CESTAT: Excise Duty Cannot Be Charged on the Scrap Sent to the Job Workers for Manufacture of Angles and Channels

CESTAT: Excise Duty Cannot Be Charged on the Scrap Sent to the Job Workers for Manufacture of Angles and Channels

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai by its two-member bench of Sulekha Beevi C.S. (Judicial Member) and Vasa Seshagiri Rao (Accountant Member) ruled that excise duty is not payable on the scrap that has been sent to the job workers for the manufacture of intermediate products such as angles and channels.

In the present case, the appellant/assessee- M/s. Tansi Pump Unit were registered as manufacturer of hand-pumps, EB line material, Benches, Desks etc. They availed small scale exemption under Notification dated 1 March, 2003 and after crossing the exemption limit were clearing the products on payment of duty. Appellant also availed cenvat credit while paying duties on the finished product.

On verification of records, it was found that appellant had converted steel scrap into angles and channels through job workers for which purpose they removed scrap under Rule 4 (5) (a) of Cenvat Credit Rules, 2004 to the job worker. The scrap so sent to the job worker was returned to the appellant as angles and channels. While so returning the goods to the appellant, the job worker discharged duty liability on angles and channels.

The Department was of the view that the appellant ought to have paid duty on scrap while removing them to the job worker. Show cause notice 14 June, 2012 was issued proposing inter alia to recover an amount of Rs.1,10,221/- as Central Excise duty on scrap removed to job worker for the period from September 2008 to February 2010, to demand interest thereon and for imposing penalty under Section 11AC of the Central Excise Act, 1944.

After due process of law, the adjudicating authority confirmed the demand along with interest and imposed equal penalty. On appeal, the Commissioner (Appeals) upheld the same.

The issue to be considered was whether the appellant was liable to pay duty on the scrap that has been sent to the job workers for manufacture of intermediate products such as angles and channels.

The bench noted that the removal of the scrap to the job worker was done as per Rule 4 (5) (a) of Cenvat Credit Rules, 2002, hence it was not disputed that the job worker cleared intermediate goods in the nature of angles and channels to the appellant by paying duty and raising invoices.

The CESTAT referred the decision passed in the case of National Torch and Tubes vs. CCE Mumbai-II (2004) wherein it was held that there was no case for demanding duty from the appellants for dispatch of aluminum scrap, during the period involved.

After appreciating the facts and position of law made in the above decision, CESTAT was of the view that the demand cannot sustain and requires to be set aside. The show cause notice dated 14 June, 2012 was issued invoking the extended period, opined the bench.

It was not disputed that the appellant had accounted the removal of scrap to the job worker as well as the clearance of the intermediate goods (angles and channels) by payment of duty.

In this regard the CESTAT discerned, “the Department has vaguely alleged that the appellant has suppressed facts with intention to evade payment of duty. There is no evidence to show that the appellant has done any positive act to deliberately suppress the facts so as to evade payment of duty.”

The appellant therefore succeeded on the ground of limitation.

The CESTAT set aside the impugned order on merits as well as on the ground of limitation.