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2015 (7) TMI 183 - CESTAT MUMBAI

2015 (7) TMI 183 - CESTAT MUMBAI - TMI - Duty demand on waste and scrap generated - Whether the remnant material cleared by the appellant to M/s. Shridhar Metal Works is clearance for the home consumption and leviable to excise duty or it is captive consumption and exempted under Notification No. 67/95-CE dated 16/3/1995 - clearance of Aluminium dross, Aluminium turning and Aluminium oily flash - Held that:- Part of the premises of the appellant was given on leave and licence agreement to differ .....

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captive consumption and therefore the same shall not be entitled for exemption under Notification No. 67/95 - if any other person carry out the manufacture, even in the premises of another manufacturer for the purpose of job work basis it cannot be said that job worker is hired labourer therefore job work shall be treated as independent manufacture and not the premises owner

It has been alleged in the show cause notice that since the scrap is a finished goods, it is not permitted to .....

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rolling and cold drawing of copper bar undertaken by the appellants for bringing out the final product. These waste and scrap generated during the process of manufacture instead of being disposed of in the market, is being recycled and re-converted into copper bars, by following the procedure of Rule 4(5)(a) as the appellants do not have any facility for such reconversion. They further consumed the same captively in the manufacture of excisable final product. Merely because the waste and scrap .....

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sh Nair, Member (J),JJ. For the Appellant : Shri. Kiran Sawale, Adv For the Respondent : Shri. V.K. Agarwal, Addl. Commissioner (A.R.) ORDER Per: Ramesh Nair This appeal is directed against Order-in-Original No. 23-26/CEX/COMMR/2014 dtd. 6/5/2014 passed by the Commissioner of Central Excise & Customs & Service Tax, Aurangabad, wherein Ld. Commissioner has passed following order: (i) I confirm demands of ₹ 1,59,33,593/- and ₹ 2,70,87,131/- against M/s. Aurangabad Electricals L .....

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l Excise Act, 1944, on the amount as confirmed above. iv) I impose penalty equal to the duty involved, for the period upto 7.4.2011 as per two SCNs, both dated 2.5.2013 on M/s. Aurangabad Electicals Ltd. and M/s. Shridhar Metal Works under Section 11AC of the Central Excise Act, 1944. However, such penalty shall be reduced to 25% in terms of Section 11AC(5) of Central Excise Act, 1944 provided the notices pay the amount of duty confirmed with interest and also 25% penalty within 30 days of the r .....

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o assessees i.e. present appellant M/s. Aurangabad Electricals Ltd. and other assessee i.e. M/s. Shridhar Metal Works. The present appellant is against confirmation of demand of duty and penalty on the clearance of Aluminium dross, Aluminium turning and Aluminium oily flash cleared to M/s. Shridhar Metal Works. The fact of the case is that the Appellant is manufacturer of Motor Vehicle Aluminium parts. During the manufacturing process, some quantity of Aluminium dross, Aluminium Turning & Al .....

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factory premises to the Appellant which the Appellant admittedly use the said Ingots in the manufacture of Motor Vehicle Parts. The said Motor vehicle parts are undisputedly cleared on payment of excise duty. The contention of the revenue is that there is removal of said waste aluminium material by the Appellant to a different entity i.e. M/s. Shridhar Metal Works. The waste material is Aluminium Waste and Scrap falling under Chapter Heading No. 76020010 of the Central Excise Act, 1985 which at .....

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aluminium ingots. The said aluminium ingots were used captively within the same factory of the appellant therefore since goods have not moved from the factory of the appellant and used captively for the manufacture of motor vehicle parts, no duty is liable on such remnant material. He also submits that within the same factory premises of the appellant, part of the premises i.e. located within registered premises was given to M/s. Shridhar Metal Works on leave and licence basis on rent wherein M .....

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d under Notification No. 67/95-CE dated 16/3/1995 hence demand of duty was wrongly confirmed. Without prejudice, he submits that even if the removal of remnant material for job work is considered as removal out side the factory the movement of this remnant material for job work is covered by Rule 4(5) of Cenvat Credit Rules, 2004. It his submission that on receipt of initial input they have availed Cenvat Credit and after processing the said inputs this remnant material emerged therefore this re .....

