Excise duty on iron ore fines generated during the process of screening of coal

Satya Power & Ispat Ltd Vs Commissioner of Central Excise & Service Tax (CESTAT Delhi)

The issue is whether the appellant is liable to pay central excise duty on removal of iron ore fines/iron ore concentrates? Learned counsel for the Appellant submits that in the de-novo proceedings, the lower authority without appreciating the submissions made in appellant’s reply, confirmed the recovery alongwith interest and penalty which was upheld by the learned commissioner that too without appreciating the contentions raised by the appellant. He further submits the issued involved herein in squarely covered by the decision of this Tribunal in the matter of CCE, Raipur vs. Nutun Ispat & Power Ltd.; 2016(341) ELT 360 (Tri-Del) and also by the decision of co-ordinate Bench of the Tribunal in the matter of CCE & ST, Jamshedpur vs. Kohinoor Steel Pvt. Ltd.; Final order No.FO/A/76175 of 2018 dated 5.4.2018. According to learned counsel the department is demanding duty on iron ore fines generated during the process of screening of coal by invoking Rule 3(5) ibid whereas the appellants have not purchased iron ore fines and no Cenvat credit has been taken by them on iron ore fines. So far as 266.420 MT less receipt of coal is concerned, learned counsel submits that few percentage of short receipt is normal as per industry practice.

So far as the demand under Rule 3(5) ibid on clearance of Iron Ore Fines/Iron Ore Concentrate is concerned, the issue is no more res integra in view of the decision of this Tribunal in the matter of Nutun Ispat & Power Ltd.(supra) in which also the issue was whether the Iron ore fines, which are not used by the assessee in further manufacture and cleared, will attract the provisions of Rule 3(5) ibid and the Tribunal while giving the finding in favour of the assessee therein, rejected the appeal of the revenue.

In the instant case while explaining the procedure, learned counsel submits that during the manufacturing process of the sponge iron, iron ore fines are generated at the time of screening/grading and crushing, which is nothing but waste and in order to keep the production at a constant pace the aforesaid process of screening is essential and indispensable and iron ore and coal fines contents have to be removed else it would stick on the inner wall of the kiln and reduce the space inside the kiln, called accretion. Therefore it can safely be concluded that the fines etc are by-product or incidental product which cannot be said to be inputs as such which by any stretch of imagination cannot be said to attract the provisions of Rule 3(5) ibid. In view of the aforesaid discussions, this issue is decided in favour of the Appellant.

So far as short receipt of 268.420 MT of coal is concerned on which department is demanding duty, in my view that is also not sustainable. There is no allegation or any evidence of clandestine removal of the said quantity of coal. Mere shortage cannot ipso facto lead to the allegation of clandestine removal and for this I placed reliance on the decision of the Hon’ble High Court of Punjab & Haryana at Chandigarh in the matter of CCE & ST, Ludhiana vs. Anand Founders & Engineers; 2016(331) ELE 340 (P&H). According to learned counsel the said short receipt is sometimes due to transit loss/theft and as per industrial practice ± 4% is permissible. Since this short receipt cannot be treated as clandestine removal therefore there is no reason not to accept the submission/explanation given by the learned counsel. Therefore on this issue also demand cannot be sustained. Regarding the issue of wrongly availed Cenvat credit of Rs.9,768/- on input service paid on GTA service against sponge iron received back from the customers is concerned, this issue is also covered in favour of the assessee in view of the decision of a co­ordinate Bench of the Tribunal in the matter of Chitrakoot Steel & Power Pvt. Ltd. Vs. CCE, Chennai; 2008(10)STR 118 (Tri.-Chennai) in which it has been held that no demand can be made for input services if the finished goods are received back. As in view of facts of this case, all the issues involved herein are decided in favour of the appellants therefore I am not going into the issue of extended period of limitation.

FULL TEXT OF THE CESTAT DELHI ORDER

This appeal has been filed challenging the Order-in-Appeal No. RPR-EXCUS-000-APPL-091-20-21 dated 22.3.2021 passed by the Commissioner (Appeals), Central GST & Central Excise, Raipur by which the learned Commissioner dismissed the appeal filed by the appellant by holding that the order passed by the Adjudicating Authority for denial of credit and imposition of penalty does not warrant any interference.

