1992(10)LCX0023
BEFORE THE CEGAT, SPECIAL BENCH ’B’, NEW DELHI
Shri P.C. Jain, Member (T) and Ms. Jyoti Balasundaram, Member (J)
AJIT METAL INDUSTRIES
Versus
COLLECTOR OF CENTRAL EXCISE
Final Order Nos. E/250 to 253/92-B1, dated 14-10-1992 passed in E/Appeal Nos. 896, 902 and 903-904/91-B
Cases Quoted
Rapsri Engg. Industries Pvt. Ltd. Collector - 1989(043) ELT 0577 (Tribunal) [Paras 12]
Tata Yodogawa Ltd. v. UOI - 1986(09)LCX0053 Eq 1987 (032) ELT 0521 (Pat.) [Para 11]
Arun Auto Spinning and Mfg. Co. v. Collector - 1989(12)LCX0050 Eq 1990 (048) ELT 0543 (Tribunal) [Para 12]
Collector v. Mittal Metal Industries - 1990(12)LCX0040 Eq 1991 (054) ELT 0290 (Tribunal) [Para12]
Auto Piston Mfg. Co. Ltd. v. Collector - 1992(04)LCX0015 Eq 1992 (060) ELT 0342 (Tribunal) [Para 12]
Advocated By : Shri Devan Parikh, Advocate, for the Appellants.
Shri S.K. Sharma, JDR, for the Respondents.
[Order per : Jyoti Balasundaram, Member (J)]. - Aggrieved by the orders of the Collector of Central Excise, Rajkot, reclassifying gullies/patlies of copper/brass under Heading 7403.21 of the Central Excise Tariff Act, 1985, confirming demands for duty on gullies/patlies and sheets and circles of copper/brass and imposing penalties upon the appellant firms and their partner, the appellants have preferred the above appeals. In E/896/91 (Ajit Metal Industries) a duty demand of Rs. 99,742.50 (BED Rs. 91,418.40 + SED Rs, 8324.10) has been confirmed on 30.225 M.Ts. of gullies/patlies manufactured and cleared for captive consumption during the period 1-8-1985 to 1-4-1986 and duty of Rs. 17,08,678.58 (BED Rs. 16,54,695.34 + SED Rs. 53,983.24) has been demanded on 493.97 M.Ts. of sheets and circles of copper/brass manufactured and cleared between 1-8-1985 and 30-6-1990. Penalty of Rs. 2,25,000 has been imposed on the firm. E/903/91 arises out of the same order, against the penalty of Rs. 25,000/- imposed upon the partner of Ajit Metals. In E/902/91, the duty on 213.746 M.Ts. of gullies/patlies works out to Rs. 7,05361.80 (BED Rs. 6,49,858.20 + SED Rs. 55,503.60) and duty on 875.004 M.Ts. of sheets and circles of copper/brass works out to Rs. 29,92,560.35 (BED Rs. 28,92,581.37 + SED Rs. 99,978.98) - the period of clearance is the same as in E/896/91. Penalty is to the tune of Rs. 5 lakhs. A penalty of Rs. 50,000/-imposed upon the partner of Ashwin Metal Works by the same impugned order has been challenged in E/904/91.
2. The facts of the case are as below :
The appellants are engaged in the manufacture of (i) sheets and circles of copper/brass; (ii) gullies/patlies of copper/brass; (iii) waste and scrap of copper/brass, all products falling under Tariff Item 26A of the CE Tariff as it existed prior to 28-2-1986 and thereafter under Chapter 74 of the Central Excise Tariff Act, 1985. Classification lists were filed wherein Item (i) was declared under Tariff Item 26A(6) of the erstwhile tariff and thereafter under sub-heading 7404.00 or 7409.20 CETA during the period prior to and subsequent to 1-3-1988, Item (ii) was declared under Tariff Item 26A(4) prior to 28-2-1986 as castings and thereafter under sub-heading 7410.00 or 7419.91 CETA as other articles of copper and Item (iii) was declared under erstwhile Item 26A(2) prior to 28-2-1986 and thereafter under sub-heading 7402.00 or 7404.00 CETA.
