2004 (97) ECC 314 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

New Delhi -- Bench-NB(B)

Shri V.K. Agrawal, Member (T) and Shri M.P. Bohra, Member (J)

Poona Rolling Mills

Versus

Commissioner of Central Excise, Pune

Appeal No. E/728/88-NB(B)

[Arising out of Order-in-Original No. 99/CEX/1988 dt. 12.4.1988 passed by CCE Pune]

Final Order No. 548/2004-B, dt. 6.7.2004, Certified on 19.7.2004

Exemption

Notification No. 208/83 as amended -- Final products manufactured out of the goods falling under any one of the Headings mentioned in column 2 of the table annexed to the Notification. Inputs procured by the assessee are nothing but waste and scrap which are classifiable under sub-Item (3) of item 25 of the Erstwhile Central Excise Tariff and 7203 of the new Central Excise Tariff and both these Items and headings are specified in the description of inputs and as such the benefit of Notification is available to them r/w Trade Notice No. 147/1983 dt. 25.7.1983 and Board Circular No. 26/88 dt. 2.12.1988.

Word Meaning

"Waste and Scrap " -- Waste and scrap of iron and steel fit only for the recovery of metal or for use in the manufacture of chemicals.

Demand

Limitation -- Once the Adjudicating Authority comes to the conclusion that there was no mala fide on the part of the Appellants, it is not open to the Revenue to allege that the duty has been short-paid or not paid on account of any suppression or wilful mis-declaration with intent to evade payment of duty. The word "suppression of facts" used in the proviso to Sec. 11A (1) of the Central Excise Act has to be construed strictly. "It does not mean any omission. The act must be deliberate." Accordingly, the extended period of limitation is not invocable -- Sec. 11A of CEA.

PRESENT :

Ms. Nisha Bagchi, Adv. for the appellant.

Shri Vikas Kumar, SDR for the respondent.

Cases Cited :

1. LML Ltd. v. CCE, Kanpur, 1997 (94) ELT 273 (SC)......................................... [Para 3.5]

2. Pushpam Pharmaceuticals v. CCE, Bombay, 2002 (80) ECC 6 (SC).................. [Para 8]

3. Vivek Re-Rolling Mills v. CCE, 2003 (85) ECC 12 (SC)................................... [Para 3.4]

Per : V.K. Agrawal

In this Appeal filed by M/s. Poona Rolling Mills, remanded by the Supreme Court, the issue involved is whether the M.S. Round bars manufactured by them are eligible for exemption under Notification No. 208/83-CE dated 1.8.1983.

2. Ms. Nisha Bagchi, learned Advocate, submitted that the Appellants manufacture MS Round Bars out of used and old re-rollable cut pieces of bars, plates, angles, etc. purchased by them from open market or directly from the manufacturers or ship breakers; that the said materials have always been deemed to be duty paid and avail exemption from payment of duty on their final products under Notification No. 208/83-CE; that a show cause notice dated 12.7.85 was issued to them for imposing penalty alleging that they had not obtained Central Excise Licence and had cleared the goods without payment of duty during the period from 1.8.1983 to 8.7.1985; that thereafter a corrigendum dated 9.10.1985 was issued to the show cause notice wherein the duty amounting to Rs. 9,56,806.02 p was quantified to be payable by them; that by another corrigendum dated 28.11.1986 suppression of facts had been alleged; that another show cause notice dated 18.12.1987 was issued to them by the Collector, Central Excise widening the scope of the notice dated 12.7.85 in as much as it was alleged in show cause notice 18.12.87 that the angles, shapes, channels etc. used by them were classifiable under Heading 72.03 of the Schedule to the Central Excise Tariff Act, and scrap and plates under Heading 72.12; that in the show cause notice dated 18.12.87 duty was demanded for the period from 9.7.85 to 10.3.1987; that the Commissioner under the impugned Order No. 99/1988 dated 12.4.1988 confirmed the demand of duty under both the show cause notices but did not impose any penalty as no mala fide had been brought to light.

