CESTAT Kolkata Sets Aside Excise Demand on Used Refractory Brick Scrap

Steel Authority of India Limited Vs Commissioner of CGST And Central Excise (CESTAT Kolkata)

Summary: The appellant, Durgapur Steel Plant, a unit of Steel Authority of India Limited and a Government of India undertaking, manufactures various iron and steel products including billets, blooms and TMT bars. It avails CENVAT credit on inputs and capital goods, including refractory bricks used in the manufacture of its final products. The dispute concerned waste and scrap arising after such refractory bricks had been used in the manufacturing process. The Tribunal considered the Rule 3(5A) of the CENVAT Credit Rules, 2004 and the Revenue’s contention that the refractory bricks were capital goods.

The appellant had cleared waste and scrap of used refractory bricks without payment of duty, relying upon the Tribunal’s decision in Vasavadatta Cement Vs. Commissioner of Central Excise, Belgaum [2003 (157) E.L.T. 272 (Tri.-Bang.)]. The appellant also furnished Annual Operation Statistics to the jurisdictional Range Office, reflecting clearances of waste and scrap for financial years 2005-06, 2006-07 and 2007-08.

Four show cause notices dated May 3, 2010, July 1, 2010, March 10, 2011 and January 18, 2012 covered the period from May 2005 to March 2011. The first notice alleged contravention of Rules 4, 5, 6, 8, 10 and 12 of the Central Excise Rules, 2002 and sub-rule (5A) of Rule 3 of the CENVAT Credit Rules, involving a duty demand of Rs. 78,23,816 for May 2005 to May 2009, together with interest under Section 11A of the Central Excise Act, 1944, interest under Sections 11AB/11AA and penalty under Section 11AC read with Rule 25. The aggregate duty demand under the four notices was Rs. 98,00,064.

After a common personal hearing on March 14, 2017 and a common reply by the appellant, the Joint Commissioner passed Order-in-Original No. 130-133/JC/CE/DGP/2016-17 dated March 23, 2017, issued on April 4, 2017, confirming the demands under Section 11A, with interest and equivalent penalty. The appellant deposited Rs. 19,76,248 towards duty and Rs. 23,98,752 towards interest on June 5, 2017 and June 6, 2017. The Commissioner (Appeals), by Order-in-Appeal No. 33/DGP/C.EX/2018-19 dated April 25, 2018, issued on April 27, 2018, upheld the adjudication order.

Before the Tribunal, the appellant submitted that Rule 3(5A) applied where goods were cleared “as such”, whereas the refractory bricks had already been used and thereafter became waste and scrap. Reliance was placed on Vasavadatta Cement and Century Cement Vs. Commissioner of C.Ex., Raipur [2017 (3) TMI 1071 – CESTAT New Delhi]. The Revenue supported the impugned order.

The Tribunal found that the refractory bricks were inputs used in manufacturing the final products and, after use, became waste and scrap; therefore, they could not be termed capital goods. It further held that Rule 3(5) applied where goods were cleared “as such”, whereas the refractory bricks in the present case had been used before being cleared as waste. The Tribunal relied upon Vasavadatta Cement and Century Cement, along with the decisions discussed therein, including Insurance & Electricals Co. Vs. CCE Bhopal, Insulators & Electrical Co. Vs. CCE Bhopal, CCE Vs. Ashok Leyland Ltd., Shriram Alkali & Chemicals Vs. CCE Surat and CCE Surat Vs. Shree Ganesh Khand Udyog Sahakari Mandli Ltd..

The Tribunal concluded that the issue stood covered by precedent and that Rule 3(5A) was not applicable to the facts of the case. Consequently, the appellant was not liable to reverse the CENVAT credit demanded by the Revenue, no demand was sustainable and no penalty could be imposed. The impugned order was set aside and the appeal was allowed with consequential relief, if any, as per law.

Cases Discussed

• Vasavadatta Cement Vs. Commissioner of Central Excise, Belgaum [2003 (157) E.L.T. 272 (Tri.-Bang.)]
• Century Cement Vs. Commissioner of C.Ex., Raipur [2017 (3) TMI 1071 – CESTAT New Delhi]
• Insurance & Electricals Co. Vs. CCE Bhopal [2008 (229) E.L.T. 148 (Tri.-Del.)]
• Insulators & Electrical Co. Vs. CCE Bhopal [2008 (232) E.L.T. 326 (Tri.-Del.)]
• CCE Vs. Ashok Leyland Ltd. [2008 (230) E.L.T. 470 (Tri.-Chennai)]
• Shriram Alkali & Chemicals Vs. CCE Surat [2010 (259) E.L.T. 77 (Tri.-Ahmd.)]
• CCE Surat Vs. Shree Ganesh Khand Udyog Sahakari Mandli Ltd. [2010 (253) E.L.T. 313 (Tri.-Ahmd.)]

FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT KOLKATA

The appellant is in appeal against the impugned order wherein the demand of central excise duty amounting to Rs.98,00,064/-, along with interest and penalty, has been upheld.

2. The facts of the case are as under: –

(i) Durgapur Steel Plant (DSP) is a unit of Steel Authority of India Limited, a Maharana Government of India undertaking (hereinafter referred to as “the appellant”). The appellant is an integrated steel plant, having Central Excise Registration Certificate Bearing No. AAACS7062FXM018/019/020 for manufacture of various iron, steel and allied products falling under Chapter Headings of the First Schedule to the Central Excise Tariff Act, 1985. The appellant is duly registered in accordance with the provisions of the Central Excise Act, 1944 and the Central Excise Rules for carrying out the said manufacturing activities at its steel plant in Durgapur in the State of West Bengal.

(ii) The appellant is engaged in the manufacture of various iron and steel products namely billets, blooms, TMT bars, etc. and discharges its duty liabilities by way of payment through the Current Account (Personal Ledger Account) and availment and utilisation of cenvat credit on inputs, capital goods and input services. The appellant avails cenvat credit on various types of goods, including different types of refractory bricks basically consumables and used in the manufacture of iron and steel products within the factory premises of the appellant. Such refractory bricks are sometimes classified as inputs and sometimes as capital goods under the Cenvat Credit Rules, 2004 (hereinafter referred to as the “Cenvat Credit Rules”).

(iii) The waste and scrap of used refractory bricks were cleared without payment of duty applying the ratio of the decision of the Tribunal in the case of Vasava Datta Cement Vs. Commissioner of Central Excise, Belgaum, reported in 2003 (157) ELT 272 (Tri-Bang.) wherein it was held that waste and scrap of refractory materials are not classifiable under Chapter 69 of the Central Excise Tariff Act, 1985, being not specified therein, item not excisable under Section 3 of the Act.

(iv) On an annual basis, the appellant submitted before the jurisdictional Range Office of the Central Excise under due acknowledgement, a copy of the Annual Operation Statistics published on a financial year basis, which consists of Production and Despatch Summary, Performance Highlights, Analysis of Plant Performance, etc. The details of clearances of waste and scrap arising out of refractory bricks are clearly reflected in the Annual Statistics, for the financial years 2005-06, 2006-07 and 2007-08.

3. On the basis of details as available in the said Annual Operation Statistics pertaining to waste and scrap arising out of refractory bricks, on May 3, 2010, a Show Cause Notice was issued by the Commissioner, Central Excise, Bolpur Commissionerate on the allegation that the appellant had contravened the provisions of Rules 4, 5, 6, 8, 10 and 12 of the Central Excise Rules, 2002 and sub-rule (5A) of Rule 3 of the CENVAT Credit Rules in as much as the appellant from time to time had cleared different types of refractory bricks such as high alumina bricks (CETSH 6902 10 10), high silica bricks (CETSH 6902 20 10), magnesium bricks (CETSH 6902 10 10) etc. as waste and scrap violating the provisions of sub-rule (5A) of Rule 3 of the CENVAT Credit Rules, thereby allegedly evading payment of an amount equal to the central excise duty of Rs. 78,23,816/- for the period from May 2005 to May 2009. The show cause notice also provided for levy of interest under Section 11AB of the Act and penalty in terms of Section 11AC of the Act read with Rule 25 of the said Rules.

3.1. Thereafter, based on the self-same allegations, three Show Cause Notices, covering the period from June 2009 to March 2011, demanding duties, along with interest under Section 11AA (2) of the Act and for imposing penalty in terms of Section 11AC of the Act read with Rule 25 of the said Rules was issued by the Assistant Commissioner, Central Excise, Durgapur-III Division.

4. The abovementioned four show cause notices dated May 3, 2010, July 1, 2010, March 10, 2011 and January 18, 2012 respectively covered the period from May 2005 to March 2011 (hereinafter referred to as the “said show cause notices”). The demands raised are presented in a tabular form below for convenience.

4.1. Subsequently, a common personal hearing was held in the proceedings under the said show cause notices, since they involved the same issue, by the Joint Commissioner of Customs, Central Excise & Service Tax, Durgapur Commissionerate, on March 14, 2017, at which the appellant’s representative duly appeared and made submissions.

