Case Law Details
Cairn India Limited Vs Assistant Commissioner Central Excise Division (CESTAT Delhi)
CESTAT Delhi held that pipes, used in manufacture/ production of oil needs repair/ replacement, are capital goods. Hence, no excise duty can be charged on the scrap of the pipes produced/ generated during the repair or maintenance of the pipes.
Facts- The appellant claims to produce oil by drilling. In the process of manufacture/production of oil, plastic barrels in which the input chemicals are procured arise as scrap. Further, due to wear and tear, the pipes used in the production of oil have to be replaced at times. At times, residuary portion of tubes or pipes upon cutting and fitting of operation etc., also arises as waste/scrap. It is undisputed that the appellant sells these waste and scrap to third parties.
The case of the Revenue is that the appellant is generating this scrap in the process of manufacture of excisable goods namely oil and, therefore, it is chargeable to excise duty. Excise duty totaling Rs. 76,23,366/- was, therefore, demanded in three show cause notices and was confirmed by the original authority and upheld on appeal, by the impugned orders. Penalties amounting to Rs. 47,74,082/- have been imposed upon the appellant.
Conclusion- In this case, the pipes do not get consumed and do not get transformed into oil. They are used to manufacture/production of Regardless of the fact that the use of pipes is essential for production of oil, the pipes by themselves are capital goods and are not inputs. When such pipes need repair or replacing and waste is generated in the process, it is a waste generated during the repair or maintenance of capital goods and not during the process of production of oil or any process incidental or ancillary to it. For this reason, no excise duty can be charged on the scrap of pipes produced in this manner. Similarly, the empty barrels are only packing material in which the inputs are received and these barrels are not generated during the process of manufacture. Therefore, no excise duty can be charged even on that scrap.
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