3.1 The learned Advocate, further, submitted that the Appellants are entitled to exemption under Notification No. 208/83-CE as they are manufacturing M S Round bars out of materials falling under Heading 72.10 of the Tariff; that the inputs used by them are not scrap as the same are re-rollable; that in re-rolling process, the inputs are heated by which they become red hot and do not lose their identity as angle, channel, etc; that then the inputs are passed through rollers for getting desired shape and dimension; that the Pune Collectorate in its Trade Notice No. 147/1983 dated 25.7.83 has clearly mentioned that no distinction needs be made between fresh unused items and old and used items for the purpose of Notification No. 208/83-CE; old and used items should also be considered to be inputs and deemed to be duty paid for the purpose of the notification so long as their physical characteristics render them classifiable under any of the sub-items mentioned under column No. 2 of the Table annexed to the said Notification; that "it is further clarified to the trade that old and used and unserviceable rails which are purchased by re-rollers for cutting and rolling into various other products, would fall under sub-Item (11) of the new Item 25 and hence the same may be treated as inputs for the purpose of the above-said notification."

3.2 In this regard, she also referred to Circular No. 26/88, dated 2.12.1988 wherein the classification of `slitting scrap of steel' used for manufacture of products of steel, for example wire, has been considered. It has been clarified in the said Circular that "in view of the end use of the slitting scrap which is other than for the purpose of re-melting, the classification of such slitting scrap would go out of the definition of waste and scrap prior to 1.3.1988....... In this context, attention is invited to the instructions contained in Ministry's F. No. B 28/7/83-TRU, dated 1.8.1983 wherein it was clarified that other kind of products commonly known as re-rollable and industrial scrap which are used for purposes other than melting would not merit classification as waste and scrap. These products would have to be classified under the relvant sub-items of the Tariff Item 25 as per the definitions given in the Explanation to the sub-item; Re-rollable scrap would merit classification under either sub-item (9) or (11) of the erstwhile Tariff Item 25.

3.3 The Learned Counsel has also referred to Board's Circular 27/89, dated 21.9.1989 wherein it is mentioned that "it is felt that Heading 7204 would not cover an article which could be converted into another article by hot rolling without it being necessary to remelt the metal first. The Board, therefore, concluded that Heading No. 7204 read with Note 6 a to Section XV and HSN Explanatory Notes at pages 987-988 would cover only such waste and scrap as would generally be used for remelting and consequently would not cover re-rollable scrap. Such waste and scrap which is not for remelting will have to be classified in the other appropriate Headings of the Tariff. Therefore, the denial of benefit of exemption Notification No. 202/88, dated 20.5.88 on the grounds that re-rollable scrap is waste and scrap falling under Heading 72.04 is not correct."

3.4. She also relied upon the decision in the case of Vivek Re-Rolling Mills v. CCE, 2003 (85) ECC 12 (SC) : 2002 (146) ELT 490 (SC) wherein the benefit of Notification No. 202/88-CE was extended to bars and M M rounds/squares manufactured out of using old and used railway materials holding as under:

"In view of the fact that for the purposes of the sub-item (11) of item 25 of the old Tariff Act, the Ministry has accepted, vide Dte. Of Tax Research F.No. B 28/8/83-TRU, dated 8.9.83, unspecified angles, shapes and sections as inputs and the recommendation of the Collector Indore to extend the same benefit under the New Act has been accepted by the Board, the Appellant should be held entitled to the benefit of the aforementioned notification, namely, Notification No. 202/88."

3.5 She also referred to the judgment in the case of LML Ltd. v. CCE, Kanpur, 1997 (94) ELT 273 (SC) wherein the Supreme Court has held that portions of cut sheets which are used in the manufacturer of ancillary items cannot be regarded as waste and scrap as these are not used for recovery of metal or for use in the manufacture of chemicals.

