M/s Rishi Iron & Steel Industries v. Union of India through Ministry of Finance

HIGH COURT OF CHHATTISGARH. BILASPUR (Sinole Bench: Hon'ble Mr. T.P. Sharma. J) W.P. No.430/1998 PETITIONER RESPONbENTS Vs M/s Rishi Tifra Industrial Estate, Bilaspur Iron <& Steel Industries,

1. Union of India 2. Custom Excise <& Gold (Control) Appellate Tribunal, New belhi 3. The Commissioner of Central Excise, Raipur. Reserved on 26.2.2013 Present: Mr. Ashish Shrivastava, Advocate for the petitioner. Mr. Manish Sharma, Advocate for the respondents. ORbER (11.03.2013)

By this petition the petitioner seeks to invoke supervisory jurisdiction under Article 227 of the Constitution and prays for quashment of letter dated 12.5.1992 (Annexure P-4) passed by the respondent No.3 and consequent orders dated

10.7.1996 (Annexure P-7) & 20.9.1996 (Annexure P-10) passed by respondent No.2 whereby the respondent No.2 has held iron scrap generated during the course of process are required to be declared under Rule 57G of the Central Excise Rules, 1944 (for short 'the Rules, 1944') but the petitioner has not made such declaration, therefore, the respondent No.3 has n'9htly denied MObVAT credit facility to the extent of aforesaid proposed scrap.

As per pleadings and documents, the petitioner is engaged in the manufacturing of iron and steel products i.e. ribbed bars and other articles falling under Chapters 72 & 73 of Central Excise Tariff Act, 1985 (for short 'the Act of 1985'). The petitioner opted to avail facility of MObVAT credit of duty paid on inputs used in or in relation to the manufacture of final products. The petitioner filed declaration in terms of r m- Page 2 of6 W.P. No.430/1998 ^- ":^ ^ / Rule 57-G (1) of the Rules, 1944 specifying the inputs and final products in respect of which MObVAT credit facility was being availed. The petitioner was served with a show- cause notice dated 6.11.1991 by the Assistant Collector, Central Excise, Bilaspur proposing to deny facility of MODVAT credit and demand recovery of Rs.24,84,681.33 on the ground that the petitioner failed to declare processed scrap and processed re-rollable scrap under Rule 57-G of the Rules, 1944. Reply to the said show-cause notice was filed by the petitioner. The Collector, Central Excise, Raipur affirmed the liability vide order dated 12.5.1992 (Annexure P-4) and also imposed penalty, which was challenged by the petitioner before the respondent No.2, who vide order dated 10.7.1996 (Annexure P-7) modified the order dated 12.5.1992 and reduced the quantum of penalty. The petitioner a9ain filed an application under Section 35C (2) of the Act of 1944 for rectification of the order dated 10.7.1996, which was rejected vide order dated 20.9.1996 (Annexure P-10). By filing reply the respondents have specifically alleged that the petition is not maintainable as the petitioner is having efficacious, alterative exhaustive remedy before the Supreme Court under Section 35L of the Act of 1944. Iron scrap generated during the process of manufacturing is not waste material in accordance with Section 15 of the Act of 1985. While filing declaration in respect of all inputs intended to be used in or in relation to the manufacture of final products is an essential requirement under the Rule 57H of the Rules,

1944. Therefore by passin9 the said orders, the respondent No.2 or the Collector, Central Excise have not committed any illegality. Heard learned counsel the parties and perused the petition, documents and impugned orders. Page 3 of6 W.P.No.430/1998 "^

Learned counsel for the petitioner vehemently argued that iron scrap was not excisable because it has no contribution or effect on the process of manufacturing of final products i.e. ribbed bars. He further submits that while dealing with the aforesaid question in the matter of Grasim Industries Limited vs. Union of India the Supreme Court has held that iron scrap and metal scrap has no contribution or effect on the process of manufacturing cement, which is excisable end product.

On the other hand, learned counsel the respondents opposed the petition and submits that the above cited case is distinguishable on facts as the same relates to cement manufacturing where iron scrap and MS scrap has contribution or effect on the process of cement but in the present case iron scrap is useable in the manufacturing of ribbed bars.