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upon following judgments. (a) Wyeth Laboratories Ltd. Vs. Collector of Central Excise, Bombay [2000 (120) E.L.T. 218 (Tribunal-LB)]. (b) Shakti Wire Products Vs. Commissioner of C.Ex. Mumbai-IV [2009 (241) E.L.T. 223 (Tri. - Mumbai)] (d) Jain Metal Component Pvt Ltd. Vs. Commissioner of C.Ex. Jaipur-II [2006 (206) E.L.T. 842 (Tri-Del)] (e) Comet Brass Industries Vs. Commissioner of Central Excise, Daman [2005 (189) ELT 62 (Tri-Mumbai) He further submits that the demand raised against the appella .....

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(S.C.)] He therefore prayed for allowing the appeal. 3. On the other hand, Shri. V.K. Aggarwal Ld. Addl. Commissioner appearing on behalf of the Revenue reiterates the findings of the impugned order. He further submits that remnant material is aluminium waste and scrap and clearance thereof to different entity considered to be clearance for home consumption therefore it is liable for duty. He also submits that with reference to Rule 4(5)(a) of Cenvat Credit Rules, 2005 regarding clearance of the .....

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that particular location can not be considered as part of factory premises of the appellant. On taking part of premises on leave and licence agreement it become manufacturing premises of M/s. Shridhar Metal Works therefore removal of remnant mater to M/s. Shridhar Metal Works is clearly out side the factory premises of the appellant. The process which is carried out by M/s. Shridhar Metal Works is not carried out by the appellant, M/s. Aurangabad but it is carried out by some different entity i. .....

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Shridhar Metal Works is clearance for the home consumption and leviable to excise duty or it is captive consumption and exempted under Notification No. 67/95-CE dated 16/3/1995, we observed that a part of the premises of the appellant was given on leave and licence agreement to different entity i.e. M/s. Shridhar Metal Works who is unrelated to the appellant therefore in our view the premises which is used by M/s. Shridhar Metal Works is out side premises of the appellant. Secondly M/s. Shridha .....

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cture, even in the premises of another manufacturer for the purpose of job work basis it cannot be said that job worker is hired labourer therefore job work shall be treated as independent manufacture and not the premises owner, some of the judgment are cited below:- [2015 (315) E.L.T. 86 (Tri-Del.) HINDUSTAN ZINC LTD VS COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II 6. The appellant had got the zinc and lead electrodes fabricated through job workers in their own premises out of the raw materials and .....

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injury to any worker in any accident, it is the job workers, who would be liable to pay compensation to the worker and if any compensation is paid by the appellant, the same would be recoverable from the job workers. In terms of the conditions of the contract, the job workers were to ensure the safety of the labour employed by them as provided under the Factories Act. The Commissioner on the basis of the above clauses of the Contract and also the provision in the contract, requiring the job work .....

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of the Tribunal vide judgement reported in 2005 (188) E.L.T. 331 has held that the job workers' role was much more than mere receiving wages for labour involved in manufacture of Lead and Aluminium Electrodes and, therefore, the job workers cannot be said to be mere hired labourers. Applying the ratio of the Chennai Bench judgement to the facts of this case, we hold that it is the job workers who have to be treated as the manufacturers and, therefore, the duty on Aluminium and lead electrod .....

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uring process of aluminium ingots in the premises, which was taken on leave and licence basis on consideration of rent, therefore M/s. Shridhar Metal Works is manufacturer on job work basis therefore removal of remnant material by the appellant to M/s. Shridhar Metal Works cannot be considered captive consumption. As regard the issue that even if the removal of remnant material by the appellant to M/s. Shridhar Metal Works is not treated as captive consumption and it is home consumption, whether .....

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, transactions is of job work. It is also fact that remnant material after conversion into aluminium ingots, the ingots is used in the manufacture of motor vehicle parts by the appellant which are admittedly cleared on payment of duty. Remnant is generated during the manufacture of motor vehicle part out of the cenvatable inputs therefore remnant which is squarely meant for use for further production of dutiable goods is in the nature input/partial processed inputs. Therefore removal of such rem .....

