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TMI Blog1995 (7) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... uty-paid mild steel (MS) sheets, classifiable under Heading No. 72.08 of the Tariff. On receipt of the duty-paid MS sheets, they obtained credit of the Central Excise duty paid by the manufacturers of these sheets, under the scheme popularly known as Modvat scheme, laid down under Rules 57A to Rule 57J of the Central Excise Rules, 1944 (hereinafter referred to as the `Rules ). They were working under the scheme known as self removal procedure (SRP), under which assessees were allowed to take clearances of their goods on their own, without any supervision by the Central Excise officers at the point of clearance. A part of the receipt of the sheets after optimum utilisation by them was removed to outside customers. The appellants paid Central Excise duty on such removals as applicable to waste and scrap at the rate of Rs. 365/- per MT, plus special excise duty, as applicable to the goods classifiable under sub-heading No. 7204.90 the Tariff, while the revenue alleged that the Central Excise duty was payable at the rate of Rs. 715/- per MT plus special excise duty, and other higher varying rates as applicable from time to time i.e. the rate at which they had obtained credit on receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that they had effected their clearances under the approved classification lists, and their activities were known to the department. In so far as the appeal filed against Order-in-Original passed by the Collector of Central Excise, Pune is concerned, he pleaded that it should be allowed on limitation alone. The ld. Advocate traced the history of the case, and referred to a number of decisions in the matter. In particular he referred to the Tribunal s decision in the case of L.M.L. Ltd. v. C.C.E. reported in 1989 (44) E.L.T. 119 (Tribunal), and in case of Bajaj Auto Ltd. Order No. E/166/94-B1, dated 12-5-1994 reported in 1995 (75) E.L.T. 382 (Tribunal), and submitted that the rationale of these decisions was not applicable to the facts in the present case. 5. Sh. Somesh Arora, the ld. JDR replied that the appellants had declared the goods removed, as scrap, but in place of scrap what was removed were the cut sheets. They were cut sheets but nevertheless they were sheets and not scrap. He referred to the value at which these cut sheets were sold and argued that they were not the waste and scrap. These cut sheets were useable for fabricating small parts. Their value was fairly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilised by them towards payment of the duty of excise on their final product. Under Rule 57A of the Rules the credit of the specified duty is allowable if the duty-paid inputs are used in or in relation to the manufacture of the final product. The expression used in the rule is Used in or in relation to the manufacture , of the final product. The expression is not intended for use . (Refer S.C. s decision in the case of State of Haryana v. Dalmia Dadri Cement Ltd.), AIR 1988 SC 342). Depending upon the requirement for the manufacture of their final product, portions from their inputs were cut. The Whole of the sheet was not used. After meeting out their requirement the cut sheets (not used in or in relation to the manufacture of the final product), were removed from their factory for outside consumption. They had declared that such cut sheets removed from their factory for home consumption were the `waste , for the purposes of sub-rule (4) of Rule 57F of the rules. Sub-rule (4) of the Rule 57F provided that any waste arising from the processing of inputs in respect of which credit has been taken may be removed on payment of duty as if such waste is manufactured in the factory. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction Notes and was revised as under :- Metal waste and scrap from the manufacture or mechanical working of metals and metal goods definitely not useable as such because of breakage, cutting up, wear or other reasons. The definition covers metal waste and scrap. It should have arisen from the manufacture or mechanical working of metals, and metal goods. It should be definitely not useable as such. The appellants had sought to separate `metals from the `metal goods , and contended that the expression `definitely not useable as such , does not relate to the scrap of metals but to the scrap of metal goods. We do not find any such distinction in the definition. Earlier definition specifically excluded `residues , and covered only that waste and scrap which was fit only for the recovery of metal or for use in the manufacture of chemicals. Further, the definition has to be seen in the light of the excise law. If the `metal goods are divorced from the `manufacture or mechanical working , then all the old metal goods (broken, cut, work-out etc.) would become excisable and dutiable, which would be an absurd proposition. The cut sheets in this case are left outs, and are in the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion, should pay duty applicable to metal waste and scrap or at the rate payable under Heading 72.08 CETA as flat rolled products. The definition of waste and scrap in CETA underwent a change in Finance Act, 1988. This was part of the exercise of aligning of the excise tariff more fully with HSN. As observed by the Finance Minister in his Budget Speech, while introducing the Finance Bill, 1988, I propose to align the excise tariff relating to ferrous and non-ferrous metals and articles thereof with the corresponding chapters of the Harmonized System when would help reduce classification disputes. The Budget instructions by the Finance Ministry explaining the changes 1988 (15) ECR 16J are as follows : The commodity descriptions relating to iron and steel and articles thereof have been re-cast and brought in line with the corresponding Chapter descriptions appearing in the Harmonised System (H.S.). As in the H.S., the commodities falling within Chapter 72 have been put under four broad groupings, namely, (a) Primary materials; products in granular or