The petitioner is a manufacture of steel products and other articles fallen under Chapters 72 <& 73 of the Act of 1985. The petitioner availed facility of MObVAT of duty paid on inputs used in or in relation to the manufacture of products but the petitioner has not made declaration of processed scrap, MS scrap, re-rollable scrap and processed re-rollable scrap under Rule 57G of the Rules, 1944. While modifying the order passed by the Commissioner, Central Excise, the CEGAT has specifically considered the case of the petitioner and observed as under; "On denial of modvat credit of Rs.3,08,322.00 on 486.535 MT non-declaration thereof, Commissioner has observed that the appellants have taken credit on 'processed scrap', 'A^S Scrap', 're-rollable scrap', 'processed re-rollable scrap', which are not included '-^/ ' (2011) 10 SCC 653 ••^, ^. ^:^-: ^^j^ Page4of6 W.P.No.430/1998 in the declaration. Scrap is commercially well-knowi article in iron and steel trade and is also so recognized in the Tariff. In these circumstances, it is not possible to accept the appellants contention that though they have not declared 'scrap' but since they have declared 're- rollable material' in the Rule 57G declaration that should suffice for the purpose of availing modvat credit. The Commissioner is right in denying modvat on this quantity for want of specific inclusion of scrap in this declaration under Rule 576. bue to this very lapse of non-declaration taking of deemed credit on 195.925 MT of MS Scrap has rightly been disallowed as also the denial of modvat credit on material cleared, without obtaining the required permission under Rule 57F 1 (ii)."

In the matter of Grasim Industries (supra) the Supreme Court has held that iron scrap and metal scrap arise in the process of repair and maintenance of machinery and cement manufacturing plant has no contribution or effect on the process of manufacturing cement, which is excisable end product. Repairing activity cannot be called as part of manufacturing activity in relation to production of end product. Para 12 & 14 of the said judgment the Supreme Court has held as under:- "12. We have heard the learned counsel for the parties. In the present case, the assessee undertook repair and maintenance work of its worn out old machinery or parts of the cement manufacturing plant period between 1995 to 1999. The assessee repaired machinery or capital goods such as damaged roller, shafts and coupling by using welding electrodes, mild steel, cutting tools, MS angles, MS channels, MS beams, etc. In this process of repair and maintenance, ^""::~^,. f^^ Page5of6 W.P.No.430/1998 MS scrap and iron scrap were generated in th< workshop. It is not in dispute that these MS scrap and iron scrap are excisable goods under Section 2(d) of the Act falling under Chapter Heading 72.04 of the Schedule to the Tariff Act read with Note 8(0) to Section XV of the Tariff Act as "metal scrap and waste". We are of the opinion that the Section Note has very limited purpose of extending coverage to the particular items of the relevant tariff entry in the Schedule for determining the applicable rate of duty and it cannot be readily construed to have any deeming effect relation to the process of manufacture as contemplated by Section 2{f) of the Act, unless expressly mentioned in the said Section Note.

14. The goods have to satisfy the test of being produced or manufactured in India. It is settled law that excise duty is a duty levied on manufacture of goods. Unless goods are manufactured in India, they cannot be subjected to payment of excise duty. Simply because a particular item is mentioned in the First Schedule, it cannot become exigible to excise duty. [See Hyderabad Industries Ltd. v. Union of India, Moti Laminates (P) Ltd. v. ^£"and CCEv. Wimco Ltd.} Therefore, both on authority and on principle, being excisable to excise duty, goods must satisfy the test of being produced or manufactured in India. In our opinion, the charging Section 3 of the Act comes into play only when the goods are excisable goods under Section 2(o0 of the Act falling under any of the tariff entry in the Schedule to the Tariff Act and are manufactured goods in terms of Section 2(/) of the Act. Therefore, the conditions contemplated ^^ v\'^ ^ ^,^^. Page6of6 W.P.No.430/1998 under Section 2(cf) and Section 2(/) have to be satisfied conjunctively in order to entail imposition of excise duty under Section 3 of the Act. "

In Para-25 the Supreme Court has further held as under:- u25.We are afraid, the above decision does not help the Revenue because the metal scrap and waste arising out of the repair and maintenance work of machinery used in manufacturing of cement, by no stretch of imagination, can be treated as a subsidiary product to the cement which is the main product. The metal scrap and waste arise onl.y when the assessee undertakes repairing and maintenance work of capital goods and, therefore, do not arise regularly and continuously in the course of a manufacturing business of cement. "

In case of cement manufacture, the metal scrap and waste arise only when the assessee undertakes repairing and maintenance work of capital goods and do not arise during the course of regular manufacturing. But the case of manufacturing of ribbed bars or other goods, the aforesaid scraps are necessary products which generate during the course of process and therefore the case of Grasim Cement (supra) is distinguishable on the 9round of facts.

After considering the aforesaid aspects and in absence of any declaration required under Rule 57G of the Rules, 1944, by passin9 the order impugned, the CEGAT has not committed any illegality requiring any interference.

Consequently, the petition is liable to be dismissed and is hereby dismissed. No order as to costs. ___ Sd/- T.P. Sharma Judge