CESTAT: No Excise Duty can be Charged on Plastic and Other Scrap Segregated from Input Scrap
CESTAT: No Excise Duty can be Charged on Plastic and Other Scrap Segregated from Input Scrap
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi bench while adjudicating an appeal filed in the matter of the Commissioner, Central Excise and CGST, Alwar vs. M/s R.P. Industries, by its two-member bench of Binu Tamta (Judicial Member) and P. V. Subba Rao (Technical Member), ruled that excise duty is not levied on manual segregation of scrap.
The respondent/assessee manufactures lead ingots/lead rods, is registered with the Central Excise Department, and has been paying central excise duty. One of the raw materials used by the respondent is lead scrap, which is not duty-paid and for which no CENVAT credit was availed. The respondent stated that this scrap needs cleaning to separate non-lead elements such as plastics before it can be molten to manufacture lead ingots or lead rods. The respondent sold the plastic scrap, so it was removed.
When audit was conducted of the respondent by the department, the department felt that duty should be paid on the plastic scrap so separated and sold by the respondent because it had arisen during the process of manufacture of the final products, viz., lead ingots or lead rods.
The Commissioner (Appeals) held that the respondent was purchasing non-dutiable scrap lots from various auctions and was segregating them and extracting various types of scrap through a manual process, and this process does not satisfy the definition of manufacture under section 2(f) of the Central Goods and Service Tax Act (CGST), and therefore, no duty is liable to be paid.
The department asserted that, as per Section 3 of CGST, duty must be paid on all goods that are produced or manufactured in India. Section 2(f) CGST defines manufacture, and this process includes processes that are incidental or ancillary to manufacture. According to the CBEC circular dated 10th May, 2016 where scrap is separated and removed, it cannot be treated as the removal of goods as such, and duty must be paid as applicable.
According to the respondent, no CENVAT credit was availed on the scrap as it was not duty-paid. From the scrap, the respondent removed the plastic and other materials, and the respondent used lead scrap to manufacture ingots. The plastic waste is sold by the respondent, but it was never manufactured; it emerged during the manual segregation of the scrap. The CBEC's circular does not apply to this case as it was issued in a different context.
The Tribunal rejected the contentions raised by the department that, segregation of scrap to remove the unwanted components from the lead scrap is a process of manufacture and held that, "it is only a process of segregation of raw materials; manufacture begins thereafter. Therefore, no duty can be charged on the plastic and other scrap segregated from the input scrap."
The Tribunal further clarified that CBEC's circular dated 10th May, 2016 dealt with two questions. First, where a mixed scrap is fed into the foundry and some components of the scrap with higher melting points such as iron, steel, slag, etc. get separated as foundry waste it has been clarified to be a process waste as it arises out of the process. Second, where CENVAT credit availed scrap is segregated before feeding into the plant, the circular clarified that the removed unwanted scrap cannot be treated as removal of inputs as such under Rule 3(5) of the CENVAT Credit Rules, 2004 and therefore, there was no need to reverse the credit.
The bench observed, "in the present case, no CENVAT credit was availed at all on the input scrap. If duty has to be determined on merits, it needs to be first of all examined if the charging section of the Act applies. Section 3 levies duties of excise on "excisable goods produced or manufactured" in India. In the factual matrix of this case, the respondent is neither manufacturing nor is it producing the plastic scrap. The plastic scrap already exists and the respondent is only separating it manually from the rest of the scrap. Therefore, even if this circular is considered, no central excise duty can be charged."
The Tribunal upheld the impugned order and dismissed the department's appeal.