power form; (b) iron and non-alloy steel; (c) Stainless steel; and (d) Other alloy steel; hollow drill and rods, of alloy or non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .L.T. 161 wherein the Supreme Court also observed that whether the general principle of common parlance trade understanding is applicable or not depended on the statutory context. The Supreme Court in that judgment also quoted with approval the Tribunal decision in the case of Collector of Customs v. Hargovindas Co. - 1987 (29) E.L.T. 975 wherein the Tribunal had observed It is by now well-known that the Customs Tariff import schedule hardly left any scope to go in for trade parlance or common parlance because it statutorily defined almost everything with the help of rules of interpretation and explanatory notes. In such a scheme, the statutory definitions must prevail over the trade parlance or any other aids to interpretation. In such a view of the matter when there is a definition of the term `waste and scrap in Note 6 to Section XV CETA that definition has to prevail over what the textual authorities and the trade concerned would consider as waste and scrap. The criterion to be applied is whether the sheets are capable of being reused for their former purposes. Some of the persons examined in this case have stated that the sheets could be used as such for manufacture of ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for home consumption on payment of duty of excise equivalent to the credit availed on such inputs. (2) Notwithstanding anything contained in sub-rule (1) a manufacturer may, with the permission of the Collector of Central Excise and subject to such terms and conditions and limitations as he may impose, remove the inputs as such, or after the inputs have been partially processed during the course of manufacture of final products, to a place outside the factory - (a) for the purposes of test, repairs, refining, reconditioning or carrying out any other operation necessary for the manufacture of the final product or remove the same without payment of duty under bond for export, provided that the waste, if any, arising in the course of such operation is also returned to the said factory; (b) for the purpose of manufacture of intermediate products necessary for the manufacture of the final products and return the said intermediate products to his factory for further use in the manufacture of the final product or remove the same without payment of duty under bond for export provided that the waste, if any, arising in the course of manufacture of such intermediate products is also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the proper officer in writing regarding the quantity of such waste and the date on which he proposes to destroy, at least seven days in advance and after observing all such conditions as may be prescribed by the Collector of Central Excise by a general or special order with regard to the manner of disposal of such waste. (5) No part of the credit duty allowed shall be utilised save as provided in subrule (3). (6) On an application made by a manufacturer, the Collector may, subject to such conditions and limitations as he may impose, permit a manufacturer having credit in his account in form RG 23A and lying unutilised on account of shifting of the plant or factory, belonging to the manufacturer, to another site, to transfer the credit in the account aforesaid to such factory of the same manufacturer." Under Rule 57F any waste arising from the processing of inputs in respect of which cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice and other relevant consideration, the Asstt. Collector of Central Excise, Pune had come to a decision that the goods under consideration were not waste. The Asstt. Collector of Central Excise, Pune had observed that these cut sheets were used for making other components outside the factory by different manufacturers and therefore, commanded a higher price than the normal waste and scrap. (Also refer para 1 of the Order-in-Appeal dated 17-3-1992). The Collector of Central Excise, Pune had observed as under :- This is also supported by the fact that whereas they have declared the goods as scrap in Gate Passes, they have been correctly described as M.S. Sheets - Select/ Unselect in the corresponding invoices. Even with regard to the scrap, the Hon ble Supreme Court in the case of Tata Iron and Steel Co. Ltd. v. C.C.E., reported in 1995 (75) E.L.T. 3 (S.C.) had observed that scrap is normally understood as something which is not serviceable. (para 2); a substandard article is not scrap as understood in commercial parlance or trade circle (Para 2); a sub-standard bloom or billet is steel bloom or billet. But the scrap of billet or bloom would not be the same thing as semi-fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the description of waste and scrap. 15. At this stage, we may re-capitulate some special features of this case. The appellants brought duty-paid M.S. Sheets from outside. The duty on the sheets was paid by the suppliers at Rs. 715/- per tonne. On receipt the appellants took credit of the duty paid by the suppliers of these sheets. The Modvat scheme visualises that such sheets after credit has been taken by the declarant, of the duty paid thereon, can only be removed on payment of the appropriate duty, which shall not be less than the amount of credit that has been taken in respect of such sheets. It is assumed that the sheets are required to pay duty on clearance and that they are manufactured in the factory, in which they have been brought from outside. In other words, it can be said that as soon as the credit of the duty already paid is taken, the sheets are shorn off their duty paid character. Further, when duty is required to be paid on removal, no extra burden is cast on the goods or the manufacturer who had taken the credit of the duty already paid, and had utilised such a credit. It is in the nature of paying back to the exchequer what has already been enjoyed. But f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if accepted would lead to evasion of duty. Accordingly, it