2024 (8) TMI 1547 - AT - Central Excise

Job-worker manufacturing lead alloy ingots from waste and scrap wins appeal under Rule 4(5)(a) CENVAT Credit Rules 2004

Shri Shambhu Nath Shaw, Director, M/s. Raj Finoxides (P) Limited Versus Commissioner of Central Excise

CESTAT Kolkata allowed the appeal of a job-worker manufacturing lead alloy ingots from waste and scrap received from a principal manufacturer under Rule ... Liability of job-worker to pay excise duty - inputs or not - lead alloy ingots manufactured from waste and scrap received from Exide Industries Limited (EIL) under Rule 4(5)(a) of the CENVAT Credit Rules, 2004 - reliance placed on Standard Input Output Norms (SION) to allege suppression of production and short payment of excise duty - levy of penalty - HELD THAT:- It is a settled legal principle that no demand can be thrusted upon an assessee, on mere wild allegations without a substantial basis and foundation thereof. There is no shred of evidence to support the proposition of short supply of finished goods as alleged by the Revenue in this case. The said allegation of the Department is thus outright baseless, presumptuous and therefore unsustainable.In fact, as the commercial transactions were based on the purchase orders issued by EIL, the veracity of which is not questioned by the Department, the allegations against the appellants are completely hollow void in the first place and therefore without any basis. As there is no challenge to the purchase orders issued by the EIL, no allegation for short supply of goods can be sustained. In case there is any clandestine manufacture and removal of goods, the onus lies on the Department to prove the same with appropriate, tangible, valid and sustainable evidence. From the chain of events, it is clear that the lead scrap and other raw materials supplied by EIL are in the nature of inputs (semi-processed), as has also been held by the Larger Bench of the Tribunal in Wyeth Laboratories Ltd.4 (supra), and are supplied back to EIL (the principal manufacturer), against the challans issued and enclosed along with the monthly returns. The above Rule clearly states that the goods that are required to be sent by the principal manufacturer without payment of Central Excise Duty are required to be returned for further processing to the principal manufacturer for utilization in the final product (viz. lead storage battery, in the present case). Also, with respect to the Standard Input Output Norms (SION), the appellant’s assertion is noted that quality of lead scrap is an important variable and is necessary for consideration to arrive at the recovery percentage (based on thorough testing of waste and scrap) as undertaken by EIL in their R&D section. The percentage of recovery would depend on the material contained in the waste and scrap and thus there cannot be a fixed one-to-one formula in the instant case. Thus, in view of the fact that the goods were supplied in terms of challans as referred to aforesaid, the purchase orders as supplied by EIL indicating recovery percentages in addition to other details, there is no case made out for demand of duty of excise, if any, from the job worker. In view of the position as settled by the Larger Bench of the Tribunal in Wyeth Laboratories Ltd. [2000 (7) TMI 109 - CEGAT, NEW DELHI], the issue involved is thus no more res integra. Therefore, the claim of the Department disentitling the waste and scrap for the benefit of Rule 4(5)(a) of the CENVAT Credit Rules, 2004 does not stand to any merit. Thus, there is no justification for the demand of duty or imposition of penalties on the appellants in the matter. Conclusion - The appellant is not liable for excise duty on the processed goods and that the penalties imposed on the appellant and its director were unwarranted. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the appellant, as a job worker, was liable to pay excise duty on the lead alloy ingots manufactured from waste and scrap received from Exide Industries Limited (EIL) under Rule 4(5)(a) of the CENVAT Credit Rules, 2004.Whether the waste and scrap sent by EIL to the appellant qualify as 'inputs' under Rule 4(5)(a) of the CENVAT Credit Rules, 2004, thereby allowing the appellant to process them without the payment of excise duty.Whether the Department's reliance on the Standard Input Output Norms (SION) to allege suppression of production and short payment of excise duty was justified.Whether the imposition of penalties on the appellant and its director was warranted under the Central Excise Act, 1944.ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents: The case hinges on the interpretation of Rule 4(5)(a) of the CENVAT Credit Rules, 2004, which allows inputs or capital goods to be sent to a job worker for further processing without the payment of excise duty, provided they are returned within a specified period. The Tribunal also referenced the decision in Wyeth Laboratories Ltd. v. Collector of Central Excise, Bombay, which addressed the classification of waste and scrap as inputs.Court's interpretation and reasoning: The Tribunal interpreted Rule 4(5)(a) to mean that waste and scrap sent by EIL to the appellant for conversion into lead alloy ingots qualify as 'inputs.' The Tribunal found that the appellant acted within the provisions of Rule 4(5)(a) by returning the processed goods to EIL, the principal manufacturer, without the payment of excise duty. The Tribunal also noted that the responsibility for accounting for waste and scrap lies with EIL, not the appellant.Key evidence and findings: The Tribunal considered the challans and purchase orders issued by EIL, which specified the recovery percentages and the specifications for the lead ingots to be returned. The Tribunal found no evidence of suppression of production or short supply of finished goods by the appellant.Application of law to facts: The Tribunal applied Rule 4(5)(a) to conclude that the appellant was not liable for excise duty on the processed goods, as they were returned to EIL as per the rule's requirements. The Tribunal also rejected the Department's reliance on SION, finding that the recovery percentage of lead alloy ingots depended on the quality of the scrap, which varied from case to case.Treatment of competing arguments: The Tribunal addressed the Department's argument that the appellant's processes amounted to manufacture, thereby disqualifying them from the benefits of Rule 4(5)(a). The Tribunal disagreed, citing the Wyeth Laboratories Ltd. decision, which supports the classification of waste and scrap as inputs eligible for processing under Rule 4(5)(a).Conclusions: The Tribunal concluded that the appellant was not liable for excise duty on the processed goods and that the penalties imposed were unwarranted.SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'In view of the position as settled by the Larger Bench of the Tribunal, the issue involved is thus no more res integra. Therefore, the claim of the Department disentitling the waste and scrap for the benefit of Rule 4(5)(a) of the CENVAT Credit Rules, 2004 does not stand to any merit.'Core principles established: The Tribunal reaffirmed the principle that waste and scrap can qualify as inputs under Rule 4(5)(a) of the CENVAT Credit Rules, 2004, allowing them to be processed by a job worker without the payment of excise duty, provided they are returned to the principal manufacturer within the stipulated period.Final determinations on each issue: The Tribunal set aside the Order-in-Original, concluding that the appellant was not liable for excise duty on the processed goods and that the penalties imposed on the appellant and its director were unwarranted. The appeals were allowed with consequential relief as per the law.