TaxTMI 
TaxTMI 
1997 (2) TMI 104
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.... 1983 were classified under the erstwhile Tariff Items 25, 26 and 26AA. The appellant-company has been paying excise duty on these items under reference following the principles of "later the better". The appropriate central excise duty was determined and paid on iron and steel products, when cleared. The evidence led by the appellant explained the process of production. That in the integrated steel plant of the appellant-company at Durgapur the process of production is as under :- Iron Ore Sinter Limestone Manganese Ore put into Blast Furnace. Dolomite BHQ Molten iron is produced in the blast furnace. Molten iron goes to steel furnaces of steel melting shop (SMS) directly and other ingredients are mixed. The product from SMS is steel. In other words, iron is converted into steel in SMS. Raw materials like iron ore, sinter, coke limestone etc. are fed into blast furnace which produces pig iron. At this stage, the molten metal is called pig iron. Once this molten metal is fed into steel making furnace which produces steel, the produce which comes out, out of the steel melting shop (SMS) is known as steel and n....
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....duty on iron used in the manufacture of steel melting scrap cleared without payment of duty, was chargeable. The aforesaid notice was in respect of the period from 12-12-1977 to 30-9-1980. On similar terms another demand notice was issued for the period from April 1981 to October 1981. The total duty so demanded was about Rs. 25.50 lakhs. The appellant-company submitted replies to the said show cause notices and pointed out that the notices were misconceived and the demands raised were not sustainable. The Collector of Central Excise by his order in original dated 9-6-1987 confirmed the demand of Rs. 25,50,593.87 on iron in crude form used by the appellant-company in manufacture of 34,346.327 metric tons of steel melting scrap which had been cleared without payment of duty. 5.The appellant-company being aggrieved by the aforesaid order of Collector of Central Excise, Bolpur, carried the matter in appeal before the CEGAT, New Delhi. The said appeal was partly allowed by the CEGAT by its order dated 21-12-1990 whereby the CEGAT quashed the demands in respect of the period prior to 6 months of the issue of the respective show cause notices dated 21-11-1980 and 23-11-1981 on the gro....
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....nsel for the revenue, on the other hand, submitted that at the time when the input of crude iron i.e. pig iron was produced, no duty was paid by the appellant. The said input was utilised by the appellant for manu- facturing two excisable items, namely, (i) steel ingots and (ii) steel melting scrap. Steel melting scrap, though an excisable item, did not bear any duty in view of the exemption Notification No. 150/77. Consequently, the input of pig iron to the extent to which it resulted into the final product of steel melting scrap remained liable to pay excise duty as no final duty on steel melting scrap was available for proportionately setting off duty payable on the input to the extent to which it had resulted in the manufacture of steel melting scrap. It was submitted that steel melting scrap was by itself an excisable item which had a market of its own and was not like a by-product which had no value whatsoever and was not exigible to central excise. Consequently, when the final product of steel melting scrap had not borne excise duty because of the exemption notification, as aforesaid, the non-duty paid input which was embedded in it, which in its turn was exigible to tax had....
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.... embedded in steel ingots and steel melting scrap. It has to be appreciated that it is not the case of the department nor is there anything on record to indicate that out of the input of crude iron or pig iron, a particular portion thereof was separately utilised by the appellant as an input for manufacturing steel ingots and another separate identifiable portion of pig iron as an input was utilised by the appellant in manufacturing steel melting scrap. In fact, the entire process of manufacturing steel ingots was a uniform, composite and a combined process and in the said process of manufacturing of steel ingots the entire input of crude iron got exhausted and utilised but in the very same process two commodities emerged, namely, steel ingot and steel melting scrap. There is substance in the contention of the learned counsel for the appellant that the integrated steel plant like DSP owned by the appellant was meant to produce pig iron and various steel products. However, the process was such that certain amount of scrap arises due to technological necessity and it was not a conscious production and, still it might be exigible to excise duty under the concerned Tariff Item 26. We a....
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....ding pig iron, scrap iron, molten iron or iron cast in any other shape or size, is used, from so much of the duty as is proved to have been paid on the said iron in any crude form; (Provided that in relation to the exemption under this notification the procedure set out in Rule 56A of the aforesaid rules is followed)." 9.Now a mere look at the aforesaid notification shows that it seeks to permit a set off of excise duty payable on the final product manufactured by the appellant by utilising the input of pig iron to the extent of the amount of excise duty which might have been paid by the assessee on the utilised input of pig iron which ultimately resulted into the final products. Those final products are either steel ingots covered by Tariff Item 26 or iron or steel products falling under Tariff Item 26AA. It is pertinent to observe that the said exemption/set off notification does not cover final product of steel melting scrap mentioned in Tariff Item 26 which obviously results as an unplanned by-product. Learned counsel for the respondent is right when he contends that on the facts of the present case, the benefit of the set off of excise duty payable on pig iron would not ....
