Deep Recycling Industries Vs C.C.E. & S.T.-Rajkot (CESTAT Ahmedabad)
CESTAT Ahmedabad held that benefit of segregation can be allowed only if the imported scrap contained impurities like iron, rubber, plastic, steel etc.
Facts- The question involved here is whether the appellant, holding 100% EOU status, have imported and used the brass scrap correctly in terms of provisions of Notification No. 52/2003-Cus, read with the provisions of import-export and the SION norms.
It is the view of the Commissioner that, in case the imported scrap is in the nature of “Honey Scrap” then there cannot be any waste coming out of the said scrap and the stage of segregation available in terms of the letter dated 04.05.2011 of the Foreign Trade Development Officer communicating the decision of norms committee cannot be applied.
The Commissioner (A) pointed out that the Commissioner is not sure if the brass scrap imported by the appellant contains iron, steel, rubber, plastic etc., or not. He is essentially seeking confirmation if the import is covered by the description “brass scrap with impurities”. The Commissioner (Appeals) has held that the normal brass scrap or “honey” scrap is pure brass scrap. The implication being that if what has been imported is normally brass scrap or honey scrap then no wastages in the nature of iron, steel or rubber or plastic etc., could arise.
Conclusion- Held that benefit of segregation can be allowed only if the imported scrap contained impurities like iron, rubber, plastic, steel etc. Prima facie from the clarification dated 10.05.2016 reproduced above, it is seen that even the revenue is of the belief that “honey grade” scrap also contains iron, steel ,etc., as impurities. It is seen that this circular dated 10.05.2016 was not produced before the original or first appellate authority and consequently there is no examination of this circular.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
These appeals have been filed by M/s. Deep recycling, D & G Metal Inc & Western Impex.
2. The dispute is, if the appellants have imported and used the brass scrap correctly in terms of the provision of Notification No. 52/2003-Cus, read with the provisions of import-export and the SION Norms.
3. The order in case of Deep Recycling Industries is reproduced below:
“6. I have carefully gone through the appeal memorandum, impugned order, written as well as oral submission made by the appellant during the proceedings of personal hearing.
The issues to be decided in the present cluster of appeal are
(i) Whether, the appellant have properly followed the input-output ratio as per the statutorily prescribed norms of wastage, for the manufacturing of final goods, in terms and conditions of the aforesaid Notification No. 52/2003-CUS, or not;
(ii) Whether, the clearance of brass scrap classified under the CTH, other than the CTH of import by the appellant was proper or otherwise.
(iii) Whether, any manufacturing activity was carried out by way of segregation of the scrap, inasmuch as the adjudicating authority has held that since, the activity of segregation does not amount to manufacture as per the Export Import policy, no manufacturing was carried out and likewise the classification and value of the goods cleared in the DTA considering as wastage, was required to be considered as declared while importing.
(iv) Peripheral issue on the anvil, in case of one of the appeal (No. V2/334/RAJ/2012) to be decided is also as to whether, the duty on slag generated in excess of 2% of the input quantity is to be recovered or otherwise along with the legal status of the imposition of interest and penalty is to verified.
7. Before embarking upon to decide the present set of appeals, it would not be out of place to state that I would like to deal with the issues involved in the present appeals in more in-depth, meticulous and scrupulous manner as, I find that there are umpteen numbers issues/ appeals on the similar lines, involving the whopping amount of duty! revenue, running in to crores and crores of rupees. I must also make it clear over here that though the quasi-judicial decision making is not at all guided by the quantum of amount involved or number of appeals on the identical issue, all the same it would not be exaggeration to say that such the situation calls for more perspicacious handling of situation, as it has got a series of chain reaction and the domino effect on the other cases, yet to be finalised.
7.2 Now, as elaborated hereinabove, there are, precisely speaking, three different tributaries to the main issue. However, when looked into from the broad perspective, all the issues would converge and it boils down to the single issue, as to whether the appellant, holding 100% EOU status, has properly availed the benefit of the exemption Notification No. 52/2003-Cus supra by showing wastage, which permitted the duty free importation of brass scrap, in legal and proper manner, or not, in the backdrop of circumstances, where the department have taken exception or objected to the fact of higher proportion of the wastage of scrap shown to be generated during the utilisation, which was well beyond the permissible limit of 2%, as laid down under the said Notification, and therefore, customs duty has been confirmed and other corollary actions have been taken and confirmed against such excessive wastage shown in unduly high proportion, as delineated above and as will be dealt with hereunder.