4.2. The appellant also, by a letter dated March 14, 2017, submitted a common reply to the said show cause notices, denying the misconceived allegations contained therein and drawing the attention of the Joint Commissioner of Customs, Central Excise & Service Tax, Durgapur Commissionerate, Durgapur (hereinafter referred to as the “Joint Commissioner”) to the correct facts and law on the issue involved which clearly established that duty was not payable on clearances of waste and scrap of refractory bricks. The Joint Commissioner was, in the premises, requested to drop the proceedings initiated under the said show cause notices.

12. Thereafter, the matter was adjudicated vide the Order-in-Original No. 130-133/JC/CE/DGP/2016-17 dated March 23, 2017, issued on April 4, 2017, passed by the Joint Commissioner wherein, on the pretext that the appellant had accepted the contention of the Department, adopted divergent views and had started paying duty on the transaction value on clearances of waste and scrap of used refractory bricks from April 2011, the Joint Commissioner confirmed the duty demands made in the said show cause notices, under Section 11A of the Act, along with interest thereon under Section 11AB/Section 11AA of the Act and imposed penalty of equivalent amount of the duty confirmed, in terms of Section 11AC of the Act read with Rule 25 of the said Rules.

12.1. Being aggrieved by the said order passed by the Joint Commissioner, the appellant preferred an appeal before the Ld. Commissioner (Appeals) and also deposited, on June 5, 2017 and June 6, 2017, Rs. 19,76,248/- and Rs. 23,98,752/- as duty and interest respectively against the demand of duty and interest confirmed by the said order of the Joint Commissioner.

12.2. Thereafter, vide the Order-in-Appeal No. 33/DGP/C.EX/2018-19 dated April 25, 2018, issued on April 27, 2018, passed by the Commissioner (Appeals) [hereinafter referred to as the “impugned order”], the Ld. Commissioner (Appeals) rejected the appellant’s contentions and upheld the Order-in-Original dated 23.03.2017 passed by the Joint Commissioner thereby dismissing the appeal preferred against the same by the appellant.

13. Aggrieved from the said order, the appellant is before us.

14. The Ld. Counsel appearing on behalf of the appellant submits that the used refractory bricks were cleared by them as waste and scrap without payment of duty but the Revenue’s allegation is that in terms of Rule 3(5A) of the CENVAT Credit Rules, the appellant is liable to reverse the CENVAT Credit availed by them. It is his submission that Rule 3(5A) of the Rules is applicable when goods are cleared “as such”; that as in the present case, the goods have not been cleared “as such”, Rule 3(5A) has no application to their case and therefore they are not liable to reverse any CENVAT Credit. He further submits that this view has been taken by this Tribunal in the following cases: –

i. Vasavadatta Cement Vs. Commissioner of Central Excise, Belgaum [2003 (157) E.L.T. 272 (Tri. – Bang.)],

ii. Century Cement Vs. Commissioner of C.Ex., Raipur [2017 (3) TMI 1071 – CESTAT New Delhi]

15. On the other hand, the Ld. Authorized Representative of the Revenue supported the impugned order.

16. Heard the parties.

17. We find that the short issue involved in this matter is as to whether the appellant is liable to reverse the CENVAT Credit availed in terms of Rule 3(5A) of the CENVAT Credit Rules, 2004, or not.

18. For better appreciation of the facts, Rule 3(5A) of the Rules is reproduced hereinbelow: –

“(5) When inputs or capital goods, on which CENVAT credit has been taken, are removed as such (from the factory, or premises of the provider of output service, the manufacturer of the final products or provider of output service, as the case may be, shall pay an amount equal to the credit availed in respect of such inputs or capital goods and such removal shall be made under the cover of an invoice referred to in rule 9:

Provided that such payment shall not be required to be made where any inputs are removed outside the premises of the provider of output service for providing the output service:

Provided further that such payment shall not be required to be made when any capital goods are removed outside the premises of the provider of output service for providing the output service and the capital goods are brought back to the premises within 180 days, or such extended period not exceeding 180 days as may be permitted by the jurisdictional Deputy Commissioner of Central Excise, or Assistant Commissioner of Central Excise, as the case may be, of their removal.

[(5A) If the capital goods are cleared as waste and scrap the manufacturer shall pay an amount equal to the duty leviable on transaction value.]”

19. The Revenue is alleging that these refractory bricks are ‘capital goods’.

20. However, we find that in fact these are inputs used by the appellant for the manufacture of their final product, which after being used become waste and scrap. Therefore, we find that the same cannot be termed as ‘capital goods’.

21. Further, Rule 3(5) is applicable where goods have been cleared “as such”. In this case, we find that the refractory bricks were used and after being used, they became waste, which were rightly cleared without payment of duty. The same view was taken by this Tribunal in the case of Vasavadatta Cement Vs. Commissioner of Central Excise, Belgaum [2003 (157) E.L.T. 272 (Tri. – Bang.)], wherein this Tribunal observed as under: –

“2. The short point to be considered in this appeal is whether the waste and scrap of refractory material is excisable or not. It was submitted by the Authorised Representative for the appellants that the item as such was not mentioned in any tariff entry and accordingly it is not excisable. The department was of the view that the item is classifiable under Chapter 69.

3. On a careful consideration of the submissions made by both sides with reference to the facts and on perusal of records we find that the Department proceeded to charge the duty on the item in question on the ground that it falls under Chapter 69. To charge duty on an item the item should not only be dutiable but it should be specified under correct heading. It cannot be said that broadly the item falls under Chapter 69. There is force in the arguments advanced on behalf of the assessee that item as such was not mentioned in Chapter 69. Since it is not specified under which sub-heading of the Chapter 69 the item falls, we do not find any justification to levy the duty on the item in question. In view of our foregoing conclusion, the item as such is not excisable and accordingly appeal is allowed with consequential relief if any.”

21.1. Further, in the case of Century Cement Vs. Commissioner of C.Ex., Raipur [2017 (3) TMI 1071 – CESTAT New Delhi] this Tribunal again examined the aforesaid issue, wherein the facts were as under: –

“After hearing both the sides, I find that the appellant is engaged in the manufacture of Cement and were availing the benefit of Cenvat Credit of duty paid on various items. They originally took credit on Fire Brick, Cable and Wire, Filter Bas and various Rubber Items. After use the said items become unserviceable, and are cleared by the appellant as waste scrap.”

and the Tribunal observed as under: –

“7. After considering the submissions made by the Ld. Advocate as also by Ld. DR, who reiterates the findings of the lower authorities I find that the Tribunal in the case of Insurance & Electricals Co. Vs. CCE Bhopal 2008 (229) ELT 148 (Tri-Del) dealt with an identical situation in respect of waste arising out of used fire bricks and has held that in as much as there is no entry in the Central Excise Tariff in respect of waste of fire bricks, no demand can be raised in respect of the same. Similarly in the case of Insulators & Electrical Co. vs. CCE Bhopal 2008 (232) ELT 326 (Tr-Del) the Tribunal observed that since the waste and fire bricks, silicon carbide, filter cloth and waste oil were not classifiable under the Central Excise Tariff no duty liability would arise. In the case of CCE Vs. Ashok Leyland Ltd. 2008 (230) ELT 470 (Tri-Chennai) waste oil arising as a result of mixture of various used oils and drugs was held as not covered by the provision of Rule 3(5A) as the same was not classifiable under any Central Excise Tariff. Further, in the case of Shriram Alkali & Chemicals Vs. CCE Surat 2010 (259) ELT 77 (Tri-Ahmd.) it was observed that since waste and scrap are not covered by any definition it was held that the same were not required to discharge any duty liability. In the case of CCE Surat Vs. Shree Ganesh Khand Udyog Sahakari Mandli Ltd. 2010 (253) ELT 313 (Tri-Ahmd.) while disposing off ROM application by the Revenue, the Tribunal observed as under:

Sub-Rule (5A) of Rule 3 requires an amount equal to the duty leviable on transaction value to be collected. Determination the amount equal to the duty leviable in my opinion would classification. Therefore, without classification, rate of duty cannot be indicated. Further, even if it is assumed that capital goods would have already been classified at the time of receipt, the fact remains that at the time of disposing of the same as waste, there can be different types of capital goods and they would have attracted different rates of duty.”

8. The above discussion shows that the issue is no more res integra and stands covered by various precedent decisions of the Tribunal. Accordingly, by following the same, I set aside the impugned order and allow the appeal with consequential relief to the appellant.”

21.2. Admittedly, the issue has been settled by this Tribunal in various decisions such as in Vasavadutta Cement (supra) and Century Cement (supra).

22. In view of this, we hold Rule 3(5A) of the CENVAT Credit Rules, 2004 is not applicable to the facts of this case. Accordingly, the appellant is not liable to reverse the CENVAT Credit availed, as demanded by the Revenue. Therefore, no demand is sustainable against the appellant and consequently, no penalty can be imposed.

23. In the result, the impugned order is set aside and the appeal is allowed, with consequential relief, if any, as per law.

(Operative part of the order was pronounced in open court)