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....elting scrap, as a final product, is exigible to nil rate of duty as there is no dispute between the parties that it is fully covered by exemption Notification No. 150/77, dated 18-6-1977. In fact, that is the very basis for the impugned notices, as seen earlier. If that is so, the impugned notices indirectly seek to bring to tax the entire quantity of steel melting scrap by treating it to be resulting from the total input of pig iron, which directly could not have been brought to tax. Once entire quantity of steel melting scrap is exempted from excise duty as per Notification of 18-6-1977, it is difficult to appreciate how the very same quantity of scrap can be taken as a basis for levying tax on input of pig iron embedded therein when admittedly a substantial part of the very same input had resulted in a different duty paid product, namely steel ingots and for manufacturing the same substantial quantity of pig iron had stood utilised. 10.The moot question that survives for our consideration is as to whether the input of pig iron which itself was an exigible commodity as per Tariff Item 25 had been subjected to the requisite excise duty by way of deferred payment of duty not at....
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.... the net duty liability on 90 metric tons of steel ingots would have been Rs. 24,500/- only (Rs. 31,500 - Rs. 7,000/-). However, the set off of Rs. 7,000/- in all is not available to the appellant on the excise duty payable on 90 metric tons of steel ingots as at the relevant time when the input of pig iron was manufactured, the same had admittedly not borne any duty and the payment of duty was deferred. Therefore, the Notification No. 18/71, dated 23-3-1971 could not be of any avail to the appellant. The net result was that the appellant had to pay the full duty of Rs. 31,500/- on the 90 metric tons of steel ingots which had utilised non-duty paid 100 metric tons of pig iron. In the process the appellant accounted for full duty payable on steel ingots of 90 metric tons i.e. Rs. 24,500/- and also accounted for full duty on the input of 100 metric tons of pig iron i.e. Rs. 7,000/-. A conjoint operation of Notification No. 18/71, dated 23-7-1971 and Tariff Item 26, therefore, projects the following picture. Excise duty payable on final output of steel ingots would work out to Rs. 350/- per metric ton consisting of Rs. 280/- per metric ton as duty on steel ingots and Rs. 70/- per metr....
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....ubjected to excise duty because a further unintended product of 10 metric tons of steel scrap also resulted from the very same process of manufacture undertaken by the appellant in its steel making furnace. Consequently, it must be held that the impugned demands of excise duty clearly resulted in seeking to recover excise duty twice on the input of pig iron utilised by the appellant in manufacturing the final product of steel ingots and which in the same process as a by-product gave rise to steel scrap which was fully exempted from excise duty on account of the concerned exemption Notification. 11.In this connection, we may note that the reasoning of the CEGAT as noted in Paragraph 7 of the impugned judgment is clearly unsustainable. The CEGAT has observed that in this case steel melting scrap falling under Tariff Item 26 has been produced from iron on which duty has not been paid and the final product has been cleared without paying the duty or following the procedure of Chapter X as stipulated in Notification No. 150/77, dated 18-6-1977. It has been further observed that the department was justified in recovering duty at the stage prior to the last stage as in the last stage t....
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....tial adjudication thereon as confirmed by the CEGAT are quashed and set aside. The question of refund of Rs. six lakhs deposited by the appellant pursuant to the order of the CEGAT will have to be processed by the Collector of Central Excise, Bolpur in accordance with law and in the light of the decision of this Court in Mafatlal Industries Ltd. v. Union of India - 1977 (89) E.L.T. 247. The proceedings for this aforesaid limited purpose will stand restored to the file of the Collector, Central Excise, Bolpur. Ordered accordingly. In the facts and circumstances of the case, there will be no order as to costs. 13.[Judgment per : Bharucha, J.]. - I have had the benefit of reading the judgment that my brother, Majmudar, J., is about to deliver and I am in respect- ful agreement therewith. These few lines may be read as an addendum thereto. 14.Let me assume for the moment that the assessee was not making clearances on the "the later the better" principle. It would have paid excise duty on the pig iron input and claimed, under the notification dated 27th March, 1971, set-off of the amount thereof when clearing the steel ingots produced therefrom. To illustrate, it would have paid R....