2007(08)LCX0257

IN THE CESTAT, SOUTH ZONAL BENCH, CHENNAI

S/Shri P.G. Chacko, Member (J) and P. Karthikeyan, Member (T)

Kanishk Steel Industries Ltd.

Versus

Commissioner of Customs, Chennai

Final Order Nos. 1102 & 1103/2007, dated 31-8-2007 in Appeal Nos. C/230 & 229/2007

Cases Quoted -

Ponneri Steel Industries v. Commissioner - 2007 (215) E.L.T. 184 (Tribunal) - Followed [Paras 2,3,4]

Steel Authority of India v. Commissioner - 2006 (197) E.L.T. 113 (Tri. - Del.) - Referred [Paras 2,3]

Advocated By -

S/Shri B. Satish Sundar, Advocate and S. Krishnanandh, Consultant, for the Appellant.
Shri M.K.A.K. Mohideen, JDR, for the Respondent.

[Order per: P.G. Chacko, Member (J)]. -

M/s. Kanishk Steel Industries Ltd. [appellants in Appeal No. C/230/2007] had imported 'steel skull scrap' claiming the same to be classifiable under Heading 72.04 of the First Schedule to the Customs Tariff Act for the purpose of free importation. The goods, described as 'MS skull scrap' in the relevant Bill of Entry, had been purchased from M/s. Rajuma Metals & Alloys [appellants in Appeal No. C/229/2007] under a high seas agreement dated 6-11-2006. The goods had been sold to M/s. Rajuma Metals & Alloys by a Malaysian supplier under Invoice dated 4-11-2006 for a total price of US $ 26677 (CIF). As it appeared to the Customs authorities that the goods was in the nature of waste/residue/remnant/spillage with impurities generated in the manufacture of iron and steel) they felt that it would be more appropriately classifiable under Heading 26.19 of the Tariff Schedule irrespective of its suitability for recovery of metal. Accordingly, the goods was caused to be inspected by the scientists of National Metallurgical Laboratory (NML). NML, after test of representative sample of the consignment, reported that the material could be considered as mild steel skull scrap suitable for melting. Their report also indicated presence of slag. On this basis, the Customs authorities took the view that M/s. Kanishk Steel Industries Ltd. [hereinafter referred to as the importer] had misdeclared the goods in the Bill of Entry and that the goods was more appropriately classifiable under Heading 26.19 [SH 2619 00 10] of the Tariff Schedule. As it appeared that goods falling under this entry could be imported only under a specific licence and that the importer had not produced any such licence, the import itself was found to be in violation of the Foreign Trade Policy. On this basis, the department held the goods to be liable for confiscation under Section 111(d) & (m) of the Customs Act and also found the appellants to be liable for penalty under Section 112(a) of the Act for having allegedly rendered the goods liable for confiscation. In the face of these proposals, the importer submitted that they had imported the goods only for melting in their furnace and that they did not know that the goods were restricted for import. They waived show cause notice and personal hearing and requested for taking a lenient view in adjudication. The Joint Commissioner of Customs (Adjudicating Authority) classified the goods under Heading 26.19 by relying on the NML report as well as HSN Explanatory Notes. He confiscated the goods [144.20 MTs valued at Rs. 12,52,446/-] under Section 111(d) & (m) of the Customs Act with option for redemption against payment of a fine of Rs. 2.50 lakhs under Section 125 of the Act. He also imposed penalties of Rs. 25,000/- each on the importer and the high seas seller under Section 112(a) of the Customs Act. The appeal filed by the importer against the Joint Commissioner's decision was dismissed on merits as per Order-in-Appeal No. 213/2007 dated 28-3-2007 passed by the Commissioner of Customs (Appeals) and the appeal filed by the high seas seller [M/s. Rajuma Metals and Alloys] was also dismissed by the appellate authority as per separate Order-in-Appeal No. 214/2007 of even date. Hence the present appeals.