4. The learned Advocate contended that the extended period of limitation is not invocable as even the Commissioner has given his specific finding that "no mala fide have been brought to light"; that in absence of any mala fide, demand of duty cannot be sustained for extended period; that further in view of Trade Notice No. 147/1983 of Pune Central Excise Collectorate and subsequent Board's Circulars it is apparent that the inputs used by them were not waste and scrap and these were re-rollable material and therefore it cannot be alleged by Revenue that they had wrongly availed the benefit of Notification. Alternatively she claimed that if they are held to be liable to pay duty, they would be eligible to take Proforma Credit of the duty under erstwhile Rule 56 A of the Central Excise Rules, 1944.

5. Countering the arguments, Shri Vikas Kumar, learned Senior Departmental Representative, submitted that admittedly the Appellants use cut pieces of bars, angles, etc. purchased by the appellants from open market/manufacturers/ship breakers; that these cut pieces cannot be treated as ingots, blocks, bloom, billets, etc. falling under Item 25 (6)(ii) of the Erstwhile Central Excise Tariff, 25(7) -- the Tariff Items specified in Notification No. 208/83- CE; the Shipbreaking scrap cannot be treated as shapes and section falling under Heading 72.10 of the Schedule to the Central Excise Tariff Act; that ship breaking scrap is classifiable under Heading 72.15 of the Tariff; that the said Heading is not mentioned in the Notification as one of the inputs. In reply the learned Advocate referred to Baroda Collectorate Trade Notice No. 97/83 dated 6.8.83 wherein it has been clarified that "In case waste and scrap of steel as cleared on payment of duty, the credit of such duty may be allowed under Rule 56 A, when such duty paid waste and scrap is used for steel melting in another factory..... Other kinds of products hitherto commonly known as re-rollable and industrial scrap, which are used for purposes other than melting would not merit classification as waste and scrap under the new Item No. 25. These products would have to be classified under the relevant sub-items of the new Item No. 25 as per the definitions given in the Explanation to the said Item. It may be seen from the definitions for goods falling under sub-item (9) and (11) of Item No. 25, that these two sub-items are in the nature of residuary sub-items but mutually exclusive of each other. Hence, any product which cannot be classified under any of the other sub-items may merit classification under either of these two sub-items."

6.1 We have considered the submissions of both the sides. Notification No. 208/83-CE exempts final products specified in the Table annexed to Notification provided the final product is made from any goods specified in column (2) of the said Table and falling under the said Item on which the duty of excise has already been paid and no credit of the duty paid on the inputs has been taken under Rule 56 A of the Central Excise Rules. Explanation to Notification provides that all stock of inputs in the country, except such stocks as are clearly recognizable as being non-duty paid, shall be deemed to be inputs on which duty has already been paid. The relevant serial No. 2 of Notification No. 208/83 read as under:

S.No. | Description of inputs | Description of final products
2. | Goods falling under sub-items (6)(ii) and (iii), (7) (ii), (8), (9)(ii) and (11) of the said Item. | Goods falling under sub-items (4)(ii), (6)(ii) and (iii) (10), (11), (14) and (16)(ii) of the said Item; flats exceeding 5 mm in thickness; and hot-rolled strips, other than galvanised strips, exceeding 5 mm in thickness.

6.2 After the introduction of present Central Excise Tariff, S.No. 2 of Notification No. 208/83 as amended reads as under:

S.No. | Description of goods | Description of final products
2. | Good falling under sub-Heading Nos. 7206.20, 7206.90, 7207.20, 7208.00, 7209.90 and 7210.10 | Goods falling under sub-Heading No. 7204.20, 7206.20, 7209.90, 7207.20, 7208.00, 7209.90, 7210.10., 7213.00, 7302.10, 7307.20 flats exceeding 5 mm in thickness; and hot-rolled strips, other than galvanised strips, exceeding 5 mm in thickness.

