2011 (7) TMI 413 - HC - Central Excise

Sale of broken or unusable glass bottles - demand of duty of excise - It was submitted that it was not disputed that the appellant had availed of MODVAT credit on glass bottles which were used by it to fill and market thereafter aerated water; being the final product. - Held that - The argument that the appellant was not the manufacturer of glass bottles did not arise since the appellant had availed of MODVAT credit by treating the glass bottles as inputs. The expression used in rule 57F(5) was processing of inputs which covered the fact situation obtaining in the instant case and therefore any waste as a consequence of the same could be removed only on payment of duty. - In view of the decision of the Karnataka High Court in the case of Associated Cement Ltd. (2007 -TMI - 33318 - KARNATAKA HIGH COURT) decided against the assessee.

Summary

Issues Involved:
1. Applicability of Rule 57F(1)-(5) of the Central Excise Rules, 1944.
2. Duty on the sale of waste and/or scrap of glass bottles.
3. Duty on the sale of glass bottles under leasing arrangements.

Detailed Analysis:

Issue 1: Applicability of Rule 57F(1)-(5) of the Central Excise Rules, 1944
The central question was whether the Tribunal was justified in its view regarding the applicability of Rule 57F(1)-(5) of the Central Excise Rules, 1944.

Issue 2: Duty on the Sale of Waste and/or Scrap of Glass Bottles
The appellant manufactured aerated water and procured duty-paid glass bottles on a lease basis. The dispute arose regarding the sale of broken or unusable glass bottles treated as waste and/or scrap. The appellant argued that Rule 57F(5) should not apply as they were not manufacturers of glass bottles. However, the court noted that Rule 57F(5)(a) mandates that any waste arising from the processing of inputs, for which MODVAT credit has been availed, must be removed on payment of duty. The court emphasized that the expression "any waste arising from processing of inputs" includes waste generated from inputs used at various stages of manufacture. Therefore, the appellant's removal of waste without payment of duty was contrary to Rule 57F(5)(a).

Issue 3: Duty on the Sale of Glass Bottles Under Leasing Arrangements
The second dispute involved transactions where glass bottles were recorded as sold in the appellant's books but remained in their physical possession under a leasing arrangement. The appellant contended that Rule 57F(1)(ii) requires physical removal for home consumption to trigger duty payment. The court, referencing similar cases like Commissioner of Central Excise, Belgaum vs. Associated Cement Company Ltd., held that the sale and leaseback arrangement effectively constituted removal. The court emphasized that Rule 57F(1)(ii) includes a deeming fiction that goods are manufactured, and physical removal is not a criterion for excise duty imposition. The court concluded that such leasing arrangements, despite being recorded as sales on paper, necessitate duty payment equivalent to the MODVAT credit claimed.

Conclusion:
The court affirmed the Tribunal's decision, holding that Rule 57F(1)-(5) applies to the appellant's transactions. The removal of waste glass bottles without duty payment was incorrect, and the leasing arrangement for glass bottles required duty payment equivalent to the MODVAT credit availed. The appeal was disposed of, with the question of law answered in the affirmative and against the assessee.