7.3 On the other hand, the appellant have contested that the wastage norms have been fixed by the Norms Committee, which are in two stages, i.e. (i) wastage arising during the course of segregation, and (i) the wastage arising during the course of manufacture of the brass product. The appellant thus, contended that the wastages shown by them were all well within the stipulated limit prescribed by the norms committee and therefore, there is no case for charging customs duty or ordering confiscation. The appellant has also contended that the process of segregation carried out by them is one of the many processes leading to the manufacture of the finished goods and therefore, classifying the same under the main brass scrap heading for the purpose of charging duty and valuation, is incorrect.
8. Now, briefly understanding the nitty-gritty of the import of the brass scrap and its procedure by 100 % EOU units, I find that the brass scrap is imported by the various manufacturers/importers of the brass parts hailing from in and around Jamnagar, at the port of import. At the port of import, the container imported by 100 % EOUS laden with the brass scrap is superficially examined and from their under proper seal, it is transported to the factory premises of the appellant holding. 100 % EOU unit, which is virtually a sort of warehouse, allowing duty free storage of inputs for manufacture of the goods, which are to be eventually exported or dealt with as per the provisions applicable to 100% EOUS, as laid down under the said Notification, as also as per the Foreign Trade Policy. At warehouse/EOU, imported scrap is unloaded in the presence of the party or the assessee (appellant) concerned, who imported such scrap, as well as the jurisdictional Central Excise officers, who examines the same. After being the goods being unloaded from the container in the factory premises of EOU, the report in respect of the goods imported, as declared in the Bill of Entry, is being sent by the jurisdictional Central Excise authority who examined the goods, to the port of import.
9. Now, coming to the mechanism and operational part, as to how the wastage generated in respect of duty free imported brass scrap has to be dealt with, the provisions of Notification No. 52/2003-Cus has to be referred to. The Notification No. 60/2008-Cus dated 05.05.2008 has amended the aforesaid nodal Notification No. 52/2003-Cus which reads as under:-
“Export Oriented Units-Exemption-Amendment to Notification No. 52/2003-Cus
In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (32 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 52/2003-Customs, dated the 31st March, 2003, published in the Gazette of India Extraordinary, Part II, section 3, subsection (1) vide number G.S.R. 274 (E), dated the 31st March, 2003, namely:
In the said notification,-
In the condition (3) of opening paragraph, in sub-condition (i) (d), in clouse (1), after sub-clause (ii), for the proviso, the following proviso shall be substituted, namely:
“Provided that-
(a) where no SION have been notified, the generation of waste, scrap and remnants upto 2% of input quantity shall be allowed;
(b) where additional items, other than those given in SION are required as input or where generation of waste, scrap and remnants is beyond 2% of the input quantity, use of such goods shall be allowed on the basis of self-declared ad hoc norms till such norms are fixed on ad hoc basis by the jurisdictional Development Commissioner within a period of three months from the date of self declared norms and the unit shall undertake to adjust the self-declared/ad hoc norms in accordance with norms as finally fixed by the Norms Committee for the unit. The ad hoc norms will continue till such time the final norms are fixed by the Norms Committee;
(c) in case of utilization of a large number of inputs, wide variation in quantum of consumption of inputs or such other factors which render such fixation of SION difficult in the case of a particular unit, the Norms Committee may refer the case to the Board of Approval for a decision.”:
in the paragraph 4, after the second proviso, in the clause (u) (a), for the words “such clearance or debonding of capital goods may be allowed on payment of duty on the depreciated value thereof and at the rate in force on the date of debonding or clearance. as the case may be”, the following shall be substituted, namely:-