2. The facts leading to the filing of the instant appeal are stated in brief as follows. The appellant is the manufacturer of sponge iron and for this purpose they require raw material like iron ore, coal and dolomite. Screening of coal and iron ore is an integral and indispensable process in the manufacturing of sponge iron and in that process unavoidable by-product like Iron ore fines, Iron ore concentrates and coal fines are generated which have to be removed else it would stick on the inner wall of the Kiln and reduce the space inside the kiln called accretion, which in turn effect the production adversely. These by-product fetches very low prices in the market. According to department on this Iron ore fines/iron concentrates although the appellant have availed input Cenvat credit at the time of receipt in the factory but at the time of removal proportionate Cenvat credit amounting Rs.6,39,681/- has not been reversed under provisions of Rule 3(5) of Cenvat Credit Rules, 2004 and also that the appellant had received short quantity of coal by 266.420 MT in their factory premises as compared to the quantity shown in the bill and wrongly availed cenvat credit of Rs. 25,416/- on that short quantity also which they neither received nor used for manufacture of the finished goods. Accordingly a show cause notice dated 11.8.2016 was issued to the appellant to show as to why:-

i) The CENVAT Credit amounting to Rs. 6,74,865/- (Rs. 6,39,681/- + Rs. 25,416/-+ 9,768/-) (Rupees six Lakhs Seventy Four Thousand Eight Hundred & Sixty Five Only) should not be recovered from them under Rule 14 of the Cenvat Credit Rules, 2004 read with Section of 11A(4) of the Central Excise Act, 1944 and as to why the amount of Rs. 6,74,865/- already reversed by them should not be appropriated and adjusted against the said demand;

ii) Interest at the appropriate rates should not be recovered from them under Rule 14 of the CENVAT Credit Rules, 2004 ready with Section 11AA of the Central Excise Act, 1944 and the interest amounting to Rs. 16,619/- already paid by them should not be appropriated;

iii) Penalty should not be imposed upon them under Rule 15(2) of the CENVAT Credit Rule, 2004 read with Section 11AC of the Central Excise Act, 1944.

3. The said show cause notice was adjudicated by the Adjudicating Authority vide Order-in-Original dated 20.7.2020 by which the said authority confirmed the recovery of credit availed by the appellants alongwith interest and penalty. Aggrieved, the appellant filed appeal before the Commissioner (Appeals) but the same was rejected by way of impugned order.

4. Now the issue is whether the appellant is liable to pay central excise duty on removal of iron ore fines/iron ore concentrates? Learned counsel for the Appellant submits that in the de-novo proceedings, the lower authority without appreciating the submissions made in appellant’s reply, confirmed the recovery alongwith interest and penalty which was upheld by the learned commissioner that too without appreciating the contentions raised by the appellant. He further submits the issued involved herein in squarely covered by the decision of this Tribunal in the matter of CCE, Raipur vs. Nutun Ispat & Power Ltd.; 2016(341) ELT 360 (Tri-Del) and also by the decision of co-ordinate Bench of the Tribunal in the matter of CCE&ST, Jamshedpur vs. Kohinoor Steel Pvt. Ltd.; Final order No.FO/A/76175 of 2018 dated 5.4.2018. According to learned counsel the department is demanding duty on iron ore fines generated during the process of screening of coal by invoking Rule 3(5) ibid whereas the appellants have not purchased iron ore fines and no Cenvat credit has been taken by them on iron ore fines. So far as 266.420 MT less receipt of coal is concerned, learned counsel submits that few percentage of short receipt is normal as per industry practice. Learned counsel also raised the issue of invocation of extended period and submits that since all the transactions have been recorded in the statutory records/returns therefore extended period cannot be invoked. Per contra learned Authorised Representative appearing on behalf Revenue supported the findings recorded in the impugned order and prayed for dismissal of Appeal.

