serious effect on its performance. Variation may exist in the consistency of grain structure, temper ductility, strength, analysis and guage size." 24. Indian Standard Specification for Cold Rolled Low Carbon Steel Sheets and Strips IS: 513: 1986 (Third Revision) has been approved by the Structural and Metals Division Council: para 0.2.1 states that: 0.2.1 In this revision, the chemical composition requirements for the various grades have been modified in line with the requirements of the consuming industries and the requirements for tensile properties have also been included. 0.3 Steel sheets and strips conforming to this standard are of weldable quality and are suitable both for fusion welding and resistance welding. 0.4. Cold rolled steel strips are available in a variety of types and finishes. In order to assist the manufacturers, it is recommended to the purchaser to indicate on the enquiry or order the purpose for which the material to be used. A drawing of the part in question would be useful. 0.4.1 Cold rolled steel strip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, aminations, pitting, porosity, cracked or torpedges or any other defects which will impair spot welding and unified appearance of painted, electroplated and enamelled surface. 8.2 The degree or amount of surface defects in a coil may be expected to be more than in cut lengths because of the impossibility of rejecting portions of a coil. This shall be taken into account by the purchaser in his assessment of the material. An excessive amount of defects may be cause for rejection. 8.3 The sheets shall be reasonably flat and edges cleanly sheared and squared to the specified dimensions. Para 9 deals with Dimensions and Dimensional Tolerances. Para 10 deals with Sampling for Tests. Para 11, Delivery Para 11.2, Packing Para 11.2.1 Each sheet shall be treated on both sides with non-hardening type rust preventive oil, which can be easily washed with aqueous alkali solution. Para 11.2.2 Sheets and strips shall preferably be supplied in bundles or packages not weighing more than 3 tonnes as agreed to between the purchaser and the manufacturer. Para 11.2.3 Sheets and strips shall be securely packed in waterproof material, and covered all over with steel envelope and se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, therefore, the case is required to be rejected or accepted, as the case may be. In this case, the department has not sent the samples for any chemical analysis for test, nor have they produced any expert opinion or evidence on trade or commercial understanding of the term `waste and scrap vis-a-vis M.S. Sheet. Besides, the department has not also controverted the evidence produced by the appellants. Therefore, on this ground alone, the contentions of the appellants required to be accepted and impugned order are required to be set aside. 27A. The department s allegation is : (1) That the appellants had cleared the part of the said inputs for home consumption by declaring them as waste and scrap generated from processing of such inputs in the manner as provided under Rule 57F(4) by discharging the duty liability at the rate of Rs. 365/- PMT, as applicable to waste and scrap instead of paying duty in the manner under Rule 57F(i)(ii) for such inputs. (2) That they were exploiting the benefit of reduced rate applicable to waste and scrap by fraudulently misusing the provisions of Rule 57F(4), in as much as they were clearing the pieces of M.S. Sheets usable for further manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the steel sheets leaves on the cutting waste portions stresses, strains and also speaks of the structural and composition changes, which occurs, making the cut sheets as scrap and waste and also it loses its qualities. The extracts and figures from `Campbell Memorial Lecture gives details on such matters. The extract from `The Making, Shaping and Treating of Steel Chapter 8 deals about `scrap for steel making . The details from `Press Work and Presses is a treatise on the problems of light press work, press tool design and press operations. This is a masterly work on the materials with standards and specifications to be chosen for manufacture of tools, parts through use of press work, press design and press operations. V.S. Chandhari s Book `AIDA Press Handbook deals about the mechanical changes, Age hardening, which comes about in M.S. Sheets. The appellants have produced test results to demonstrate that material manufactured from scrap are totally different in strength and quality, in as much as that they are brittle and hard. Therefore, it is seen that such scraps, do not satisfy several technical requirements, in the light and context of these technical materials, op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnically sound M.S. Strips, circles or cutting. The criteria for giving the nomenclature of M.S. Sheets, strips, cuttings, circles etc. is not the utilisation of thrown away scrap and worthless materials by same SSI manufacturers, but it is the understanding given by technical and scientific understanding, the standards and specifications laid down by persons dealing with it by scientific institutions like ISI, British Specifications. The most important reason for establishing these institutions is to bring in Engineering and scientific standards in the use of raw materials in the manufacture of goods. The trade understanding in this case is also that these materials are waste and scrap materials. 