The CESTAT Ahmedabad recently reviewed a case concerning the Cenvat Credit Rules, 2004. The appeal was filed by Senor Metals Pvt Ltd against C.C.E. & S.T.-Rajkot. The case questioned whether clearance of ferrous (iron and steel) scrap from imported brass scrap after a sorting and melting process could be considered as removal of inputs under Rule 3(5) of the CENVAT Credit Rules, 2004.
In a ruling that resolved long-standing ambiguities, the CESTAT held that the clearance of iron and steel scrap from imported brass following sorting and melting processes couldn’t be treated as removal of inputs under Rule 3(5) of the CENVAT Credit Rules. The tribunal cited a Board circular and a previous ruling by the Gujarat High Court, which clarified that segregated foreign materials from imported honey-grade brass scrap do not qualify as “inputs as such.”
The ruling clarified the position regarding the removal of ferrous scrap under the Cenvat Credit Rules, 2004, thereby providing much-needed guidance for similar future disputes. By dismissing the appeal and upholding the prior decisions of the Board and the Gujarat High Court, the tribunal ensured the rule’s consistent application. The ruling underlines the need for clear understanding and compliance with the intricacies of tax rules and regulations.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
Issues involved in the present case are as under:
(i) Whether clearance of ferrous (iron and steel) scrap arising from imported brass scrap after sorting and melting process of brass scrap can be treated as removal of inputs “as such under Rule 3(5) of the CENVAT Credit Rules, 2004?
(ii) Whether demand for reversal under Rule 3(5) of the CENVAT Credit Rules, 2004 can be raised prior to the period 01.03.2013, before amendment by Notification No.3/2013-CE (NT) to Rule 3(5)?
(iii) Whether extended period of limitation can be invoked in the facts of the present case?
2. Shri, Anand Nainawati, Learned Counsel appearing on behalf of the appellant at the outset submits that the dispute involve in the present case has been resolved by issuing board circular No 1029-17-2016/CX dated 10-05-2016 and the subsequent judgment of the Hon’ble High Court of Gujarat in the case of commissioner of Customs Vs. Monarch Overseas – 2019 (368) ELT 379 (Guj).
3. Shri, P. Ganesan, Learned Superintendent (AR) appearing on behalf of the revenue reiterates the finding of the impugned order.
4. We have carefully considered the submission made by both the sides. The only issue involved in the present case is that out of imported brass scrap while using in the manufacture the sorting of the brass scrap and removal of impurities including various materials such as scrap of other metal and sale of the same will attract payment under Rule 3(5) of Cenvat Credit Rules, 2004. In this regard the matter was represented before the central board of Excise and Customs wherein the board vide circular No 1029-17-2016/CX dated 10-05-2016 clarified the matter as under:
A.2 The relevant extract of the Circular dated 10.05.2016 is extracted below
“Representations have been received from the members of the trade involved in manufacture of brass products, regarding applicability of provisions relating to clearance of segregated foreign materials as “inputs as such” from imported honey grade brass scrap. The said imported scrap mainly contains brass metal but it also contains impurities like iron, steel, rubber, plastic, dust etc. which is integrally attached to the main material/brass scrap. Before feeding resultant brass scrap in the furnace during the manufacturing process, the said foreign materials (impurities) attached to the honey grade brass scrap is segregated manually and then such sorted material is issued for further process like breaking, cutting etc. wherein big pieces of scrap are converted into small pieces so that the same can be fed into the furnace. Ultimately the brass scrap is fed into furnace where brass melts but materials like steel iron etc do not as they have higher melting point. Molten brass is poured for manufacturing whereas foundry waste of iron, steel, slag is cleared and sold separately. Such foundry waste is quite clearly process waste.
2. However, there is another category of waste viz. foreign materials segregated initially and not fed in furnace. The issue is when such segregated foreign material is cleared by the brass manufacturers, can it be treated as clearance of “inputs as such” and accordingly are the manufacturers required to pay an amount equal to the credit availed in respect of such inputs in terms of Rule 3(5) of CENVAT Credit Rules, 2004.
3. The issue has been examined. Segregation from honey grade brass scrap in order to weed out other foreign materials before the process of melting in the furnace is an essential process relating to manufacture of brass articles. The foreign materials, emerging during the process of segregation have to be treated as process waste and cannot be treated like removal of inputs as such The segregated foreign material has an altogether different character and use vis-a-vis brass scrap. Value per unit and classification of the segregated foreign material is also different from that of imported brass scrap. Accordingly clearance of foreign material such as iron, steel, rubber, plastic, dust etc. cannot be treated as clearance of inputs as such. It may be noted that Circular No. 62/2001-Cus., dated 12-11-2001 [2001 (134) LT. (T39) does not apply to the issue at hand as the facts at hand are different.
4. In view of above, it is clarified that the clearance of segregated foreign materials namely iron, steel, rubber, plastic, dust etc. from honey grade brass scrap before feeding in the furnace cannot be treated as removal of inputs as such as envisaged under Rule 3(5) of CENVAT Credit Rules, 2004. The segregated foreign material in such situation, as has been explained above, shall be cleared on payment of Central Excise duty on transaction value as per its appropriate classification and rate of duty determined on merits.”
4. It can be seen that the above circular is squarely applicable to the facts of the present case. Further considering the above circular the Hon’ble Gujarat High Court judgment in case of Monarch Overseas Vs. (sited) (supra) has held as follows :
“10. Thus, while the above circular clarifies whether segregated foreign materials from imported honey grade brass scrap can be treated as ‘inputs as such” as contemplated in Rule 3(5) of the Cenvat Credit Rules, 2004, the principle involved is the same. In this case also, the segregated material has an altogether different character and use vis-à-vis the brass scrap. The value per unit and classification of the segregated foreign materials is also different from that of the imported brass scrap. As a necessary corollary therefore, the segregated foreign material cannot be treated as input “as such” for the purpose of levy of customs duty. The Tribunal, therefore, did not commit any error in placing reliance upon circular No 1029-17-2016/CX dated 10-05-2016.”
From the above board circular reinforced by the Hon’ble Gujarat High Court Judgment in case of Monarch Overseas (Supra). The issue is no longer under dispute, as the same stand settled in favor of the assessee.
5. Considering Above position we are of the view that the impugned order in not sustainable hence the same is set aside. Appeal is allowed.
(Pronounced in the open court on 24.07.2023)