deserves to be turned down and we do so unhesitatingly. Para 44 of the Tribunal s decision in the case of Bajaj Auto Ltd. v. C.C.E., Pune, Order No. E/166/94-B1, dated 12-5-1994 reported in 1995 (75) E.L.T. 382 (Tribunal) is extracted below :- 44. I have carefully considered the pleas of both sides. Modvat Credit Scheme, is a procedural Scheme for avoiding cascading effect of duty. Assessment of `inputs under that scheme is done on the basis of definition, description, interpretative rules etc. of the CETA, 1985. Therefore, there is no doubt that when `waste and scrap is required to pay duty under Rule 57F(4), it must conform to the definition of that expression in the CETA, 1985. If no definition is provided in the statute, then we may fall upon the commercial parlance test. This is the clear enunciation of law laid down by the Supreme Court in the case of Krishna Carbon, 1988 (37) E.L.T. 480. It is, therefore, clear that goods which are sought to be cleared under Rule 57F(4) as `waste and scrap must fulfil the definition given in Section XV (Note 6) of the schedule to the CETA, 1985. Sheets are certainly metal go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in the nature of process waste. 18. In the show cause notice, in Appeal No. E/793/92-B, contravention of the provisions of Rule 57F(1)(ii) and Rule 57F(4) of the rules was alleged, and the differential Central Excise duty was demanded under Rule 9(2) read with proviso to Section 11A(1), read with Rule 57-I of the Central Excise Rules. The show cause notice is dated 3-5-1991 and covered the period from 1-4-1986 to 5-5-1988. In the show cause notice dated 3-5-1991, issued by the CCE, Pune it was alleged that the assessee were liable to pay the Central Excise duty on part of inputs in the manner as provided under Rule 57F(1)(ii), that they had wilfully mis-stated and wilfully suppressed the facts, had clandestinely cleared the cuttings of steel sheets as scrap, and that the proviso to Section 11A(1) read with rule 57-I, was rightly invokable. The Collector of Central Excise, Pune had held that the assessee were neither generating nor clearing the scrap, and therefore, their declaration of off-cuts as scrap in the classification list was a deliberate mis-declaration a mis-statement of facts with the intent to evade duty. It should have been declared as Sheet metal (off-cuts), and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit] should not be recovered from him : Provided that where such credit has been taken on account of wilful mis-statement, collusion or suppression of facts on the part of a manufacturer or an assessee, the provisions of this clause shall have effect as if for the words six months the words five years were substituted. (ii) The proper officer, after considering the representation, if any, made by the manufacturer or the assessee on whom notice is served under clause (i), shall determine the amount of such credit to be disallowed (not being in excess of the amount specified in the show cause notice) and thereupon such manufacturer or assessee shall pay the amount equivalent to the credit disallowed, if the credit has been utilised, or shall not utilise the credit thus allowed. Explanation : (Where the service of the notice is stayed by an order of the Court, the period of such stay shall be excluded from computing the aforesaid period of 6 months or 5 years, as the case may be.) (2) If any input in respect of which credit has been taken are not fully accounted for as having been disposed of in the manner specified in this section, the manufacturer shall upon a written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the conclusions drawn by us. In the case of Air Conditioning Corporation, New Delhi v. CCE, Calcutta - 1985 (19) E.L.T. 206 (Tribunal), there was no allegation of clandestine removal either in the show cause notice or in the adjudication order. The issue in the case of Nat Steel Equipment P. Ltd. v. CCE reported in 1988 (34) E.L.T. (SC) was of classification of domestic electric appliances. There was no issue relating to Modvat credit and utilisation disposal of the inputs. In the case of TISCO Ltd. v. U.O.I. reported in 1988 (35) E.L.T. 605 (SC) the matter related to the weight of the forged goods for the purpose of levy of excise duty. The issue before is different than the matter before Supreme Court in the case of CCE v. Chemphar Drugs and Liniments reported in 1989 (40) E.L.T. 276 (SC), and Padmini Products v. CCE reported in 1989 (43) E.L.T. 195 (SC). No interpretation of Modvat provisions was involved. In the case of CCE, Muzzaffar Nagar Steel reported in 1989 (44) E.L.T. 552, the matter related classification of runners and risers arising during the course of manufacture of steel ingots, and their entitlement to the benefit of exemption Notification No. 237/75-C.E. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jaj Auto Ltd. v. Collector of Central Excise, [1995 (75) E.L.T. 382]. My Learned Brother had applied the ratio of the rulings on merits, as in these cases. Though I had expressed my views in Bajaj Auto Ltd. (supra), but by majority order the Revenue s contention, in so far as is stated in that order, was confirmed. I have to respectfully follow the majority to be applied to the facts of this case also. In the Bajaj Auto s case, the Bench unanimously held the demands to be time barred. My Learned Brother has not followed that view but has held that time bar is not applicable for demands raised under proviso to Section 11A(1) read with Rule 57-I of Central Excise Rules, 1944. I am with utmost respect, not agreeable to this proposition, especially after noting in the order about the approval of the classification list. The facts and circumstances of this case does not allow for invokation of larger period under Section 11A read with Rule 57-I of Central Excise Rules,1944. The question of extension of extended period for recovery of wrongly availing or utilisation in irregular manner under Rule 57-I read with Section 11A of the Central Excise Rules, was gone into in great length in t ..... 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