7. It is not in dispute that the MS rounds bars manufactured by the appellants are classifiable under sub-Heading No. 7209.90 of the Tariff, which is specified as one of the Headings in Column 3 relating to description of final products. As such the final product manufactured by the Appellants is eligible for the exemption from payment of duty under Notification No. 208/83 as amended if the final products is manufactured out of the goods falling under anyone of the Heading mentioned in column 2 of the table annexed to the Notification. The Revenue has contended that the inputs procured by the Appellants are nothing but waste and scrap which are classifiable under sub-Item (3) of Item 25 of the Erstwhile Central Excise Tariff and 7203 of the new Central Excise Tariff and both of these Items and Headings are not specified in the description of inputs and as such the benefit of Notification is not available to them. On the other hand, the submissions made by the Appellants are that the waste and scrap, as defined in the Tariff means waste and scrap of iron and steel fit only for the recovery of metal or for use in the manufacture of chemicals and as the inputs procured by them are neither used for the recovery of metal nor for use in the manufacture of chemicals, these are not waste and scrap. We find force in their submissions which are strengthened by the Trade Notices and Circulars issued by the Collectorate and Central Board of Excise & Customs. It has been clarified by the Pune Collectorate in the Trade Notice No. 147/1983 dated 25.7.1983 that the old and used and unserviceable rails which are purchased by the re-rollers for cutting and re-rolling into various products would fall under sub-Item (11) of the New Item 25 and hence the same may be treated as inputs for the purpose of Notification No. 208/83. Sub-Item (11) of Item 25 of the Old Central Excise Tariff is specifically mentioned in the description of inputs in the Notification.

Again Bangalore Collectorate in its Trade Notice No. 97/83 dated 6.8.83 has clarified that rerollable and industrial scrap which is used for purpose other than melting, would not merit classification as waste and scrap under New Item No. 25 and these products would have to be classified under the relevant sub-items of the New Item 25 as per the definition given in the Explanation to the said Item. These Trade Notices, it appears, were issued on the basis of Ministry Circular F.No. V/28/7/83 TRU dated 1.8.1983. The Board has also issued Circular No. 26/88 dated 2.12.88 wherein after referring to the Instructions dated 1.8.1983, Board clarified that rerollable scrap would merit classification under sub-Item (9) or (11) of the Erstwhile Tariff Item 25. In view of these clarifications issued by the Board as well as the Central Excise Collectorates, it cannot be claimed by the Revenue that re-rollable cut pieces of bars, plates, angles, etc. procured by the Appellants will be classified either under sub-Item (3) of Item 25 of the Old Tariff or Heading 72. 03 of the New Tariff as waste and scrap. It has not been controverted by the Revenue that the Appellants have used these inputs for manufacturing their final products by the process of re-rolling which goes to show that inputs procured by them are re-rollable products. We, therefore, hold that the inputs procured by them are not to be classified as waste and scrap and these are squarely covered by the Description of inputs given in the Notification No. 208/83-CE and as such they are eligible for the benefit of Notification.

8. We also agree with the submissions of the learned Advocate that the extended period of limitation cannot be invoked for demanding the duty from the appellants. The show cause notice for demanding the duty beyond normal period of six months can be issued only where duty of excise is not levied, not paid, short levied or short paid by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of Central Excise Act or Rules with intent to evade payment of duty. The Adjudicating Authority has clearly held that there was no mala fide on the part of the Appellants and he has therefore, refrained from imposing any penalty on the Appellants. Once the Adjudicating Authority comes to the conclusion that there was no mala fide on the part of the Appellants, it is not open to the Revenue to allege that the duty has been short-paid or not paid no account of any suppression or wilful mis-declaration with intent to evade payment of duty. It has been held by the Supreme Court in the case of Pushpam Pharmaceuticals v. CCE, Bombay, 2002 (80) ECC 6 (SC) : 1995 (78) ELT 401 (SC) that the words "suppression of facts" used in the proviso to Section 11 A(1) of the Central Excise Act has to be construed strictly. "It does not mean any omission. The Act must be deliberate. It taxation it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty." Accordingly, the extended period of limitation is not invocable in the present matter. Learned Senior Departmental Representative has also mentioned that ship breaking scrap which falls under Heading 72.15 of the Central Excise Tariff is not covered by the description of inputs as given in the Notification. A show cause notice for demanding the duty for the period when New Central Excise Tariff was in force was issued on 18.12.87 and the period covered by this Show cause notice is 9.7.85 to 10.3.87 which is beyond the normal period of six months and as such is time barred. We accordingly, set aside the impugned order and allow the Appeal.

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