3. It appeared to the Department that gullies/patlies of copper/brass are in the form of “slab” manufactured by way of melting of various materials namely waste and scrap, zinc and lead and are appropriately classifiable under TI 26A(1) of the C.E.T. as it existed prior to 28-2-1986 and thereafter under sub-heading 7401.00 or 7403.21 of the CETA, 1985 during the period prior to and subsequent to 1-3-1988. It further appeared that (a) partial exemption/concessional rate of duty in respect of sheets and circles of copper/brass, @ Rs. 700/- per m.t. Rs. 1,200/- per m.t, or Rs. 1,260/- per m.t. and (b) exemption from payment of whole of excise duty in respect of gullies/patlies of copper/brass in terms of Notification Nos. 174/84, dated 1-8-1984,149/86, dated 1-3-1986,98/88, dated 1-3-1988 and Notification No. 178/88, dated 13-5-1988 as amended by Notification No. 68/89, dated 1-3-1989 was wrongly availed of by the appellants as the condition stipulated in the Notifications namely that copper and articles thereof falling under TI 26A of the Central Excise Tariff or under Chapter 74 of the Central Excise Tariff Act, 1985 used in manufacture of these products should have discharged duty liability under Section 3 of the Central Excises and Salt Act, 1944 or additional duty under Customs Tariff Act, 1975, as the case may be, had not been fulfilled and that the inputs of copper and articles thereof were clearly recognisable as non-duty paid (exemption from payment of whole of duty of, excise was claimed by the appellants in respect of waste and scrap of copper/brass vide Notification No. 172/84 or 173/84 both dated 1-8-1984 or Notification No. 217/86, dated 2-4-1986, as amended, as the case may be). Therefore, show cause notices were issued to the appellants proposing re-classification of gullies/patlies of copper/brass, levy of duty at appropriate rate of gullies/patlies and on sheets and circles of copper/brass without extending the benefit of Notifications claimed by the appellants and proposing levy of penalty. The appellants contested both on merits and limitation, submitting in their reply dated 8-11-1990 as follows :-
(a) As stated in the show cause notice, the final product made by the units are sheets and circles of copper/brass. For manufacturing such sheets and circles, the basic raw materials used by the units are zinc and copper ingots and waste and scrap of copper/brass. Whereas zinc and copper are purchased from the open market, waste and scrap of copper/brass is not only purchased from the open market but is also generated within their own factory in the manufacturing activities and are captively consumed for the purpose of manufacturing final products i.e. sheets and circles of copper/brass. From the waste and scrap of copper/brass and zinc and copper ingots Gullies and Patlies of copper/brass are made by casting operations. The units have been carrying on their aforesaid activities since number of years. They have regularly filed classification fists covering their entire activities and specifically entering sheets and circles of copper/brass. Gullies and Patties of copper/brass and waste and scrap-of copper/brass. This is not disputed by the department in the show cause notices. Prior to 28-4-1986 all the aforesaid products were classified under Tariff Item 26A and thereafter under Chapter 74. The units had claimed partial exemption of duty in so far as the sheets and circles of copper/brass are concerned, and total exemption for Gullies/Patlies of copper/brass, under various notifications. The Department appears to be raising a dispute in the show cause notices with regard to classification of Gullies/Patlies. Whereas the units had classified the Gullies and Patlies as cast articles of copper under sub-heading Nos. 7410.00 or 7419.00, according to the department, they fall under sub-heading 7401.00 or 7403.21 as unwrought coper/zinc base alloys (brass). The show-cause notices are hopelessly barred by limitation, as the units have filed the classification lists covering their activities from time to time. In the said classification lists, they have not only entered the sheets and circles, but also gullies and patlies made by them. The said classification lists have been approved by the department on due verification of the facts. The units have always manufactured their goods and functioned according to such, approved classification list.