2. Heard both sides. Learned Consultant, at the outset, submitted that all the issues arising in this case were already covered in favour of the appellants by Final Order Nos. 816 & 817/2007 dated 29-6-2007 passed by this Bench in Appeal Nos. C/111 & 112/2007 of M/s. Ponneri Steel Industries and M/s. Shree Ganesh Steel Rolling Mills Ltd. - 2007 (215) E.L.T. 184 (T). Learned JDR submitted that the department wanted to appeal against the said final order of this Bench. Further, he claimed that the case of Steel Authority of India v. CCE, Raipur - 2006 (197) E.L.T. 113 (Tri. Del.) cited by the appellants in Appeal Nos. C/111 & 112/2007 was distinguishable. He claimed that the Tribunal's decision in that case was on an entirely different issue. By relying on Note 8(a) of Section XV of the Tariff Schedule and HSN Explanatory Notes under Headings 72.04 and 26.19, learned DR made an endeavour to show that the imported item in this case was not scrap metal but only a waste resulting from the manufacture of iron and steel, classifiable under Heading 26.19. In his rejoinder, learned consultant pointed out that NML had separately analyzed the metallic and slag parts of the sample of the goods to report the iron content in each part. The metallic part was found to contain 94% iron and the slag part was found to contain 43.34% iron. According to learned consultant, goods of such composition could by no stretch of imagination be classified as 'slag, dross, scalings or other waste from the manufacture of iron or steel'. It could only be considered as MS scrap classifiable under 72.04.


3. After considering the submissions, we have not found any distinction between this case and the case of M/s. Ponneri Steel Industries (supra). In that case, goods declared as "non-alloy steel melting scrap consisting of skull" and classified by the importer under Heading 7204 49 00 was tested by NML and it was reported thus: "based on visual examination and chemical analysis, the material can be considered as non-alloy steel skull scrap suitable for melting. The percentage of recovery of iron from the scrap is about 80% by weight." The report also observed that the scrap was found with some amount of slag. The department took this slag content into account and proposed to classify the goods under SH 2619 00 10. The original and first appellate authorities upheld this view and consequently the goods stood confiscated under Section 111 (d) & (m) of the Customs Act [with option for redemption on payment of fine] and both the importer and high seas seller stood penalized under Section 112(a) of the Act. The appeals filed by the two parties were allowed by this Bench after considering the arguments of the appellants and the Revenue vide Final Order Nos. 816 & 817/2007 ibid. In that case, counsel for the appellants had, inter alia, relied on the Tribunal's decision in SAIL's case (supra), which has been sought to be distinguished by the DR in the present case. In SAIL's case, the Revenue wanted to levy duty of excise on the iron scrap cleared from the assessee's factory, for which purpose they wanted the item to be classified under Heading 72.04 of the Schedule to the Central Excise Tariff Act. M/s. SAIL were manufacturing iron from iron ore in their blast furnace. From the bottom tap of the furnace, molten iron was removed in ladles for further manufacture of iron and steel products. From the top of the furnace, slag was removed in ladles, in which process some molten iron also got removed to the slag dump yard. This molten iron got solidified and remained in the slag dump yard. It was when M/s. SAIL floated tenders for recovery, removal and lifting of the said scrap from the slag dump yard that the department initiated proceedings for levy of duty on the item under SH 7204.10 of the CETA Schedule. Ultimately, the Commissioner, in adjudication of the relevant show-cause notices, upheld the department's proposal for levy of duty of excise on the goods. In the appeal filed by M/s. SAIL, this Tribunal sustained the Commissioner's decision after holding that what had been cleared from SAIL's factory was iron scrap and not slag. The Tribunal held that the scrap was generated in the manufacture of iron from iron ore and was therefore covered by the definition of 'scrap' under Note 8 to Section XV of the Schedule to the CETA. The item was classified under sub-heading 7204.10 of the said Schedule. In the present case, the department has taken the opposite stand. However, this Tribunal cannot change its stand. We find that the decision taken in favour of the Revenue in SAIL's case will work against the Revenue in the instant case. We have also given mindful consideration to the submissions made by learned JDR with reference to HSN Notes. The Notes under HSN Heading 72.04 say that this Heading covers waste and scrap of iron or steel as defined under Note 8(a) to Section XV. Note 8(a) says that 'waste and scrap' means metal waste and scrap from the manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting-up, wear or other reasons. Note 8(a) to Section XV of the Tariff Schedule reads identically. In the instant case, it is not in dispute that the imported scrap was generated in the manufacture of iron or steel. The same was the factual situation in SAIL's case as also in the case of M/s. Ponneri Steel Industries (supra). The HSN Notes under Heading 72.04 also say that this Heading excludes 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]. At the same time, HSN Notes under Heading 26.19 say that the Heading also includes dust from blast furnaces and other kinds of waste resulting from the manufacture of iron and steel, but not scrap metal produced during cutting, shaping or other metal working processes, which falls in Heading 72.04. Learned DR has placed particular emphasis on this part of the HSN Notes. This particular Note does not mean that only that scrap metal which is produced during cutting, shaping or other metal working process will fall in Heading 72.04. Such an understanding will be inconsistent with the meaning of 'waste and scrap' given under Note 8(a) to Section XV. According to the Section Note, not only the metal waste and scrap arising from mechanical working of metals but waste and scrap arising from the manufacture of metals would also come within the coverage of 'waste and scrap'. The HSN Note highlighted by learned DR would only mean that scrap metal produced during cutting, shaping or other metal working process, i.e., scrap metal generated from the mechanical working of metals, falls in Heading 72.04 and stands excluded from the purview of Heading 26.19. We also find it difficult to include the skull scrap containing more than 90% of recoverable iron in the class of 'dust from blast furnaces and other kinds of waste resulting from the manufacture of iron and steel' mentioned in the HSN Note relied on by the DR. Thus, we have found that the reliance placed by the DR on HSN Notes has not advanced the Revenue's case. Learned JDR has not attempted any further distinction between the case of M/s. Ponneri Steel Industries Ltd. and the instant case.


