2000 (6) TMI 235 - AT - Central Excise

Manufacturing Waste Excludes Modvat Credit

GABRIEL INDIA LTD. Versus COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH

GABRIEL INDIA LTD. Versus COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH - 2000 (120) E.L.T. 191 (Tribunal) Issues Involved:1. Whether the hammered and broken thin-walled bearings manufactured out of modvated inputs were required to be cleared on the reversal of the Modvat credit.2. Eligibility for full duty exemption under Clause (ii) of the proviso against serial no. 3 of the table annexed to Notification No. 171/88-C.E., dated 13-5-1988.3. Whether the scrap in question was generated in the course of manufacture or post-manufacturing.4. Applicability of the Supreme Court decision in Chandrapur Magnet Wires (P) Ltd. v. CCE, Nagpur.5. Whether defective goods should be treated as waste and scrap.6. Grounds for the appeal and whether new grounds were introduced in the review appeal and order-in-appeal.7. Limitation and correctness of the description in the classification list.Issue-wise Detailed Analysis:1. Reversal of Modvat Credit:The appellants argued that the hammered and broken bearings should be considered as ferrous waste and scrap under Heading No. 72.04 of the Tariff and should be exempted from duty as per Clause (ii) of the proviso against serial no. 3 of Notification No. 171/88-C.E. They contended that there was no provision for the reversal of the Modvat credit availed on inputs (strips). However, the respondents maintained that since no duty was paid on the hammered and broken bearings, the Modvat credit already taken and utilized was required to be reversed.2. Duty Exemption under Notification No. 171/88-C.E.:The appellants claimed exemption under Notification No. 171/88-C.E., which provided exemption to ferrous waste and scrap classifiable under Heading No. 72.04. The exemption was subject to the condition that the waste and scrap should arise from the manufacture of goods covered by Chapter 84. However, the respondents argued that the scrap did not arise from the manufacture of Chapter 84 goods but was a result of hammering and breaking up of the bearings.3. Generation of Scrap:The Tribunal observed that the hammered and broken bearings were converted into scrap as a conscious decision by the appellants and not as a result of the manufacturing process. The hammering and breaking were post-manufacturing operations, and thus, the waste and scrap did not arise during the course of manufacture.4. Applicability of Supreme Court Decision:The Tribunal referred to the Supreme Court decision in Chandrapur Magnet Wires (P) Ltd. v. CCE, Nagpur, which held that Modvat credit was required to be reversed when exemption was to be availed of on final products. This decision supported the respondents' stance that the Modvat credit needed to be reversed.5. Treatment of Defective Goods:The Tribunal cited the case of Rama Trading Co. v. CC, New Delhi, where it was held that defective goods were not to be treated as waste and scrap. This further reinforced the view that the hammered and broken bearings could not be classified as waste and scrap eligible for exemption.6. Grounds for Appeal:The appellants argued that the review appeal and order-in-appeal introduced new grounds not mentioned in the show cause notices. However, the Tribunal found that the issue of Modvat credit was always part of the proceedings, as evidenced by the show cause notices and the appellants' replies.7. Limitation and Classification List:The Tribunal noted that the appellants' classification list incorrectly described the waste and scrap as generated from semi-finished goods. The show cause notices were issued before the classification list was approved, making the approval irrelevant to the notices.Conclusion:The Tribunal concluded that the waste and scrap did not arise during the manufacture but from post-manufacturing operations. The Modvat credit availed on the inputs had to be reversed, and the exemption under Notification No. 171/88-C.E. was not applicable. The appeals were rejected, and the decision of the Collector of Central Excise (Appeals) was upheld.