1996(02)LCX0065

IN THE CEGAT, SOUTH REGIONAL BENCH, MADRAS

Shri V.P. Gulati, Member (T)

MUNOTH INDUSTRIES

Versus

COLLECTOR OF CUSTOMS & C. EX., HYDERABAD

Order No. 231/96, dated 16-2-1996 in Appeal No. E/538/95 Md.

REPRESENDTED BY : Shri V.J. Sankaram, Advocate, for the Appellants.

  Shri R. Arulswamy, DR, for the Respondent.

[Order]. - This appeal is against the order of the Collector of Central Excise (Appeals), Hyderabad. The learned lower appellate authority has upheld the charge of the learned original authority under which by endorsement on the declaration filed by the appellants it has been stated that the appellants will not be eligible for MODVAT Credit for the inputs covered under Chapter Heading 7204. It is observed that the learned original authority neither issued any show cause notice nor elisted any information as to the nature of the goods that the appellants were to get and the process of manufacture of the same. On appeal, the learned Collector (Appeals) has also held that Chapter Heading 7204 does not cover the article which would be converted into another article by re-rolling without it being necessary to remelt them into a metal first.

2. The learned Advocate for the appellants pleaded that the appellants were going to get materials which were to be re-rolled and since the material to be brought was in the nature of scrap, they had given the Tariff Heading for the material as 7204.90. He has pleaded that the appellants were getting waste and scrap and other re-rollable material and they had given a clear description of these materials by mentioning the input as “re-rollable material/scrap” falling under Chapter Heading 7204.90. He has pleaded that as it is the reading of the Tariff Heading 7204 does not lead to the conclusion that it covers only such of the scrap as is fit only for melting. He has pleaded so long as the appellants get re-rollable material and that is what they use as input, the appellants by virtue of the description notwithstanding the Tariff Heading mentioned should have been given the benefit of MODVAT Credit.

3. The learned DR pleads that the appellants are re-rollers and therefore they cannot be allowed the benefit of MODVAT Credit in respect of the scrap which is only fit for melting. In this view of the matter he has pleaded that the appellants are not eligible to the benefit of MODVAT Credit in respect of the items as declared by them.

4. I have considered the pleas made by both the sides. The appellants are re-rollers of the material. They receive various inputs and re-roll them for manufacture of finished excisable products. In the context of their manufacture what has to be seen is that the inputs that the appellants receive are declared and the same are used in the manufacture of the finished product. In a case like this where the appellants have given the description of the goods as re-rollable material/scrap, the authorities should have addressed themselves to the issue as to the kind of scrap that is to be received and to which use it is to be put in the appellants factory i.e. whether for re-rolling or not. All that the appellants have to show is that the input material is to be used in or in relation to the manufacture of notified finished product. It is not the case of the Revenue that Tariff Heading 7204 is not covered under the notification issued under Rule 57A. The only reason for keeping the appellants out of the benefit is that when they are only re-rollers, the input falling under Tariff Heading 7204.90 which could be considered only as fit for melting could not be used by the appellants. I observe as it is the Tariff description under Tariff Heading 7204 reads as under:

“Ferrous waste and scrap : re-melting scrap ingots of iron or steel :

In the Chapter Notes under Section XV the definition of waste and scrap is given as under ;

“In this Section, the following expressions have the meanings hereby assigned to them:

(00a) Waste and Scrap: Metal waste and scrap from the manufacture of mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting-up, wear or other reasons.".

There is no specific mention that these waste and scrap have to be fit for only re-melting. All that it envisages is that these should not be usable as such. At this stage the learned JDR has pleaded, in this context that in the HSN Note the term “waste and scrap” is described as under :

(A) WASTE AND SCRAP

The heading covers waste and scrap of iron or steel, as defined in Note 6(a) to Section XV. Such waste and scrap of iron or steel is of a miscellaneous nature and generally takes the form of :

(1) Waste and scrap from the manufacture or mechanical working of iron or steel (e.g., crop ends, filings and turnings).

(2) Articles of iron or steel, definitively not usable as such because of breakage, cutting-up, wear or other reasons; iron or steel waste and scrap is usually prepared by means of the following processes, in order to adapt it to the dimensions and qualities required by the users :

(a) Shearing or flame-cutting of heavy and long pieces.

(b) Compression into bales, particularly in the case of light scrap, using for example a hydraulic press.

(c) Fragmentation (shredding) of motor vehicle bodies and other light scrap, followed by separation (which may be magnetic) with a view to obtaining a high density product that is fairly clean.

(d) Crushing and agglomeration into briquettes of iron and steel filings and turnings.

(e) Breaking up of old iron atricles.

Waste and scrap is generally used for the recovery of metal by remelting or for the manufacture of chemicals.

But the heading excludes articles which, with or without repair or renovation, can be reused for their former purposes or can be adapted for other uses; it also excludes articles which can be refashioned into other goods without first being recovered as metal. Thus, it excludes, for example, structural steelwork usable after renewal of worn-out parts: worn railway lines which are usable as pitprops or may be converted into other articles by re-rolling; steel files capable of re-use after cleaning and sharpening.

The heading also excludes :

(a) Slag, dross, scalings or other waste from the manufacture of iron or steel, even if suitable for the recovery of the metal (Heading 26.19).

(b) Waste and scrap not usable directly in the iron or steel industry, since it is radioactive (Heading 28.44).

(c) Broken pieces of pig iron or spiegeleisen (Heading 72.01).

He has pleaded that it is specificially mentioned thereunder that this Chapter includes such of these items which can be converted into other articles by re-melting. I observe there is no such elaboration given in the definition of waste and scrap in the Central Excise Tariff. However, when entering any finding on this issue, I would like to observe that in the context of MODVAT Scheme, the issues that have to be addressed are basically as under :

(i) Whether both the inputs and the outputs are notified under Rule 57A.

(ii) Whether the inputs are to be used in or in relation to the manufacture of the finished product.

(iii) Whether other requirements of MODVAT Scheme as set out in the rules are complied with.

In the present case both the inputs and the finished products are admittedly notified under Rule 57A. The claim of the appellant is that they are going to use the material received and which has been described by them as re-rollable scrap materials as waste and scrap for the manufacture of the notified finished product. Therefore, the classification of the material that the appellants are going to receive notwithstanding at the supplier’s end the eligibility to MODVAT will have to be determined at the appellant’s end based on their satisfying the authorities about its use in or in relation to the manufacture of the notified finished products in their factory. The appellants cannot be ruled out the benefit of MODVAT Credit in case they are able to satisfy the authorities about the end use as above. In the above view of the matter I hold that the learned lower authority was in error in having denied the benefit of MODVAT Credit to the appellants in respect of the materials which are in the nature of re-rollable materials irrespective of whether they are described as waste or scrap. In sum I hold that so long as the appellants get the materials which are re-rollable and are able to satisfy the authorities that these are being used for re-rolling, the benefit of MODVAT Credit cannot be denied and I therefore allow the appeal in the above terms.

Equivalent 1996 (084) ELT 0285 (Tribunal)