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ished from the records, challans or memos or any other document produced by the manufacturer or the provider of output service taking the CENVAT credit that the goods are received back in the factory within one hundred and eighty days of their being sent to a job worker and if the inputs or the capital goods are not received back within one hundred eighty days, the manufacturer or provider of output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital .....

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RULE [16A. - Any inputs received in a factory may be removed as such or after being partially processed to a job worker for further processing, testing, repair, re-conditioning or any other purpose subject to the fulfillment of conditions specified in this behalf by the Commissioner of Central Excise having jurisdiction.] From the above rule also it is permitted that input can be removed for job work. Even in the job work if the resultant product is returned and used in the manufacture of dutiab .....

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al stage up to the final product no duty is levaiable. In the present case remnant are at intermediate stage that means initial input on which Cenvat credit is availed has under gone the process of manufacturing and during such process the remnant arose. The said remnant were sent for job work and it converted into aluminium ingots and said resulted ingots were used in the motor vehicle parts which are cleared on payment of duty. In this chain the remnant is an intermediate input therefore movem .....

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idering the submissions made by both sides and the materials on records it is found :- (a) Rule 57 F(2) reads as follows : (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 : for the pu .....

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of 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 returned to the said factory." and Rule 57(4) reads as follows :- (4) Any waste, arising from the processing of inputs, in respect of which credit has been taken may.... Rule 57D of the Modv .....

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ed in or in relation to the manufacture of the final products, may require reprocessing, reconditioning or any other further processing and due to such partial and final processing can undergo and result in any stage of intermediate goods, by-products; refuse or/and waste. (c) Commercial prudence and technological feasibility would induce a manufacturer to reconvert, reprocess, recondition and otherwise deal with intermediate goods, by-products, scrap, refuse, waste etc. to obtain maximum target .....

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t in a technological/commercially feasible manner be converted to a final product or desired to be converted further. Thus what would be 'waste' for a manufacturer, may not be a waste' in the case of another manufacturer, even in the case of same kind of goods. It is significant to note, that while Rule 57D talks of three stages i.e. waste, Refuse or by- product, Rule 57F(4) only talks of waste. Therefore, it appears, that the framers of the rules have used the word 'waste' i .....

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e Modvat credit availers facilities i.e. on job work, provided job work procedures are followed, such movements would be permissible as long as the manufacturer availing the Modvat desires. Rule 57F(2) proviso itself provides that whatever cannot be processed any further on job work, under Rule 57F(2) would be 'waste'. Such waste would thereafter be dealt with as provided by Rule 57F(4). The rules do not impede the desire of the manufacturer to extract as much final product out of the in .....

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rocessing/re-conditioning them further. The following grounds as found by the Commissioner (Appeals) in his order in the case of M/s. Wyeth Laboratories Ltd . ......The catalyst was used in the process but was not itself subjected to any such process. It was a result of process of raw materials that the catalyst became spent and could not be used further. Therefore, in the manufacturing activity under consideration, catalyst was not subject to any process and could not be said to have been proce .....

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d or by its very nature require reconditioning. (g) When we do not find any provisions of law to impede and raise duty liability at any stage on the assessees efforts/desire to use the inputs in or in relation to the manufacture of the final products. Therefore, Rule 57F(4) cannot be read to be applicable to partially processed inputs or inputs required to be sent for repairs, refining, reconditioning or carrying out any other operation necessary as the case may be, for the manufacture of the fi .....

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(2) permits the manufacturer to remove with the permission of the Collector of Central Excise inputs as such , or after inputs have been partially processed during the course of manufacture of final product at a place outside for the purpose of repairs, refining, reconditioning or carry out any other operation necessary for the final product for the purpose of manufacture of intermediate product necessary for manufacture of final product. Rule 57F(2) provides for removal of inputs as such or aft .....