31. The definitions in the Tariff prior to 1986 is : `waste and scrap of iron or steel fit only for the recovery of material . Undoubtedly, these materials are fit only for recovery of metal. The appellants has utilised a portion of such cut materials for manufacture of a few parts and also removed about 1% to 2% of their job workers for manufacture of parts. The department is claiming these items to be M.S. Sheets. However, we have disagreed on this aspect on the basis of enormous evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 57F(3) speaks of utilisation of credit of specified duty allowed in respect of any inputs, towards payment of duty of excise - (ii) on the waste, if any, arising in the course of manufacture of the final products. Rule 57F(4) also states that : Any waste, arising from the processing of inputs, in respect of which credit has been taken may - (a) be removed on payment of duty as if such waste is manufactured in the factory; or (b) be removed without payment of duty, where it belongs to such class or category of waste as the Central Government may from time to time by order specify for the purpose for being used in the manufacture of the class or categories of goods as may be specified for the purpose for being used in the manufacture of the class or categories of goods as may be specified in the said order, subject to the procedure under Chapter X being followed; or (c) be destroyed in the presence of proper officer on the application by the manufacturer, and if found unfit for further use or not worth the duty payable thereon, the duty payable thereon being remitted: provided that such waste may be destroyed by the manufacturer governed by Chapter VIIA after informing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not marketable end-product, has to be considered as waste. A defective tyre and tube emerges because of some defect left in the product during the process of manufacture and hence it has to be considered that the cut tyres and tubes which are cleared, are the result of the activity during the manufacturing process. The departmental authorities themselves in the context of MODVAT credit under Rule 57-D(1), as evidenced by the Trade Notice No. 197/89, dated 20-10-1989 of Karnataka Collectorate, have taken this view. The Explanation added to sub-rule (2) of Rule 56-A is of later date and it is to give relief to the manufacturers who, no doubt had utilised the inputs in the manufacturing stream for the intended purpose of manufacturing the end-product for which the credit had been allowed, but because of some defects in the manufacturing process or because of the inherent nature of the activity has to lose part of the inputs in the waste and by-products etc. In the face of the specific relief given the status of waste by-product and the credit to be taken in respect of the inputs contained therein has to be taken to be available to the appellants. In view of this I find no infirmit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of this case. As the refuse i.e. waste and scrap thrown out during the process of manufacture cannot by any stretch of imagination be considered as final original product i.e. M.S. Sheets, merely because the waste and scrap is being used by some small scale industrialists for manufacture of some items. 36. In the case of M/s. L.M.L. case, (supra) the Tribunal, on examination of the materials had found that the materials were M.S. cuttings and scrap. There had been no evidence placed by the appellants in that case both of technical, as well as trade and of understanding in commercial parlance, with regard to the material to be treated as scrap. Therefore, the Tribunal held the item to be not waste or scrap. Therefore, the facts of the cited case is clearly distinguishable. 37. In the amended Central Excise Tariff Act, 1988 in Section XV Note 6(a), `waste and scrap is defined as : Metal waste and scrap from manufacture or mechanical working of metals, and metals goods definitely not usable as such because of breakage, cutting up, wear or other reasons. In this case the `waste and scrap has arisen from manufacture as well as from the mechanical working of metals. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ap rather than on the nature of scrap, clearly shows that the department was aware of the nature of so-called `scrap and yet never raised the issue, which it could, that such `scrap was not really `scrap but sheets. No allegation of wilful mis-statement or suppression of facts or contravention of any rule with intent to evade payment of duty can be sustained against the appellant company. Accordingly, I hold that the demand of duty would be confined to six months period as stipulated under Section 11A of the C.E. S.A, 1944. There is thus an agreement with my learned brother on this point. 41. As regards the current issue of whether the so-called scrap is really `waste and scrap so that MODVAT credit is debited on the basis of the duty payable on waste and scrap or it is a `sheet warranting debit of duty payable on sheet, I am of the view that it is question of fact to be determined on examination of the goods. Thus question was examined by the Tribunal in the case of LML (supra) - 1989 (44) E.L.T. 119. In this connection para 9 of the judgment is reproduced below for the guidance of the assessee and the assessing authority : - 9. Nevertheless, on perusal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting up, wear or other reasons. Learned Advocate has stated that the `waste and scrap under consideration in this case is undoubtedly a result of the mechanical working of metal on account of press-shop work on the steel sheets. Since this part of the definition is satisfied, we need not go to the second part of the definition i.e. metal goods definitely not usable