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2022 (2) TMI 9
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....gory of 'support service of business or commerce [BSS]. 3. For providing the output service of BSS, the appellant purchased various capital goods namely lead acid batteries, air conditioners, transmission racks, fire alarms, smoke detectors etc. and availed CENVAT credit thereon. The credit availed on capital goods was utilized by the appellant in discharging its output service tax liability. 4. The appellant, thereafter, removed certain capital goods after their usage which were waste/scrap. At the time of removal, neither credit was reversed, nor any amount was paid as the appellant believed that there was no requirement of payment/reversal by an output service provider under rule 3(5A) of the CENVAT Credit Rules 2004 [the Credit Rules] during the relevant period. However, with respect to capital goods which were removed as used capital goods, the appellant paid the amount in terms of rule 3(5A) of Credit Rules. 5. The appellant claims that it had internally devised a 'Inventory Management Process' for the purpose of identification of scrap. The said process has been explained by the appellant in the following manner: a) When capital goods become unwo....
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....to rule 3(5A) of Credit Rules, the appellant, being a service provider, was required to pay an amount equivalent to credit availed on such capital goods after factoring in depreciation; (ii) The capital goods cleared by the appellant as scrap were not actually in the nature of scrap and hence, the appellant contravened the provisions of rule 3(5A) of Credit Rules by not paying the amount equivalent to the CENVAT credit availed after factoring in depreciation; (iii) The appellant has deliberately changed the description of goods in their invoices by describing the same as scrap so as to evade the payment of amount under rule 3(5A) of Credit Rules; (iv) From the product brochure of telecom batteries manufactured by M/s. HBL Power System Ltd., the active life of a telecom battery is 20 years, but the appellant has cleared the batteries after 3-4 years of use as 'scrap battery cell' whereas in fact such battery cells were actually 'used battery cells'; and (v) The appellant has cleared these batteries even before the useful life of these batteries, as per the industry standards. 8. The appellant submitted a reply dated 28.06.2016 to the show cause notice ....
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....not be used, even after due repairs and renovations, for any similar purpose. Hence, the goods cannot be considered as waste/scrap; (vi) The definition of 'scrap' given under Explanation (b) to section 206C of the Income Tax Act, 1961, cannot be relied upon as it is settled law that in case a term has not been defined in the given Statute, reference to the definition of the said term in another Statute cannot be made. Instead, reference should be made to the dictionary meaning of the said term. In this connection, reliance has been placed on the judgment of the Supreme Court in MSCO Pvt. Ltd. vs. Union of India and Others [1985 (19) E.L.T. 15 (S.C.)]; (vii) The extended period of limitation could not have been invoked and so the demand for the period 27.09.2013 to 30.09.2013 is time barred; and (viii) Interest was not recoverable and penalties were not imposable. 11. Dr. Neha Garg, learned authorised representative appearing for the Department, however, supported the impugned order and made the following submissions: (i) Old and used capital goods were removed on invoices mentioning the description as 'scrap of batteries', 'scrap of AC' etc. Thus the capital good....
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....VAT credit taken on the said capital goods reduced by 2.5% for each quarter of a year or part thereof from the date of taking the CENVAT credit. Rule 3(5A)- If the capital goods are cleared as waste and scrap, the manufacturer shall pay an amount equal to the duty leviable on transaction value. 2. Between 27.02.2010 to 16.03.2012 Rule 3(5) Provided further that if the capital goods, on which CENVAT credit has been taken, are removed after being used, the manufacturer or provider of output services shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by the percentage points calculated by straight line method as specified below for each quarter of a year or part thereof from the date of taking the CEVAT Credit, namely:- (a) for computers and computer peripherals: for each quarter in the first year @ 10% for each quarter in the second year @ 8% for each quarter in the third year @ 5% for each quarter in the fourth and fifth year @ 1% (b) for capital goods, other than computers and computer peripherals @ 2.5% for each quarter: Rule 3(5A): If the capital goods are cleared as waste and scrap, the manufacturer shall pa....
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....f capital goods as scrap in the light of the aforesaid amendments would be more clear from the following tabular chart: Period Who is required to pay the amount in terms of Rule 5(3A) in case of Clearance of used capital goods Clearance of capital goods as scrap Pre 27.02.2010 Manufacturer and output service provider Manufacturer 27.02.2010 to 16.03.2012 Manufacturer and output service provider Manufacturer 17.03.2012 to 26.09.2013 Manufacturer and output service provider Manufacturer and output service provider Post 27.09.2013 Manufacturer and output service provider Manufacturer 16. The period of dispute in the present case is from 27.09.2013 to 31.03.2015. It is evident from the aforesaid tabular chart that in terms of payment of the amount under rule 3(5A) of the Credit Rules during the said relevant period, only a 'manufacturer' was required to pay the amount in case of clearance of capital goods as scrap and not an output service provider. The appellant, being an output service provider, was not required to pay any amount in terms of rule 3(5A) of the Credit Rules during the period involved in the present ap....