(b) Even on merits of the case, the show cause notices are based upon a totally erroneous interpretation of the notification in question. The bone of the show cause notice is that as copper and articles of copper from which the products in question are made are exempt from duty, such copper and articles of copper would become inputs on which duty leviable has not been paid. The word ‘leviable’ has already been interpreted by the Honourable Tribunal in its various decisions. In light of the said decisions, the position of law is clear that the amount of duty leviable has to be ascertained in light of existing exemption notifications. In other words, if a particular exemption notification partially exempts goods, the duty leviable would be such lower duty. In the same way, even if an exemption notification totally exempts goods, duty leviable would be ‘nil’. In either case, therefore, it can never be said that duty leviable has not been paid. Therefore, even if scrap or gullies and patlies or any other inputs used by the units are totally exempt from duty and such exempted inputs are used for the purpose of making articles of copper, it can never be held that duty leviable on inputs has not been paid, in so far as in such cases, duty leviable would be ‘nil’. The aforesaid interpretation is further supported by Explanation (2) of Notification No. 178/88. The said Explanation states:-
“All stocks of the inputs in the country, except such stocks as are clearly recognizable as being ‘non-duty-paid’, shall be deemed to be inputs on which duty has already been paid”.
Hence, in the light of the clear Explanation provided by the Notification itself, the word ‘leviable’ must be interpreted in light thereof. Now, the words ‘non-duty paid’ have also been interpreted by the Honourable Tribunal in its various decisions, and has held that the said words imply cases where the goods are clandestinely removed without suffering duty payable under the Central Excises and Salt Act, 1944 read with notification. Hence only those goods, which are clearly recognizable as having been clandestinely removed without payment of duty (for example, goods cleared without cover of gate pass when they are otherwise, subjectable to some duty) that would be non-duty paid goods.
4. The adjudicating authority held that the demand was not hit by time bar and the extended period of limitation was available to the department on the ground of non-disclosure of waste and scrap of copper/brass which had arisen in the course of manufacture of sheets and farcies; as well as non-duty paid gullies/patlies, as well as on the ground of non-accountal of production and clearance of gullies in RG 1 and submission of R.T. .12 Returns for both the products.
5. On classification, he held as follows :-
“On merits it is observed that the assessee has not put forth any plea against the proposal to reclassify gullies/patlies under the Central Excise Tariff on the ground that it is of little significance as it is eligible for total exemption under Notifications 174/84, 149/86 and 178/88, though it is also simultaneously mentioned that gullies/patlies are not even recognised commercially as goods and are mere starting points for manufacture of goods like sheets, circles, etc. As for excisablility of gullies/patlies, it is observed that the notices themselves had declared these products separately and distinctly from sheets and circles, and waste and scrap in their classification lists. It has been classified under the earlier Tariff Item 26A(4) in the erstwhile Central Excise Tariff till 22-2-1986, whereafter also it was classified under sub-heading 7410.00 subsequently. These had been approved by the Department Hence, there is no question of now going back by the party on grounds of non-excisability when duty is demanded. Also, in view of classification already approved for this item, I do not, and cannot, reclassify retrospectively at this belated stage. However, this does not preclude the Department from classifying the product prospectively, but demanding duty for the past period under the revised CETI/CETH, subject to the limitation of time under Section 11A of the Central Excises and Salt Act, 1944. Further, in view of the default of the notices is not disputing the proposed reclassification under 26A(1) till 28-2-1986, sub-heading 7401.00 till 28-2-1988 and 7403.21 - w.e.f. 1-3-1991, the correctness of these classifications remains upheld. But with regard to reclassification, I limit to order that the gullies/patlies get reclassified under the current and more appropriate CETH 7403.21".
6. On the question of eligibility to the benefit of exemption notifications, the adjudicating authority relied on the order of the Tribunal in the case of M/s. Rapsri Engg. Industries Pvt. Ltd. v. CCE 11989 (043) ELT 577)1 to hold that ‘nil’ duty paid goods cannot be considered as duty paid. Hence, this appeal.
