2016 (11) TMI 271 - AT - Central Excise

Tribunal: Shredded band-aid waste not excisable, no Central Excise duty applies

Johnson & Johnson Ltd. Versus Commissioner of Central Excise Mumbai

The Tribunal held that the shredded band-aid waste, being unmarketable and a byproduct of the manufacturing process, is not subject to Central Excise ... Demand - Whether the appellant is liable to pay Central Excise duty on the waste of band aid generated in the hands of the job worker - Rule 21 Central Excise Rules 2002 - Held that: - the finished products Band-Aid can be considered finished product only when they packed and certified as fit for dispatch to the market, on approval of the quality control section of the appellant - shredded Band-Aid may not become an excisable product as it is not a manufactured item and is a waste that gets generated during the course of manufacturing and packing of final product “Band-Aid” as the shredded Band-Aid has no market and the product is not marketable. Band-Aid falls under chapter 30, hence any scrap that arises during the course of manufacturing of final product needs to be classified which in the case in hand, should be under chapter 30; there is no tariff heading for classifying the scrap arising during the course of Manufacturing of Chapter 30, hence in the absence of any classification of the product, demand of the duty is unsustainable - Appeal allowed. Issues:Whether the appellant is liable to pay Central Excise duty on the waste of band-aid generated in the hands of the job worker.Analysis:The appeal questioned the liability of the appellant to pay Central Excise duty on the waste of band-aid generated during the manufacturing process. The appellant, a band-aid manufacturer, faced the issue of unmarketable goods due to manufacturing defects, which were shredded and sent for incineration after quality inspection by a job worker. The Revenue sought to tax these clearances of shredded waste. Both lower authorities ruled against the appellant, citing non-compliance with Rule 21 of the Central Excise Rules 2002 and the goods being considered manufactured when sent back to the appellant. The appellant argued that the shredded waste of band-aid is not excisable goods liable to Excise duty, as it does not have a specific tariff entry under chapter 30 of the Central Excise Tariff Act, 1985. The appellant relied on case laws to support their stance.The learned Counsel contended that the shredded band-aid is not a manufactured product and thus not subject to Central Excise duty, citing relevant legal precedents. On the other hand, the departmental representative insisted that the shredded waste of band-aid is excisable as the finished goods were dispatched to the job worker, contrary to the Central Excise Act provisions. He argued that the duty liability should have been remitted under Rule 21 and referenced a Supreme Court decision to support this stance.After considering the arguments from both sides, the Tribunal found that the lower authorities had erred in their interpretation of the law. The Tribunal emphasized that the shredded band-aid, being unmarketable waste generated during the manufacturing process, should not be considered an excisable product. The Tribunal highlighted that the band-aid could only be deemed a finished product once approved by the quality control section, and the shredded waste was a byproduct of the manufacturing process. Additionally, since there was no specific tariff heading for classifying the scrap arising during the manufacturing of chapter 30 products, the demand for duty on the shredded waste was deemed unsustainable. The Tribunal referenced relevant case laws to support their decision.Ultimately, the Tribunal held that the impugned order was unsustainable and set it aside, allowing the appeal in favor of the appellant.