4. In the result, we have to accept the submission of learned Consultant that the appellant's case is squarely covered by the decision of this Bench in the case of M/s. Ponneri Steel Industries Ltd. (supra) vide Final Order Nos. 816 & 817/2007 ibid. Paragraphs 2 to 6 of the said final order are reproduced below :-

"2. After examining the records and hearing both sides, we note that the dispute is essentially one relating to classification of the goods covered by the Bill of Entry. The importer wants to get it classified under Heading 72.04 and sub-heading 7204 49 00 of the CETA Schedule. Heading 7204 covers "Ferrous waste and scrap; remelting scrap ingots of iron or steel". This Heading has been mainly sub-divided into two viz. 'waste and scrap of alloy steel' and 'other waste and scrap', which are '-' entries under the above Heading. There are two sub-divisions under 'other waste and scrap', which are '- -'entries viz. 7204 41 00 and 7204 49 00. The first of these sub-divisions stands for 'turnings, shavings, chips, milling waste, saw dust, filings, trimmings and stampings, whether or not in bundles'. The second sub-division is 'Other' - residuary entry under the category of 'other waste and scrap'. According to the Revenue, the subject item would fall under Heading 2619 and sub-heading 2619 00 10. The Heading covers 'slag, dross (other than granulated slag), scalings and other waste from the manufacture of iron or steel'. The entry 2619 00 reads identically. There are two sub-divisions under this entry, the first of which covers 'converted slag (skull) of blast furnace'. The remaining sub-heading is residuary ('other').

3. Learned Counsel has relied on the NML report, which declared the item to be non-alloy steel skull scrap suitable for melting and reported its composition indicating ferrous content of 80% by weight. It is submitted that the presence of a small amount of slag in the scrap would not make the scrap classifiable under Heading 2619. In this connection, learned Counsel has relied on CODE FOR CLASSIFICATION OF PROCESSED FERROUS SCRAP (first revision). Para 10 of this text deals with 'steel skull scrap'. This item has been sub-classified into four categories: - (a) steel skull scrap (processed), (b) steel skull scrap, (c) steel skull scrap (unprocessed/semi-processed) and (d) cast steel skull scrap. All these categories can contain slag to varying extents, according to Indian Standards. On this basis, it is submitted that the presence of slag in the subject goods, which is mainly composed of iron as found by NML, would not make the item anything other than 'steel skull scrap'. Learned Counsel has relied on the Tribunal's decision in Steel Authority of India Ltd. v. Commissioner of Central Excise, Raipur - 2006 (197) E.L.T. 113 (Tri. Del.) where in 'cast iron skull scrap' was held to be classifiable under sub-heading 7204.10 of the First Schedule to the Central Excise Tariff Act. Learned counsel has also claimed support from two decisions of Government of India (revisional authority) viz. 1982 (10) E.L.T. 485 (GOI) in the case of Electrosteel Castings Ltd. and 1982 (10) E.L.T. 628 (GOI), in the case of Texmaco Ltd. In both these cases, 'skull scrap' arising as a waste product, which contained only 5% metal (the rest being waste), was held to be non-excisable. The Government relied on Specification 1529/1953 (Indian Standards) which required that 'skull scrap' used for remelting should not contain more than 5% slag. Finally, learned Counsel urges that the item can be classified under Heading 72.04 and the impugned order be set aside.