7. We have heard Shri Devan Parikh, Ld. Counsel and Shri S.K. Sharma, Ld. DR.
8. Various statutory records and registers clearly disclose the fact that waste copper was captively generated and that the said waste on which exemption was claimed was used captively to make gullies/patlies which were again captively used to make sheets/circles of copper. Therefore, the failure to maintain RG-1 registers for gullies/patlies and non-submission of R.T. 12 Returns for waste loses significance, especially in view of the fact that the appellants have maintained R.G. 1 Register and also issued Gate Passes covering the waste and have entered gullies/patlies in R.T. 5 Returns. Our attention was drawn by the ld. Counsel to the Form IV - raw-material Register containing details such as opening stock, receipt, issuance and closing stock of raw materials - from the issue column it is clear that not only the market waste and scrap but also the self generated waste and scrap is used captively for making gullies/patlies and that gullies/patlies are being captively consumed for the manufacture of sheets/circles. It may further be noted that quarterly R.T. 5 Returns are also being filed by the appellants. These R.T. 5 Returns are made on the basis of the Form IV registers. They contain the same details with regard to the opening stock, receipts, consumption, dosing stock, working progress etc. of the total raw materials. Gullies/Partlies and sheets of copper - these returns again indicate that there is captive consumption of waste and scrap and Gullies/Patlies.
9. In the light of the above, we hold that the extended period of limitation is not applicable on the facts and in the circumstances of this case and that the demands are barred by limitation.
10. On the classification issue, we find that the appellants have not disputed the finding of the adjudicating authority in para 4.0 that the assessee has not challenged the proposal to reclassify gullies/patlies on the ground that it is immaterial as the items are eligible for total exemption under relevant Notifications. We also find that the appellants themselves have mentioned in para 7 of the statement of facts in the Memorandum of Appeal filed before us that the issue of Classification of gullies /patlies as cast articles of copper is of little importance in so far as, irrespective of the Tariff Heading under which they are classified, they would continue to remain exempted under the relevant Notifications by reason of the fact that the Notifications covered all the Tariff Heading involved. In this view of the matter, we see no reason to interfere with the finding on Classification and hold gullies/patlies fall for Classification under Heading 7403.21 CETA, 1985 subsequent to 1-3-1988.
11. Regarding the eligibility of sheets and circles of copper/brass, the appellants submit that Notification 178/88 and various similar notifications issued prior thereto prescribes that for claiming exemption thereunder, the goods must be made from copper and articles thereof falling under Chapter 74 on which duty of excise leviable under tine said schedule or additional duty leviable under the Customs Tariff Act, 1975, as the case may be, has already been paid. The show cause notices in the present case have been issued on the ground that the aforesaid condition is not satisfied as waste and scrap of copper have not suffered any duty as they are exempt from duty under different notification and further more that gullies/patlies have also not suffered duty as exemption is claimed thereon under the aforesaid notification itself. In other words, it is the case of the Department that gullies/patlies are not entitled to exemption as they are made from waste and scrap of copper which has not suffered duty, being exempt from payment of duty under Notification No. 172/84. It is also the case of the Department that sheets/circles of copper are not entitled to exemption as they are made from gullies/patlies on which also, the appellants had claimed exemption under the very same Notification i.e. 178/88 and therefore, such sheets are made from inputs on which excise duty leviable has not already been paid. The word ‘leviable’ has been interpreted by various High Courts and by the Tribunal to mean duty prescribed under the Act read with any exemption notification in force. The Patna High Court, in the case of Tata Yodogawa Ltd. v. Union of India - 1987 (032) ELT 521, has held that the words ‘already paid’ mean ‘contracted to be paid’ or ‘ought to have been paid’. Relying thereon, the Court held that if the scrap was wholly exempt from duty, as admitted in that case, and therefore, cleared without payment of duty, it cannot be held that duty leviable thereon under Tariff Item 26 of the First Schedule has not already been paid. It was hence held that the relevant condition in Notification 150/77 requiring payment of duty leviable on inputs under the relevant Tariff item was satisfied.
12. In the case of Arun Auto Spinning and Manufacturing Co. v. Collector of Central Excise and Customs reported in 1990 (048) ELT 543, the Tribunal has held that non-duty paid goods would mean only those goods which have clandestinely been removed without payment of duty. If goods are cleared on following the due procedure as prescribed by law, they would not become non-duty paid merely by reason of the fact that they were wholly exempt from duty and hence cleared upon ‘nil’ assessment without actual payment of any duty. Para 10 of the order which is relevant to the issue is reproduced below :-
Para 10 : “The aforesaid arguments further narrow down the area of interpretation with regard to the following provisions in the order :-
“if such inputs are clearly recognisable as being non-duty paid or charged to nil rate of duty”.