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re removed as such or partially processed. Examining 'waste' in the light of the above, we find that the inputs on which Modvat credit has been taken is ingots, therefore, the waste is not input as such, therefore, the second issue arises whether it is partially processed input. Now, whether the waste can be called partially processed input or not is the pertinent question which needs to be examined and replied. A partially processed input will be that input which is subjected to further .....

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s a finished goods, it is not permitted to be cleared in terms of Rule 4(5)(a) to a job worker. However, it is seen that the scrap so sent to the job worker is returned back to the Appellants in the form of ingots, which is then further processed in the Appellants' unit to manufacture flats, strips, rods, which are cleared on payment of duty. Thus there is absolutely no loss of any revenue to the Government. 8. The waste and scrap generated are the remnants emerging as a necessary consequenc .....

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ct. Merely because the waste and scrap so generated has been made dutiable when sold, it cannot be said that new excisable product has been manufactured. They do not come out as a new excisable product but the same only emerges out of the manufacturing process. As the clearance is made for the specific purpose i.e. for conversion, and not being a sale, they are eligible for the provision of Rule 4(5)(a) of Cenvat Credit Rules, 2004. 9. Five Member Bench of the Tribunal in the case of Wyeth Labor .....

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facturer and is not lost by a change in form of the input, due to processing. Modvat - Removal of inputs - Rule 57F(4) of Central Excise Rules, 1944 cannot be read to be applicable to partially processed inputs or inputs required to be sent for repairs, refining reconditioning or carrying out any other operation necessary as the case may be, for the manufacture of the final product, as long as procedure of Rule 57F(2) is followed. In the same case, it has been further held that - Commercial prud .....

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p to be no longer useful and therefore, a waste. 10. In view of the above findings of the Tribunal, there is no question of holding scrap as final product and disallowing the benefit of clearance of scrap for converting into ingots, under Rule 4(5)(a). The demand of duty can only be confirmed, if there is diversion of generated scrap for any other purpose other than reconversion. It is not in dispute that in the present case, the scrap cleared by the appellants under job work challan has been re .....

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Rule, for being reprocessed into granules and on return to be used in manufacture of fabrics - Such a material not waste or scrap, ineligible to such benefit as an input, if assessee considers it technologically suitable for being reprocessed and again used thereafter as an input in manufacture of final products. 12. To the same effect is the decision of the Tribunal in the case of Jain Metal Components Pvt. Ltd. v. CCE, Jaipur-II reported in 2006 (206) E.L.T. 842 (Tri-Del.) which holds as under .....

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urther - Impugned order set aside. 13. In the impugned Order-in-Appeal, the Commissioner (Appeals) has given findings only on the dutiability of scrap relying on the case of Khandelwal Metal Industries - 1985 (20) E.L.T. 222 (S.C.) and M/s. Elphinstone Metal Rolling Mills - 2004 (167) E.L.T. 481 (S.C.) which has got not relevance in this case. The above judgments can be distinguished from the facts and circumstances of the case in question, as the dispute is regarding the clearance of the waste .....

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purchased scrap without duty paying documents can be considered as deem duty paid or not, and it was held to be dutiable only when considered as manufactured product and not otherwise viz. market purchased. Thus, these case laws are not applicable to the present issue. The appellants in the present case, have not contested that when the scrap is cleared on sale, no duty is payable. 14. In the light of the foregoing discussions, we hold that the impugned order passed by the Commissioner (Appeals .....

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hallans for getting the waste remelted and reconverted into brass rods and were receiving back the brass rods which were used as inputs for the manufacture of their final product i.e. brass components. 3. The case of the Revenue is that the appellant wrongly followed the procedure under Rule 57AC of Central Excise Rules as this Rule provides that manufacturer can remove any inputs or capital goods as such to the job worker for further processing, testing, repairing, reconditioning or any other p .....

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wise deal with intermediate goods, by-produces, scrap, refuse, waste etc. to obtain maximum targeted production of the final product by utilising the facilities available in his premises or by sending them out on job work to other places. Only when final product is no longer profitable or technologically possible, a manufacturer would treat such resultant stage of by-product, refuse, scrap to be no longer useful and therefore a waste. In this view the word waste used in rule 57F (4) has to be un .....

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