Whether the metal scrap or waste generated whilst repairing of worn out machinery or parts of cement manufacturing plant amounts to manufacture, and thereby, is excisable to excise duty?
Grasim Industries Ltd. Vs. Union of India (Supreme Court of India)- Facts of the case – The assessee is the manufacturer of the white cement. The assessee repairs worn out machinery or parts of the cement manufacturing plant at its workshop such as damaged roller, shafts and coupling with the help of welding electrodes, mild steel, cutting tools, M.S. Angles, M.S. Channels, M.S. Beams, etc. In this process of repair certain metal scrap or waste is generated. In a surprise inspection conducted by the officials of the Central Range-II, Jodhpur, it was found that the assessee has cleared various types of metal scrap and waste without the payment of the excise duty for the period from 1.10.1995 to 16.07.1999.
A show cause notice dated 05.10.2000 was issued to the assessee demanding a duty of ` 10,81,736/- under Section 1 1A of the Central Excise Act, 1944 [hereinafter referred to as “the Act”] along with equal amount of penalty under Section 1 1AC of the Act and further penalty under Rule 173 Q of the Central Excise Rules, 1944 [hereinafter referred to as “the during mechanical working of metal in the workshop, as contemplated by the definition of the waste and scrap under Section Note 8(a) of Section XV of the Central Excise Tariff Act, 1985 [hereinafter referred to as “the Tariff Act”] and, in view of the decision of the Tribunal in Budhewala Co-op. Sugar Mills Ltd. vs. CCE, Chandigarh-I, 2002 (141) ELT 490 (Tri. Delhi). Being aggrieved by the portion of the Order of the Commissioner (Appeals), pertaining to confirmation of demand of duty along with equal amount of penalty of Rs. 4,75,781 on the metal scrap and waste generated during repair of machinery, the assessee preferred an appeal before the Tribunal. The Tribunal, vide its Order dated 09.08.2005, allowed the appeal and set aside the demand of duty and penalty confirmed by the said portion of the Order of the Commissioner (Appeals) on the ground that metal scrap and waste cleared by the assessee does not arise out of any manufacturing activity and, thereby, not excisable to any excise duty in view of the decision of the Tribunal in CCE v. Birla Corpn. Ltd., 2005 (181) ELT 263. The Revenue, aggrieved by this Order, filed an appeal under Section 35G of the Act before the High Court of Rajasthan. The High Court, vide its Judgment and Order dated 31.07.2008, allowed the appeal, set aside the Order of the Tribunal and restored the Order of the Commissioner (Appeals) on the ground that the generation of scrap amounts to manufacture as it is incidental or ancillary to the manufacture of spare or replaceable part. The spare or replaceable part comes into existence as distinct product during the repairing of the parts of the cement plant. Also, the generation of scrap need not be in the process of manufacture of the excisable end product such as cement. Being aggrieved, the assessee has filed this appeal under Section 35L of the Act against the judgement and order of the High Court.
Supreme Court Decision-
Process of repair and maintenance of the machinery of the cement manufacturing plant, in which M.S. scrap and Iron scrap arise, has no contribution or effect on the process of manufacturing of the cement, which is the excisable end product, as since welding electrodes, mild steel, cutting tools, M.S. Angles, M.S. Channels, M.S. Beams etc. which are used in the process of repair and maintenance are not raw material used in the process of manufacturing of the cement, which is the end product. The issue of getting a new identity as M.S. Scrap and Iron Scrap as an end product due to manufacturing process does not arise for our consideration. The repairing activity in any possible manner cannot be called as a part of manufacturing activity in relation to production of end product. Therefore, the M.S. scrap and Iron scrap cannot be said to be a by-product of the final product. At the best, it is the by-product of the repairing process which uses welding electrodes, mild steel, cutting tools, M.S. Angles, M.S. Channels, M.S. Beams etc.