It is not the case of the department that the goods have been removed from Excise or Customs area without payment of duty and hence they are to be construed as non-duty paid. The department states that the goods have been supplied by a manufacturer, who is entitled to avail of the exemption legally extended under Notification No. 208/83. In view of this position, the goods cleared availing of exemption legitimately available to the manufacturer cannot be construed to be non-duty paid. They are to be considered as goods having been legally cleared availing of the exemption. Now the question is as to whether they could be construed as goods charged to ‘nil’ rate of duty. The department’s contention is that since the goods are exempted, they are to be construed as goods charged to ‘nil’ rate of duty. We are unable to appreciate this stand for the following reason :-
The words ‘charged to nil rate of duty’ appear to have a special significance. Section 3 of the Central Excises and Salt Act is the charging section. Thereunder, it is laid down that duty of such excise on all excisable goods shall be levied and collected at the rates set forth in the First Schedule. Hence, levy and collection on excisable goods is to be done, as per the rates set forth in the First Schedule. Where duty on any goods is leviable at nil rate as per the schedule, such goods may be construed to be the goods charged to ‘nil’ rate of duty. Where goods are charged to rates specified as set out in the Schedule and they are exempted by way of an exemption notification under Rule 8(1) of the Central Excise Rules, they could be construed as goods subject to the rates specified in the First Schedule but are exempted and they cannot be construed as goods ‘charged to nil rate of duty’. Hence in our view, the words ‘charged to Nil rate of duty’ referred to in the order of the Government of India dated 7-4-1986, have a special connotation and meaning and used in the context of the ‘rate’ of duty as specified in the First Schedule. This view of ours is also strengthened by the fact that the Government of India in its later order dated 20-5-1988 specifically referred to goods wholly exempted from duty as not eligible for deemed Modvat credit. The relevant portion of the order of the Government of India No. 342/10/88-TRU, dated 20-5-1988 is reproduced below :-
“No such credit shall, however, be allowed,
(i) ................
(ii) if such inputs are clearly recognisable as being non-duty paid or wholly exempt from duty or charged to nil rate of duty".
This decision of the West Regional Bench was subsequently followed by the Tribunal in the case of Collector of Central Excise v. Mittal Metal Industries - 1991 (054) ELT 290. In para 25 of this order, the decision in Rapsri Industries’ case (relied upon by the adjudicating authority) has been discussed and it has been held that this order of the South Regional Bench in Rapsri’s case does not fully support the departmental view point. The Arun AUTO’S order and the Mittal Metal Ind’s order have been followed in the case of Auto Piston Manufacturing Co. Ltd. v. Collector of Central Excise -1992 (060) ELT 342. The decision in the Rapsri’s case will not apply to the facts of the present appeal as that was a case under the Modvat scheme in which the Tribunal held that if there is an unconditional exemption to the goods, Modvat cannot be claimed on such goods even if they were purchased from the market because such goods were clearly recognisable as non-duty paid goods. If the word ‘leviable’ means duty leviable under the Act read with any exemption notification and if the words ‘already paid’ means ‘contracted to be paid’ or ‘ought to have been paid’, there can be little doubt that, even if waste and scrap is exempted from duty, it cannot be held that gullies/patlies will not be entitled to exemption under Notification No. 178/88. Similarly, even if gullies/patlies are totally exempt from duty, it cannot be held that sheets of copper are not eligible for exemption.
13. In the light of the above discussions, we hold that gullies/patlies and sheets and circles of copper/brass are eligible to the benefit of exemption under Notification Nos. 174/84 dated 1-8-1984, 149/86, dated 1-3-1986, 98/88, dated 1-3-1988 and 178/88, dated 13th May 1988 as amended by 68/89, dated 1-3-1989.
14. In the result, we hold as under :-
(1) Gullies/patlies of copper/brass are to be classified under Heading 7403.21 of CETA, 1985 for the period 1-3-1988 onwards.
(2) Gullies/patlies and sheets/circles of copper/brass are eligible to the benefit of exemption under the Notification mentioned in para 13 above.
(3) The demands are barred by limitation.
(4) The penalties imposed in all four appeals are set aside.
15. The appeals are disposed of in the above terms.
Equivalent 1993 (66) ELT 81 (Tribunal)