TMI Blog2022 (2) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... nt without payment of any amount under rule 3(5A) of the Credit Rules can be considered as used capital goods or waste and scrap? - HELD THAT:- The capital goods cleared as scrap by the appellant undergo an extensive procedure, after which based on the evaluation of a third-party vendor, the goods are declared scrap and sold to scrap management companies who have taken certificates for recycling the said scrap under the Hazardous E-waste Management Rules - The items which were declared as scrap were sold to companies specializing in scrap management and these companies have also been granted a certificate for procurement and recycling of scrap under the Hazardous Waste Management Rues. The appellant, therefore, could not have undertaken the process of breaking the items and it cannot be urged that these items would not be scrap merely because they have not been broken before disposal. The capital goods cleared as scrap by the appellant are scrap and, therefore, the appellant, being an output service provider, was not required to pay any amount in terms of rule 3(5A) of the Credit Rules. It is not necessary to examine the contention advanced by learned counsel for the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e warehouse of the appellant and a health certificate is issued by such vendors; b) Basis the health report and after undertaking cost/benefit analysis in terms of repair or purchase of new capital goods, a decision is taken by the appellant to either undertake repair of such capital goods or to purchase new capital goods; c) If the appellant decides to get the capital goods repaired, the same are repaired either within the warehouse of the appellant or in a workshop of the vendor s; d) However, if the said capital good cannot be repaired and the appellant has no alternate use of the same, the said goods are classified as obsolete and the procedure for clearance of such goods as scrap is triggered; e) Thereafter, a scrap inventory report is generated requiring approvals at various levels, including Circle Manager, Circle Operation Management Head, Circle Finance Head; f) If after approvals from the Circle, it is unanimously recommended to scrap off the capital good, a final approval is sought from the Head Office of the appellant; g) If such an approval is granted, the scrap disposal note is generated. Thereafter, the scrap is put for sale via e-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o assert that it was not required to pay any amount in terms of rule 3(5A) of Credit Rules on clearance of capital goods as scraps, and therefore, the show cause notice was liable to be dropped. 9. However, the Additional Director passed the order dated 31.08.2016 confirming the proposed demand of ₹ 19,65,03,338/-, with interest and penalty. 10. Shri B.L. Narasimhan learned counsel for the appellant assisted by Ms. Poorvi Asati, made the following submissions: (i) Rule 3(5A) of the Credit Rules, will have no application in the present case. It is evident that in terms of payment of amount under rule 3(5A) of Credit Rules, during the relevant period, only 'manufacturer' was required to pay the amount in case of clearance of capital goods as scrap and not output service provider. The appellant, being an output service provider, was, therefore, not required to pay any amount in terms of rule 3(5A) of the Credit Rules during the relevant period from 27.09.2013 to 31.03.2015; (ii) The capital goods removed by the appellant are not used capital goods but scrap. There is a difference between used capital goods and scrap in rule 3(5A) of Credit Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f AC etc. Thus the capital goods so removed were identifiable as purchased and had been cleared without breaking them into pieces; (ii) The health check up reports submitted by the appellant do not mention any reason as to why the said goods were declared as scrap or whether the goods were scrap only from the purpose of the appellant or they could be used further for any other purpose; (iii) It is apparent that the capital goods were cleared with their original form intact and there is no evidence they cannot be used even after repairs and renovation; (iv) Prior to the period in question i.e. before 27.09.13, when the amount was payable in both cases - where the goods were cleared as used capital goods or as waste and crap- the appellant was clearing them as used goods and paying the said amount. However after the change in the rule, there was a change in this description. The appellant has not provided any reason or evidence thereof for this change; (v) If a plea relates to certain factual aspects, the same must be substantiated by producing evidence; (vi) There is an unusually large gap between the shelf life of some of the items suggest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach quarter in the third year @ 5% for each quarter in the fourth and fifth year @ 1% (b) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter: Rule 3(5A): If the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value. 3. Between 17.03.2012 to 26.09.2013 Rule (5A): If the capital goods, on which CENVAT credit has been taken, are removed after being used, whether as capital goods or as scrap or waste, the manufacturer or provider of output services shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by the percentage points calculated by straight line method as specified below for each quarter of a year or part thereof from the date of taking the CENVAT Credit, namely:- (a) for computers and computer peripherals: for each quarter in the first year @ 10% for each quarter in the second year @ 8% for each quarter in the third year @ 5% for each quarter in the fourth and fifth year @ 1% (b) for capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Manufacturer and output service provider Manufacturer and output service provider Post 27.09.2013 Manufacturer and output service provider Manufacturer 16. The period of dispute in the present case is from 27.09.2013 to 31.03.2015. It is evident from the aforesaid tabular chart that in terms of payment of the amount under rule 3(5A) of the Credit Rules during the said relevant period, only a 'manufacturer' was required to pay the amount in case of clearance of capital goods as scrap and not an output service provider. The appellant, being an output service provider, was not required to pay any amount in terms of rule 3(5A) of the Credit Rules during the period involved in the present appeal for clearance of capital goods as scrap. 17. This position has also been accepted by the Additional Director in the impugned order, as would be evident from paragraphs A.3.6, A.4.5, and A.4.10 of the order. The said paragraphs are reproduced below: A.3.6. In this context on going through the provisions of CCR, 2004, I find that there is no provision for paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question were removed as a complete unit (identifiable as purchased) and also looking to the fact that the capital goods in question (especially batteries) had not completed the active life (as per the brochure of one of the leading manufacturer as per the SCN), the capital goods considered as 'scrap or waste' by the Noticee, may or may not be waste or scrap for the purchasers. The said capital Goods as procured may be of some utility to the buyers in its original form, or, the buyers might have carried out some rectification or improvements on the said removed 'used capital goods' and may had used it for some other purpose (if not suitable for the services being provided by the Noticee). What is simply not of use to the seller cannot be termed as waste or scrap for all purposes. The items under question should be of no use for the market as a whole to be classified as waste or scrap. The situation here might had been different, if parts of the said capital goods after being dismantled and arising as waste or scrap out of wear and tear of the parts had been removed by the Noticee. In absence of any evidence to show that the capital goods in question here were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (emphasis supplied) 20. The submission of learned counsel for the appellant is that rule 3(5A) of the Credit Rules provides for two different situations and the payment of the amount in these two situations. The first is if the capital goods, on which the CENVAT credit has been taken, are removed after being used and the second is if the capital goods are cleared as waste and scrap . These two terms used and scrap have not been defined in the Finance Act. The dictionary meanings of these two terms is: Term Oxford Dictionary Collins Dictionary Merriam Webster Dictionary Scrap things that are not wanted or cannot be used for their original purpose, but which have some value for the material they are made of no longer wanted for its original purpose but may have some other use. to abandon or get rid of as no longer of enough worth or effectiveness to retain Used that has belonged to or been used by somebody else before that has been used; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (switched-mode power supply) 2. Rectifier Module 3. Lead Acid Batteries 4. DG Sets 5. Air Conditioners 6. PIU (Power Interface Unit) 27. It is seen that for identification of scrap, a detailed procedure has been described by the appellant. When the capital goods become unworkable after continues use, they are brought to the warehouse of the appellant, where registered outside vendors carry out a health check and issue a health certificate. An analysis is thereafter carried out to determine whether the capital goods can be repaired or new capital goods have to be purchased. It is only when such goods cannot be repaired and have no other alternative use, that they are classified as obsolete and the procedure of clearance as scrap is triggered. A scrap inventory report is then generated which requires approvals at various levels including the approvals of Circle Manager, Circle Operation Management Head, Circle Finance Head. If the Circle recommends ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34 68 10 569 4. Other Alternatives Considered (PI compare qualitatively as well as commercially, bringing out why the above proposal was chosen): These Rectifier Modules have no such alternative use in BIL. (2) 1. Nature of Proposed NFA Scrap disposal of 534 Battery Banks (6111 Battery Cells) . 2. Background (explaining the need): We have identified 12816 Battery cells (11279 nos in Patna and 1537 nos in Ranchi warehouse) of different make and rating, as per details attached, which are physically damage or received against O M replacement after end of their have OCV of 1.2 Vt as checked by warehouse SME and CFT. The replacement of these BBs where approved by O M SME. All these are obvious scrap or of 1.2vt and certified by CFT members So it is propose to declare scrap as per scrap disposal process. 3. Proposal (for which approval required) with recommendation: (PI attach documents as necessary) It is proposed to declare SCRAP 12816 Nos. battery cells of different mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red for declaring them as scrap. 31. It is also pertinent to refer to the submissions made by the appellant in response to the show cause. The appellant specifically stated that it had removed used capital goods and scrap during the period involved in the show cause notice and that the basic difference between the aforesaid two terms is that while removing items as scrap the appellant had indentified the items which were not usable and these items were sold to recyclers who had valid registrations, while items which could be used by the buyers as such or after some repairs/ modifications were treated as used capital goods on which appropriate amount of duty was reversed. It has also been stated in connection with the disposal of used capital goods that the appellant had reversed CENVAT credit amounting to ₹ 26,75,22,045/- during the period involved in the show cause notice. It was, therefore, clarified that whenever the used capital goods were removed, appropriate amount of duty was paid but when the capital goods were removed as scrap, it was not necessary to pay any amount in terms of rule 3(5A) of the Credit Rules. A chart giving details of the items removed as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,807 30,911,687 15.73% Battery 33. It clearly transpires from the aforesaid that when the used capital goods were sold as such or after repairs the amount required to be paid under rule 3(5A) of the Credit Rules was deposited. In fact, the appellant had reversed credit amounting to ₹ 26,75,22,045/-. It is only when they could neither be sold as such nor repaired and were declared as scrap by following the procedure prescribed above, that they were sold. 34. What needs to be noticed is that the goods declared as scrap have been sold by the appellant to companies engaged in scrap management which have a certificate issued to them by the Principal Environment Commissioner, Rajasthan State Pollution Control Board, for procurement and recycling of scrap under the Hazardous Waste Management Rules. Further, the invoices through which these goods were sold to these companies also describe the good as scrap only. The copies of these certificates and sale invoices were brought on record by the appellant but the Additional Director failed to take notice of the said evidence and observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t matter of the statute or statutory instrument understand it. It is hazardous to interpret a word in accordance with its definition in another statute or statutory instrument and more so when such statute or statutory instrument is not dealing with any cognate subject. Craies on Statute Law (6th Edn.) says thus and page 164: In construing a word in an Act caution is necessary in adopting the meaning ascribed to the word in other Acts. It would be a new terror in the construction of Acts of Parliament if we were required to limit a word to an unnatural sense because in some Act which is not incorporated or referred to such an interpretation is given to it for the purposes of that Act alone. Macbeth v. Chislett (1910) A.C. 220, 223. 39. The dictionary meaning of the terms scrap and used have been reproduced in paragraph 21 of the order and the meaning assigned to the terms scrap by the Supreme Court in Valji Khimji has also been reproduced in the paragraph 23 of the order. 40. In any view of the matter, the capital goods cleared as scrap by the appellant undergo an extensive procedure, after which based on the evaluation of a third-party vendor, the g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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