Provision related for retaining the Generated Scrap with assessee.

[Guest]

Respected Sir, We’re doing Machining job of Loco Blank Wheel, which is supplied by Durgapur Steel Plant (Manufacturer) on job work basis. The said wheels (Semi finished) come our workshop under Annexure II Challan We’ve an agreement with M/s. Durgapur Steel Plant in this regard that Turning/ Boring or Scrap which is generated during the process/ machining of said Wheels shall be retained by us as at free of cost with a condition of to pay excise duty on generated Scrap/ Boring and evidence of such payment should be deposited before Competent authorities of M/s. Durgapur Steel Plant. After receiving the above evidence they release our payment for machining charges of wheels, these are the main clause of MOU which has signed by DSP and our Company and I’m writing the exact word of clause :- “Turning/Boring arising out of machining operation will retained by M/s. MCC (P) LTD free of Cost but they will pay excise duty and cess on turning/ boring under rule 57F(4) under the Central Excise Rules,1944 evidence of such payment will be submitted to DSP on monthly basis and it will covered under above Bank Guarantee” Presently Central Excise Department pressurised upon DSP’s Authorities to take back of Scrap/ Turning/ Boring which is generated during the course of machining of wheels but DSP has not interested to take back the said Scrap due to their difficulties of additional burden of paper work, Inventories and other formalities . Further we want retained of scrap with us for sale purpose with payment of excise duty and cess as per Central Excise Act and Rules because DSP does not paid adequate amount for Machining of Wheels Is any provision in Law can support us for retaining the Generated Scrap with us and Excise Department not to pressurised to DSP Authorities for take back of Scrap

[Surender Gupta]

You may visit the provisions of rule 4(6) of the cenvat credit rules, 2004 (CCR). As per the rule 4(6) read with 4(5) of CCR, goods send on job work must be brought back to the premises of the principal. If the job worker is under obligation to sell the scrap or wastage directly without sending back to principal, permission from the Assistant Commissioner (AC) or Deputy Commissioner (DC) is necessary. The provisions are absolute. Therefore ask the DSP to take permission from the concerned AC/DC.

[phaniraju konidena]

i)     Hon’ble CESTAT, West Zonal Bench, Ahmedabad in the case of Fag Engineering (I) Ltd., Vs. CCE, Vadodara [2011 (1) TMI 95 - CESTAT, AHMEDABAD = 2011(266) ELT 193] the West Zonal bench of Ahmadabad has held that the duty is being demanded by treating them as a manufacturer of waste/scrap, which is factually incorrect situation. The present provisions of Rule 4(5)(a), when compared to erstwhile Rule 57F(4) of Central Excise Rules, 1944, makes a clear distinction, inasmuch as the said rule nowhere requires the return of waste and scrap generated at the job worker’s end. The issue stand finally concluded by the Tribunal’s decisions in the case of M/s.Rocket Engg.Corpn.Ltd., and International Tobacco Co.Ltd., it stands held by the Bench that when no process of manufacture of waste and scrap has taken place at the end of principal manufacturer, duty cannot be demanded from the principal manufacturer. In view of this, this Bench has set aside confirmation of differential demand of duty, interest and imposition of penalty upon the appellant by holding that the appellant was under no obligation to pay the duty on waste and scrap used at the job worker’s end and sold by him.

ii)   Hon’ble CESTAT, Eastern Bench, Kolkota in the case of Bata India Ltd., Vs. CCE, Kolkata-V [2009(01) TMI 575 - CESTAT, KOLKATA = 2009(238) ELT 316 has held that penalty imposed on appellants for clearance of waste and scrap arising from job worker’s premises without permission but as Rule 4(6) of Cenvat Credit Rules, 2004 does not apply to clearances of waste and scrap, appellant cannot be penalized for not taking permission for clearance of same on payment of duty. 

AI Summary

Job work scrap disposal: permission required for direct sale; principal not liable for duty if scrap generated at job worker. Rule 4(6) read with Rule 4(5) of the Cenvat Credit Rules mandates return of goods sent on job work to the principal's premises and requires prior permission from the Assistant Commissioner/Deputy Commissioner where a job worker proposes to sell scrap directly. Tribunal authorities have held that where scrap is generated at the job worker's end and no manufacture of scrap occurred at the principal's premises, duty cannot be imposed on the principal, and penalties for clearance without permission are unsustainable where the rule relied on does not apply.