CESTAT upholds confiscation of imported non-foundry scrap for exceeding prescribed input/output norms under customs regulations

CESTAT Ahmedabad dismissed the appellant's appeal regarding confiscation of imported non-foundry scrap and demand for customs duty, interest, and penalty. The appellant exceeded prescribed input/output norms for raw material utilization. The tribunal rejected the appellant's calculation using a fixed ratio of 1.5, finding it inconsistent with DGFT letter provisions and actual verified ratios. The court held that wastage norms of 1.26 for manufacturing brass items from segregated scrap included all losses including slag. Regarding time limitation, the tribunal ruled that since demand was raised under both Section 28 and Section 72 of Customs Act invoking bond conditions under Notification 52/2003, limitation period was not applicable.

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Issues Involved:
1. Classification of Non-Foundry Scrap.
2. Determination of Permissible Input-Output Ratio.
3. Calculation of Excess Consumption.
4. Period of Limitation.

Summary:

1. Classification of Non-Foundry Scrap:
The Commissioner (Appeal) held that non-foundry scrap is not classifiable under Custom Tariff header 7404 0022. Consequently, the demand of duty and order of confiscation of non-foundry scrap cannot be upheld. However, the Commissioner (Appeal) also stated that the quantity of non-foundry scrap must be generated as per Notification No. 52/2003-Custom read with the final norms fixed by the norms committee. If the appellants fail to prove compliance, the duty implication stands upheld. The Tribunal found that the Adjudicating Authority confirmed the classification under heading No. 7404 0022, which contradicts the Commissioner (Appeal)'s order. The Tribunal, referencing CBIC Circular No. 1029/17/2016, clarified that segregated foreign materials cannot be treated as clearance of "inputs as such." Therefore, the appeals E/11294-11295/2014-DB were allowed.

2. Determination of Permissible Input-Output Ratio:
The benefit of Notification 52/2003-Custom is subject to conditions including authorization by the Development Commissioner, manufacturing in Customs bond, and maintaining proper accounts. The appellant must prove that goods used in production are in accordance with the SION for export. The norms committee fixed wastage norms for segregation and manufacturing processes. The Additional Commissioner provided calculations for ascertaining the quantity required for manufacturing goods, revising the demand from Rs. 43,69,813/- to Rs. 19,76,115/- based on these norms.

3. Calculation of Excess Consumption:
The appellant argued for a fixed ratio of 1.5 for segregation, but the DGFT letter specifies "as per the actual verified by the Central Excise Officer subject to a maximum of 1.5 MT." The Tribunal found that the actual verified ratio was less than 1.5 and therefore, the appellant's calculation using a fixed ratio was not acceptable. The appellant's argument regarding slag loss was also dismissed as the wastage norm of 1.26 includes all kinds of losses.

4. Period of Limitation:
The demand was raised under clause-3 of Notification 52/2003-CUS, requiring the appellant to execute a bond to explain actual consumption of raw materials. The demand was raised invoking provisions of Section 28 and Section 72 of the Customs Act. Since the demand was based on the bond conditions, the period of limitation does not apply.

Conclusion:
All customs appeals were dismissed, except for appeals E/11294-11295/2014-DB, which were allowed. The Tribunal upheld the revised demand and dismissed the appellant's arguments regarding excess consumption and period of limitation. The judgment was pronounced in the open court on 30.01.2024.

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