“such clearance or debonding of capital goods may be allowed on payment of duty on the depreciated value thereof and at the rate in force on the date of debonding or clearance, as the case may be, if the unit has fulfilled the positive NFE criteria taking into consideration the depreciation allowable on the capital goods at the time of clearance or debonding. In case of failure to achieve the said positive NFE, the depreciation shall be allowed on the value of capital goods in the same proportion as the achieved portion of NFE”:
after paragraph 13, in the (iii) Explanation, after serial number (xiii) and entry relating thereto, the following serial number and entry shall be inserted, namely:-
“(xiv) “Norms Committee” means the Norms Committee in the Directorate General of Foreign Trade for recommending Input Output norms and value addition norms to be notified by the Director General of Foreign Trade “
So, what one can gather from thoughtful reading of the above notification, is that where no SION norms are/were fixed, generation of waste, scrap and remnant upto 2% is allowable and no customs duty is chargeable upto that extent, if the goods are imported by 100% EOU. However, when the wastage are more than 2%, the concerned unit has to get the Norms fixed by the Norms Committee, as per the said notification and Foreign Trade Policy and such norms of wastage fixed by the statutory Norms Committee has to be strictly adhered to. There is no two opinions about it. This is what the primary contention of the appellant that since, the wastage norms have been eventually fixed by the Norms committee in a statutory manner, there is no reason for the lower adjudicating authority to have gainsaid the benefit of the same and confirmed the demand, ignoring such norms, in respect of brass wastage beyond 2%.
10. On-going through the documents available on record, I find that the appellant, being a 100% EOU, was engaged in manufacturing and export of various Brass parts. In this regard, the appellant, purportedly were having the Letter of Permission (LOP) dated 17.01.2003 issued by the KSEZ. Gandhidham. Annexure- A, describing the manufacturing process adopted by the appellant was also attached to the said LOP wherein, the segregation of the non-ferrous scarp i.e. foundry scrap, was described as an initial stage towards manufacturing process. I also observe that the Development Commissioner, KSEZ vide various permission letters allowed the appellant to clear the specific quantity of waste/ remnants i.e. Iron/ MS Scrap, Rubber Scrap, Dust Waste and Slag, generated in connection with the production, into DTA on payment of full duty in terms of para 6.8(e) and 6.8(g) of FTP 2004-2009.
10.2. Accordingly, to decide the issue of input-output norms of the items manufactured by the appellant, by utilising the brass scrap, it would be worthwhile to have a look at the wastage norms fixed by the Norms Committee in terms para 6.8(e) of the FTP 2009- 14. which was intimated by DGFT, New Delhi, vide letter F. No. 01/81/162/313/AM 10/DES-11/254 dated 04.05.2011 to the Development Commissioner, KSEZ, Gandhidham, and provisions of the said Notification No. 52/2003-Cus, as amended, in respect of the appellant i.e. M/s Deep Recycling Industries, Jamnagar.
10.3 I find that the Norms Committee, while fixing the wastage norms in two stages of manufacturing had observed that:
“Dated: 04.05.2011.
To
The Development Commissioner,
Office of the Development Commissioner,
Kandla Special Economic Zone (KSEZ),
Gandhidham-Kutch,
Pin-370320 (Gujarat).
Sub: Fixation of wastage norms in terms of Para 6.8(e) of Foreign Trade Policy, 2009-14 for the manufacture of brass items.
I am directed to refer to your letter No. dated…. on the above mentioned subject and to inform that based on the recommendations of a team of Norms Committee which visited EOUS, manufacturing brass iterns from mixed metal brass scrap in Jamnagar area, the following wastage nors are fixed in terms of Para 6.8 (e) of Foreign Trade Policy, 2008-14 for the manufacture of brass items by
M/s…………..
A. Wastage Norms during segregation: The input raw material namely mixed metal brass scrap is not normal brass scarp, as it contains brass scrap with high impunities like iron & steel, plastic/ rubber etc. The process of segregation for physical removal of impurities from mixed brass scrap to produce segregated mixed brass scrap is first operation in the manufacturing process to manufacture brass items from mixed metal brass scarp. Wastage norms during the process of segregation would vary from consignment to consignment depending upon the percentage of impurities in the mixed metal brass scrap and for the process of segregation the following wastage norms are fixed:
