1. Central Excise

29. Whether TR-6 challan is sufficient for grant of cenvat credit? Can they be termed as sufficient documents for grant of credit as duty paid documents?

Held – Yes

The appellant had cleared capital goods to be handed over to the job workers. It had not paid duty on some of the capital goods cleared. On proceeding being initiated the duty was paid on the said goods on 24-12-1997.

The above referred to capital goods were received back on 12-01-1998. The appellant took cenvat credit on the above goods.

The cenvat was denied to appe-llant by the department on the ground that TR6 challan cannot be considered as a valid duty-paying document.

The Tribunal on the basis of the following citations.

1. Beta Nephthol Pvt. Ltd. vs. CCE 67 ELT 131.

2. Krebs Bio – Chemicals Ltd vs. CCE 138 ELT 353. Held that payment made under TR6 challan are sufficient to grant cenvat credit under Rule 4 of Cenvat credit Rules 2004 and 57G of Central Excise
   Rules 1944.

[Avanti Kopp Electricals Pvt. Ltd. vs. CCE 193 ELT 581 (Tri – Bang)].

30. Whether the principal who gives job work, is liable to pay duty on scrap/waste generated at the job worker's place, disposed of by job worker and not returned to principal?

Held – No

The appellants is manufacturer of IC Engines. It purchases castings, which are machined before using them as parts of IC engines. The work of machining the parts was gives on job work basis.

In the course of doing the job work of machining recoverable scrap is generated which can be sold in market at a price.

The job worker did not return the scrap and sold it off.

The department issued show cause notice on the principal asking him to pay duty on the scrap generated at the job workers premises. The matter was agitated before the Commissioner appeals who rejected the claim of the appellant.

The appellants before the Tribunal contended that Rule 57AC(5)(a) of Central Excise Rules or Rule 4(5) (a) of the Cenvat Credit Rules 2001 does not have any provision which compels the principal to bring back scrap generated by the job worker and pay duty on it. The scrap is generated by job worker, the job worker is the manufacture of scrap and hence it is retained by him and sold off by him.

The Tribunal allowed the appeal of the appellant relying on the decision of M/s. International Tobacco Co. Ltd. vs. CCE 165 ECT 314 (TRI-Del)

[Rocket Engineering corporation Ltd. vs. CCE 193 ELT 33 (TRI- Mum)]

31. Whether separate records need to be maintained of goods returned and reworking etc. done on them as inputs before they are resold again?

Held – No

Whether the assessee has an option to decide as to whether the goods returned are reworkable or has to be sold off as scrap?

Held – Yes

The appellant was issued show cause notice as under:

1. It had a practice of receiving returned rejected consignments of aluminium foils for repairs and reconditioning and were reselling the same after doing the needful. Such aluminium sheets and rejected foils were declared as inputs. Such of these foils which could not be refurbished and resulted in scrap were being cleared, as scrap on payment of duty.
    

2. It was observed that subsequent resales were made at much reduced price which they charged for virgin foils. The scrap percentage was substantially high at 40%. In absence of records and no distinction between virgin and rejected foils and scrap having been generated from aluminium foils, the assessee was charged for.

1. Contravention of Rule 57F (i) (ii) inasmuch as assessee had:

1. Removed inputs as such at lower price without having undertaken on them any process or removed them as waste & scrap of Aluminium.
    

2. Duty was not determined to the extent of credit availed.

2. Contravention of Rules 57G (3) inasmuch as true and proper accounts were not maintained.

The Commissioner (Appeals) rejected the claims of the appellant. According to him since the appellant’s furnace was closed down, remelting was not possible and hence the process done of cold rolling, slitting and trimming and lamination does not amount to manufacturing process. Again in these process the loss percentage would have been minimum, where as the appellant had shown a loss percentage of 40. He also supported his view with the fact that the appellant had not maintained any records/documents as regards the accounts of the utilization of returned goods for so called manufacture of finished goods. The Commissioner further noted that, it was the assessee himself who was deciding whether goods were to be disposed of as scrap or otherwise without adhering to the norms as per Central Excise Rules for considering the item as scrap.

The appellant before the Tribunal contended that as regard returned goods, on which credit was availed, after the declaration have been filed, their subsequent removal have to be governed by the Modvat rules. The rules do not stipulate / require maintenance of any separate records of inputs. Whether returned after sales or fresh receipts, inputs have to be treated as ‘inputs’ and accounted for as prescribed. The fixing of small percentage as scrap on lamination process is an assumption followed by the adjudicator. As to when the input shall become waste and scrap and has to be treated as such should be and at the option of the assessee, who availed the Modvat Credit and this position has been upheld by the Larger Bench in the case of Wyeth Laboratories [2000 (120) ELT 218 (Tri.-LB)]. Therefore the finding, on presumption that 40% scrap is excess, and it should not exceed 10%, should not be upheld.

In respect of duty differential demand on resales made at a price lower than existing rate and 30% scrap (Scrap being allowed at 10% only) it was contended by the Commissioner that the returned goods could be used only as inputs, as these could not be melted, the furnace being closed/shut, the use and in manufacture has not been, therefore, established. This arguments overlook the fact of the process undergone/ undertaken on the foil viz. re-annealing, slitting, edge trimming, pancaking, lamination, built up, breaking etc. which these returned goods were subjected to. They would be subjected to process of manufacturing if not incidental/ancillary to manufacture to render the goods marketable. That the goods have been returned by the buyers for reasons of not meeting, purchase, specifications would itself indicate that initial removal on payment of duty was not of marketable goods but was attempt at passing of defective goods which were not acceptable as marketable since the process incidental/ancillary to rendering of the goods as marketable would qualify the application of manufacture and consequent levy thereafter.

It was further argued that when manufacturing has taken place, duty liability as per section 3 read with section 4 valuation has to be determined on clearance of such returned goods. Demands under Rule 57F(i)(ii) are not called for since goods are not virgin quality foils. The reduced value ipso facto cannot be doubted since it is a commercial reality that non virgin quality products would fetch a lower price.

The Tribunal concurred with the view of the appellant and allowed the appeal.

[Sterlite Industries Ltd vs. CCE 193 ELT 35 (Tri-Mum)]

32. Whether valuation under Central Excise of Bulk sale of ice cream to hotels/restaurants, not intended for retail should be done as per sec. 4A on MRP basis?

Held – No

The appeals were in respect of valuation of ice cream packed in one-gallon (Four litre) packs. The appellant claimed that these packs should be valued at transaction value as per sec. 4, where as the department passed the order valuing as per sec. 4A on MRP basis, ice cream being a specified item u/s 4A.

There is no dispute that ice cream is one of the items specified under sec. 4A. It is the appellant’s contention that it is not sufficient that an item be specified u/s 4A. The specified item should be sold in retail to attract the provisions of sec. 4A. If they are intended to be sold other than in retail, the valuation as per sec. 4 should be done. There is no dispute to the fact that markings on the package clearly portrays that the goods were not for retail sale. The reference was further made to Board Circular No. 625/16/2002 –CX dt 28-2-2002, which clarifies the position in this respect. The circular clearly mentions that "bulk sale of ice cream to hotels are not covered by the provision of Weight & Measures Act".

The department relied on the judgment of Jayanti Food Processing Pvt Ltd. vs. CCE 141 ELT 162 wherein the Tribunal held that one gallon packaging in jars is also within purview of retail package.

The Tribunal allowed the appellant's claim and held that merely because ice cream is a specified item u/s 4A, it should be valued as per sec. 4A is incorrect. The marking on the packages in question leaves no doubt that the consignments are not intended for retail sale. The Revenue also has no case that the clearances in question were in violation of the provisions of Weights and Measures Act. If that was the case, the consignments would have been confiscated under sub-section (4) of section 4A. Therefore, it has to be taken that it remains accepted that the clearances were not covered by the provisions of Weigh & Measures Act.

Further, when the board circular specifically recognized "bulk sale of ice cream to hotels/restaurants" as outside the scheme of section 4A for valuation, field formations of the Revenue cannot go against the circular.

[Monsanto Manufacturers Pvt. Ltd. vs. CCE 193 ELT 495 (Tri - Del)].