5. I have heard learned Counsel for the appellant and learned Authorised Representative for the Revenue and perused the case records including the written submissions and case laws cited by the learned Counsel for the appellant. So far as the demand under Rule 3(5) ibid on clearance of Iron Ore Fines/Iron Ore Concentrate is concerned, the issue is no more res integra in view of the decision of this Tribunal in the matter of Nutun Ispat & Power Ltd.(supra) in which also the issue was whether the Iron ore fines, which are not used by the assessee in further manufacture and cleared, will attract the provisions of Rule 3(5) ibid and the Tribunal while giving the finding in favour of the assessee therein, rejected the appeal of the revenue. The relevant paragraph of the said order is extracted as under:-

“4. We find that the Revenue contends that Iron Ore Fines arising out of crushing is not a manufactured product and their clearance should be treated as clearance of inputs as such requiring reversal of credit. We find no justification for such proposition. Admittedly, Iron Ore Lumps are put through a process of crushing to obtain the desired size and consistency. Iron Ore Fines of smaller size and of different consistency emerge which cannot be put into the intended use by the respondent. The point for decision is that whether the Iron Ore Fines, which are not used by the respondent in further manufacture and cleared, will attract the provisions of Rule 3(5) of Cenvat Credit Rules, 2004. Admittedly, the Iron Ore procured on payment of duty cannot be used as such. The same are put through a process of crushing to obtain a required level of Iron ore Concentrate. The respondent did obtain such concentrate and use the same for further manufacture. Such being the case, incidental emergence of iron Ore Fines, which cannot be put into the same use by the appellant, and accordingly cleared by them, for a consideration, will not attract the provisions of the said Rules. The inputs are put to use as intended by them. The emerging fines, which is nothing but a incidental product, cannot be equated to the inputs (Iron Ore) as such. Accordingly, we find no justification in the present appeal. Accordingly, the same is rejected.”

6. In the instant case while explaining the procedure, learned counsel submits that during the manufacturing process of the sponge iron, iron ore fines are generated at the time of screening/grading and crushing, which is nothing but waste and in order to keep the production at a constant pace the aforesaid process of screening is essential and indispensable and iron ore and coal fines contents have to be removed else it would stick on the inner wall of the kiln and reduce the space inside the kiln, called accretion. Therefore it can safely be concluded that the fines etc are by-product or incidental product which cannot be said to be inputs as such which by any stretch of imagination cannot be said to attract the provisions of Rule 3(5) ibid. In view of the aforesaid discussions, this issue is decided in favour of the Appellant. So far as short receipt of 268.420 MT of coal is concerned on which department is demanding duty, in my view that is also not sustainable. There is no allegation or any evidence of clandestine removal of the said quantity of coal. Mere shortage cannot ipso facto lead to the allegation of clandestine removal and for this I placed reliance on the decision of the Hon’ble High Court of Punjab & Haryana at Chandigarh in the matter of CCE & ST, Ludhiana vs. Anand Founders & Engineers; 2016(331) ELE 340 (P&H). According to learned counsel the said short receipt is sometimes due to transit loss/theft and as per industrial practice ± 4% is permissible. Since this short receipt cannot be treated as clandestine removal therefore there is no reason not to accept the submission/explanation given by the learned counsel. Therefore on this issue also demand cannot be sustained. Regarding the issue of wrongly availed Cenvat credit of Rs.9,768/- on input service paid on GTA service against sponge iron received back from the customers is concerned, this issue is also covered in favour of the assessee in view of the decision of a co­ordinate Bench of the Tribunal in the matter of Chitrakoot Steel & Power Pvt. Ltd. Vs. CCE, Chennai; 2008(10)STR 118 (Tri.-Chennai) in which it has been held that no demand can be made for input services if the finished goods are received back. As in view of facts of this case, all the issues involved herein are decided in favour of the appellants therefore I am not going into the issue of extended period of limitation.

7. In view of the findings recorded in the preceding paragraphs, the appeal filed by the appellant deserves to be allowed and the same is accordingly allowed with consequential relief, if any, as per law.