2019 (1) TMI 925 - HC - Customs

Court rules on segregation of imported brass scrap not constituting 'manufacture' per CBEC Circular

COMMISSIONER, CUSTOMS (PREVENTIVE) Versus M/s POOJA METAL INDUSTRIES

The High Court upheld the Tribunal's decision that the segregation of imported mixed brass scrap into foundry and non-foundry scrap does not constitute ... 100% EOU - Import of brass metal scrap containing other impurities without payment of duty as per Notification No.52/2003-Cus dated 31.03.2003 for manufacture of brass articles - contravention of N/N. 53/2003-Cus dated 31.03.2003 - it was alleged that segregation of imported brass scrap into foundry and non-foundry did not result into manufacture, as per CBEC Circular No.62 of 2001 dated 12.11.2001 - it was also alleged that the utilization/clearance of excess scrap, could be said to have been not used for the intended purpose - contravention of N/N. 52/2003-Cus. Held that:- What the respondent has imported is brass scrap for the purpose of manufacturing brass articles. For this purpose, the scrap has to be segregated to first remove the brass and foundry items which are then used for manufacturing purpose. Unless the plastic and other waste is removed, it would not be possible to use the brass for manufacture. Therefore, the segregation of the brass and foundry from the scrap is the first step in the manufacturing process and the plastic and other material generated on account of such segregation, which cannot be used for manufacturing brass articles do not retain the character of the item which was imported, viz., brass scrap. Therefore, the question of charging customs duty on such goods by considering them to be articles imported “as such” would not arise. CBEC Circular No.62/2001-Cus dated 12.11.2001 - Held that:- The Circular relates to valuation of plastic waste and scrap - The identity of the goods imported and the goods cleared into DTA is the same, namely plastic waste. Evidently, therefore, the plastic waste cleared into DTA is clearance of plastic waste “as such”. Whereas in the facts of the present case, what is imported is brass scrap and what is cleared into DTA is waste other than brass and foundry items, the identity whereof is different from the goods imported. The said circular would, therefore, have no applicability to the facts of this case. Circular No.1029/2016-CX dated 10.05.2016 - Held that:- The Circular clarifies regarding segregation of impurities, viz., iron, steel, rubber, plastic, dust etc. from honey grade plastic scrap - while the above circular clarifies whether segregated foreign materials from imported honey grade brass scrap can be treated as “inputs as such” as contemplated in rule 3(5) of the CENVAT Credit Rules, 2004, the principle involved is the same. In this case also, the segregated material has an altogether different character and use vis-à-vis the brass scrap. The value per unit and classification of the segregated foreign materials is also different from that of the imported brass scrap. As a necessary corollary therefore, the segregated foreign material cannot be treated as input “as such” for the purpose of levy of customs duty. The Tribunal, therefore, did not commit any error in placing reliance upon Circular No.1029/2016-/CX dated 10th May, 2016. Whether clearance of such scrap upon payment of excise duty would fall within the ambit of paragraph 3 of Notification No.52/2003- Cus dated 31.03.2003? - Held that:- Waste and scrap arising in the course of production or manufacture of finished goods are also exempt from the duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 and the additional duty, if any, leviable thereon under section 3 of the said Customs Tariff Act - Reverting to the facts of the present case, as noticed hereinabove, the segregated waste has arisen in the course of production/manufacture of the finished goods viz. brass articles; the Commissioner of Customs has recorded that the segregated waste had in fact been cleared on payment of duty after being duly permitted by the Development Commissioner in accordance with the provisions of the EXIM Policy. The requirements of clause (3) of Notification: 52/2003-Cus dated 31st March, 2003 are therefore, wholly satisfied - there does not appear to be any legal infirmity in the view adopted by the Tribunal. Appeal dismissed - decided against appellant-Revenue. Issues Involved:1. Whether the CBEC Circular No.62/2001-Cus dated 12.11.2001 is contrary to the principle of law regarding the meaning of 'Manufacture.'2. Whether the CBEC Circular No.1029/17/2016-CX dated 10.05.2016 is relevant to the case.3. Whether the clearance of foundry scrap beyond the norms set by the Norms Committee contravenes Notification No.52/2003-Cus dated 31.03.2003.Issue-wise Detailed Analysis:Issue 1: CBEC Circular No.62/2001-Cus and the Meaning of 'Manufacture'The Tribunal concluded that the segregation of imported mixed brass scrap into foundry and non-foundry scrap does not constitute 'manufacture' as per CBEC Circular No.62/2001-Cus dated 12.11.2001. The Tribunal relied on the CBEC Circular No.1029/17/2016-CX dated 10.05.2016, which clarifies that segregation is part of the manufacturing process and that the segregated non-foundry scrap cleared in the Domestic Tariff Area (DTA) on payment of excise duty cannot be treated as clearance of imported scrap 'as such.' The High Court upheld this view, stating that the non-foundry scrap obtained from segregation cannot be considered as articles imported 'as such' because the essential character of the imported brass scrap is absent in the segregated waste.Issue 2: Relevance of CBEC Circular No.1029/17/2016-CXThe appellant argued that the Tribunal wrongly relied on CBEC Circular No.1029/17/2016-CX, which pertains to the Cenvat Credit Rules, 2004, and not to the specific facts of this case. However, the High Court found that the principle involved in the Circular is applicable. The Circular clarifies that segregated foreign materials from imported brass scrap cannot be treated as 'inputs as such' and should be cleared on payment of Central Excise duty on transaction value. The High Court agreed with the Tribunal that the segregated material has a different character and use compared to the imported brass scrap, thus supporting the Tribunal's reliance on the Circular.Issue 3: Clearance of Foundry Scrap Beyond NormsThe appellant contended that the clearance of foundry scrap beyond the norms set by the Norms Committee contravenes Notification No.52/2003-Cus dated 31.03.2003. The High Court examined Clause (3) of the Notification, which allows for the clearance of byproducts, rejects, waste, and scrap arising during production or manufacture of finished goods in the DTA on payment of appropriate excise duty, subject to permissions from the Development Commissioner. The High Court found that the segregated waste was cleared on payment of duty with the necessary permissions, satisfying the requirements of the Notification. Therefore, the Tribunal's view that the demand for customs duty on the excess quantity of imported scrap is unsustainable in law was upheld.Conclusion:The High Court concluded that the Tribunal's order does not suffer from any legal infirmity and does not give rise to any substantial question of law. The appeals were summarily dismissed, affirming the Tribunal's findings on all issues.