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....e findings recorded by the Additional Director in the impugned order on this issue are reproduced below: "A.4.11 I find from the provisions that the goods which constitute 'waste or scrap' (capital goods on which CENVAT credit availed) has not been defined in the statutory provisions. Considering the fact that the capital goods in question were removed as a complete unit (identifiable as purchased) and also looking to the fact that the capital goods in question (especially batteries) had not completed the active life (as per the brochure of one of the leading manufacturer as per the SCN), the capital goods considered as 'scrap or waste' by the Noticee, may or may not be waste or scrap for the purchasers. The said capital Goods as procured may be of some utility to the buyers in its original form, or, the buyers might have carried out some rectification or improvements on the said removed 'used capital goods' and may had used it for some other purpose (if not suitable for the services being provided by the Noticee). What is simply not of use to the seller cannot be termed as waste or scrap for all purposes. The items under question should be of no use for ....
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....e termed as "Waste and scrap' and may be termed as 'used capital goods' instead. Thus, in my view though the condition in which the capital goods have been removed is not a basic criterion to determine whether the capital goods removed are waste or scrap, but is not of the important criteria in this regard. (emphasis supplied) 20. The submission of learned counsel for the appellant is that rule 3(5A) of the Credit Rules provides for two different situations and the payment of the amount in these two situations. The first is 'if the capital goods, on which the CENVAT credit has been taken, are removed after being used' and the second is 'if the capital goods are cleared as waste and scrap'. These two terms used and scrap have not been defined in the Finance Act. The dictionary meanings of these two terms is: Term Oxford Dictionary Collins Dictionary Merriam Webster Dictionary Scrap things that are not wanted or cannot be used for their original purpose, but which have some value for the material they are made of no longer wanted for its original purpose but may have some other use. to abandon or get rid of as no longer of enough worth or eff....
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....y) 2. Rectifier Module 3. Lead Acid Batteries 4. DG Sets 5. Air Conditioners 6. PIU (Power Interface Unit) 27. It is seen that for identification of scrap, a detailed procedure has been described by the appellant. When the capital goods become unworkable after continues use, they are brought to the warehouse of the appellant, where registered outside vendors carry out a health check and issue a health certificate. An analysis is thereafter carried out to determine whether the capital goods can be repaired or new capital goods have to be purchased. It is only when such goods cannot be repaired and have no other alternative use, that they are classified as obsolete and the procedure of clearance as scrap is triggered. A scrap inventory report is then generated which requires approvals at various levels including the approvals of Circle Manager, Circle Operation Management Head, Circle Finance Head. If the Circle recommends that the goods should be scrapped, then it is sent for final approval to the Head Office and it is only when the Head Office approves, that a scrap disposal notice is generated. 28. The appeal contains 'Note for Approval' and the....
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....The replacement of these BBs where approved by O&M SME. All these are obvious scrap or < of 1.2vt and certified by CFT members So it is propose to declare scrap as per scrap disposal process. 3. Proposal (for which approval required) with recommendation: (PI attach documents as necessary) It is proposed to declare SCRAP 12816 Nos. battery cells of different makes which have been found not fit for use. (Details enclosed) (3) 1. Nature of Proposed NFA "Scrap disposal of 138 AC sets which return against Upgrade/ O&M Replacement under obvious scrap category". 2. Background (explaining the need): In Patna warehouse we have identified 138 nos Scrap ACs which have been brought back to warehouse, as SRN, against Upgrade/ Special Project & O&M replacement request from May-14 to July-14. These ACs received in SRN are crossing their life more than five years and have high energy consumption and in damage condition, parts like Blower, Coil condencer, Compressure, Suction Pipe and Capiller etc are damage. Blower, fan are missing. Some of these have odd rating or model, with high energy comsumption. So inview of the above and as per SCR....
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....s of rule 3(5A) of the Credit Rules. A chart giving details of the items removed as scrap for the period 2013-14 and 2014-15 was provided in the submissions and the same is reproduced below: Items 2013-14 (in Rs.) 2014-15 (in Rs.) Grand Total (in Rs.) Battery 57,836,540 88,292,603 146,129,143 PIU 15,666,031 14,559,659 30,225,690 SMPS 7,994,125 4,864,583 12,858,708 AC 2,178,830 2,008,758 4,187,588 Rectifier 1,136,830 1,136,830 Shelter 1,002,339 1,002,339 Total 8,36,75,527 11,28,27,861 19,65,388 32. The appellant had also provided the list of customers to whom the scrap was sold and the same is as follows: "(x) That all the sales of the battery has been made to recycler having valid registration certificate of recycling hazardous waste and all the sales pertaining to SMPS, PIU, AC has been made to recycler having valid registration certificate of recycling E-waste respectively. (Sample copies of certificates attached as Annexure 2) (xi) That the list of customers to whom the scrap under dispute has been sold are as under Vendor 2013-14 2014-15 ....
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....Income Tax Act, 1961, wherein scrap has been defined as a waste generated out of manufacture or mechanical working of materials and is not usable as such due to breakage, cutting, wear and other reasons. 37. The definition of 'scrap' in the Income Tax Act could not have been resorted to by the Additional Director as it was defined in a different context. The term 'scrap' has been used in the Income Tax in the sense of a waste by-product generated during the manufacturing, but the Credit Rules envisage clearance of capital goods in the form of 'scrap' when the same can no longer be used. 38. This apart, in case a term has not been defined in a particular Statue, reference can always been made to the definition of the said term in dictionaries. For this purpose reliance can be placed on the decision of the Supreme Court in MSCO Pvt. Ltd., wherein the following observations have been made: "The expression 'industry' has many meanings. It means 'skill', 'ingenuity', 'dexterity', 'diligence', 'systematic work or labour', 'habitual employment in the productive arts', 'manufacturing establishment' etc., But while con....