as such ...... Another argument is that the definition envisages distinction between metals and metal goods . Metal goods according to the learned advocate are articles of iron steel available in the market such as steel utensils, pails, knifes, manhole covers etc. When these goods, over a long use are scrapped, these are to be treated as, metal waste and scrap 43. On the other hand, learned JDR, Shri S.K. Sharma, states that sheets are metal goods and if the left out portion after working on duty paid steel sheets is still capable of being used as sheets for which sheets are generally meant, such left out portion cannot be treated as waste and scrap. Duty is charged on sheets as flat-rolled pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r determining duty liability in terms of past six months from the show cause notices, documentary evidence will have to be taken into account to arrive at the findings of `usability . For this purpose, the matter is remanded to the adjudicating authority. 47. Appeals disposed of in the above terms. Sd/- (P.C. Jain) Dated : 10-5-1994 Member (J) POINT OF DIFFERENCE Whether in the facts and circumstances of the case the residue left after mechanical operations on steel sheets undertaken by the appellants in their factory are to be treated as waste scrap and duty is payable as at the rate applicable to waste and scrap in terms of Rule 57F, as held by the Judicial Member. OR Whether such residue, as aforesaid, is to be treated as different from waste and scrap in terms of the said expression under Note 6 to Section XV of the CETA, 1985 on the basis of examination of each consignment claimed by the appellants as waste and scrap, as held by the Technical Member. Sd/- Sd./- (S.L. Peeran) (P.C. Jain) Dated : 12-5-1994 Member (J) Member (T) 48. [Order per : K.S. Venkataramani, Member (T)]. - Shri Barucha, ld. Sr. Counsel for the appellants address ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing. He also in this context relied upon the Supreme Court decision in the case of Collector of Central Excise v. Krishna Carbon Paper - 1988 (37) E.L.T. 480. The question to be answered is only whether the sheets, herein, answer to the definition of waste and scrap as given in the Central Excise Tariff Act. The ld. S.D.R. urged that the changes of mechanical properties in processing is not, in such a context, material. He also relied upon the Supreme Court decision in the case of Akbar Badruddin Jiwani v. Collector of Customs - 1990 (47) E.L.T. 161 (S.C.) to say that where there is a tariff definition, recourse to commercial understanding and trade parlance is not warranted. The ld. S.D.R. also contended that the definition of the term in the HSN Explanatory Note is also relevant. Chapter 72 covers products like angles, sheets and sections. The ld. S.D.R. pointed out that the ratio of the Tribunal decision in the case of LML Ltd. v. Collector of Central Excise - 1989 (44) E.L.T. 119 clearly applied to this case. 50. The submissions made by both the parties, have been carefully considered. The question is whether goods, in question, should pay duty applicable to metal waste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ste and scrap in CETA and its scope as found above, it will be difficult to sustain the appellants arguments that the steel sheets undergo changes in mechanical properties in the pressing processes and that hence thereafter they do not answer the description of sheets but should be considered as scrap. This is also because, admittedly, the certain quantity of the sheets are used for making components for the appellants by job-workers. It is also, seen in this context that the Supreme Court in the case of Cannonore Spg. Wvg. Mills v. Collector of Central Excise, Cochin - 1978 (2) E.L.T. (J 375) had held that the word `hank occurring in a Central Excise Notification could not be interpreted according to the well-settled commercial meaning of that term which was accepted by all persons in the trade, in as much as the said commercial meaning would militate against the statutory context of the said exemption notification. The word `hank , the court held, as used in the notification, meant a `coil of yarn and nothing more. The above judgment has been referred to by the Supreme Court in the case of Akbar Badruddin Jiwani v. Collector of Customs - 1990 (47) E.L.T. 161 wherein the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amani) Member (T). MAJORITY ORDER 52. [Order per : S.L. Peeran, Member (J)]. - In terms of the majority opinion, the appeals are disposed of in the following terms : - (i) The demands are to be confined to Six months period. (ii) The `Waste and Scrap is required to pay duty under Rule 57F(4) of Central Excise Rules, 1944, and the goods cleared under Rule 57F(4) as Waste and Scrap must fulfil the definition given in Section XV (Note 6) of the Schedule of the Central Excise and Tariff Act, 1985. (iii) If the so-called `Wasted Scrap is usable as sheet, it cannot be termed as `Waste and Scrap . On clearance of such goods, debit must be made at the rate of duty payable on sheet subject to any other provision of law. (iv) Since the goods have already been cleared, therefore, for determining the duty liability for the past six months from the dates of the show cause notices, the documentary evidence will have to be taken, in respect of each consignment cleared. The appeals are remanded to the adjudicating authority, in terms of the majority findings. Sd./- Sd/- (P.K. Kapoor) (S.L. Peeran) Dated : 12-10-1994 Member (T) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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