4. Learned SDR, on the other hand, refers to HSN Notes under Headings 72.04 and 26.10. It is submitted that slag or other waste from the manufacture of iron or steel, even if suitable for the recovery of the metal, is covered by the Heading 26.19 and is expressly excluded from the coverage of Heading 72.04. Relying on the HSN Notes under Heading 26.19, learned SDR submits that what can be classified under Heading 72.04 is 'scrap metal produced during cutting, shaping or metal-working processes' and not goods of the nature imported by the appellants. He has also referred to the term 'skull scrap' as used in S.B. Sarkar's WORDS AND PHRASES OF EXCISE AND CUSTOMS. S.B. Sarkar's note says that 'skull scrap' is a mixture of slag, sand, lime and earth and contains little of the metal (upto 5%). This note relies on Government of India's decision in the cases of Electrosteel Castings Ltd. and Texmaco Ltd. In his rejoinder, learned Counsel submits that S.B. Sarkar quoted wrongly from Government of India's judgments.

5. After giving careful consideration to the submissions, we observe, at the outset, that S.B. Sarkar's notings under 'skull scrap' with reference to Government of India's decision in the cases of Electrosteel Castings Ltd. and Texmaco Ltd. are erroneous. The notings are to the effect that 'skull scrap' is a mixture of slag, sand, lime and earth and contains little of the metal (upto 5%) whereas what was found by the Government in the said cases was to the contra. In both the cases, it was held, by relying on IS 1529/1953, that 'skull scrap' used for remelting should not contain more than 5% of slag. The product considered by the Government in the above cases contained 5% metal and 95% waste and accordingly, the item was held to be not chargeable to central excise duty. It is on record that the goods in question was composed of about 80% by weight of iron along with some amount of slag as reported by NML. NML considered the goods to be non-alloy steel skull scrap suitable for melting. On account of the presence of a small amount of slag in the subject goods, the Revenue seeks to classify it as 'slag' under Heading 26.19. But the fact is that 'steel skull scrap' of any category can contain slag to varying extents as is seen from "Indian Standards CODE FOR CLASSIFICATION OF PROCESSED FERROUS SCRAP" (first revision) vide IS 2549:1994. In the case of Steel Authority of India Ltd., this Tribunal classified cast iron skull scrap under Heading 72.04 of the CETA Schedule. It is not in dispute that the Central Excise and Customs Tariffs are aligned in respect of classification of goods. We have also taken note of the date supplied by learned Counsel today, which is claimed to have been retrieved from National Informatics Data Base (NIDB, for short) of the Directorate of Valuation under the Central Boards of Excise and Customs (CBEC). This statement indicates that mild steel skull scrap covered under Bill of Entry No. 664791 dated 21-2-2007 and Bill of Entry No. 647984 dated 5-2-2007 has been classified under sub-heading 7204 49 00 for final assessment. It is submitted by learned Counsel that, according to Indian Standards, the 'mild steel skull scrap' covered under the said Bills of Entry might be containing some amount of slag and that such slag content has been ignored by the Revenue while classifying the items under Heading 7204.

6. In the result, we have found valid reasons to hold that the subject goods is appropriately classifiable under SH 7204 49 00 of the CTA Schedule and not under Heading 2619. Consequently, the finding of misdeclaration and mis-classification of the goods and the imposition of penalties are liable to be set aside."


5. Following the above decision, we set aside the impugned orders and allow these appeals.

(Operative portion of the order was pronounced in open Court on 31-8-2007)

Equivalent 2008 (221) ELT 0155 (Tri. - Chennai)

Equivalent 2007 (123) ECC 0332

Equivalent 2007 (149) ECR 0332 (Tri.-Chennai)

Equivalent 2008 (084) RLT 0533 (CESTAT-Che.)