Case Law Details
Unimech Industries Private Limited Vs Commissioner of Central Excise (CESTAT Chennai)
No Excise duty on Scrap generated at Job worker’s end, when duty is discharged by principal manufacturer
The CESTAT, Chennai in the matter of M/s. Unimech Industries Private Limited v Commissioner of Central Excise [Excise Appeal No. 42787 of 2014 and 41588 of 2017 dated June 10, 2022] has held that the value of scrap arising during the process of manufacture by the job worker is not included in the value of the goods cleared by the job worker to the principal manufacturer for the purpose of levying excise duty.
Facts:
M/s. Unimech Industries Private Limited (“the Appellant”) has engaged in the converting cast articles into tractor parts on job work basis to M/s. TAFE Ltd (“the principal”). The appeal has been filed by the Appellant against the order-in-Appeal (“the impugned order”) passed by the Commissioner (Appeals), Central Excise, Customs and Service Tax, confirming the duty and penalty imposed on the value of the scrap generated during the course of manufacturing of tractor parts on the job work basis.
The Appellant contented that he is a job worker and receiving raw materials from the principal and had paid excise duty based on the value determined on cost construction basis. During the course of his business, certain waste and scrap of metals is generated on which the appropriated duty has been paid by the Appellant.
The department objected the method of valuation adopted by the Appellant alleging that the value of scrap which was sold on payment of Excise duty has to be included in the value of parts cleared to the principal.
Issue:
- Whether the value of scrap arising during the process of manufacturing by the Appellant is includible in the value of the goods cleared by him to the principal manufacturer?
Held:
The CESTAT, Chennai in [Excise Appeal No. 42787 of 2014 and 41588 of 2017 dated June 10, 2022] held as follows:
- Relied upon, the judgement of CESTAT, Bangalore in the case of M/s. P.R. Rolling Mills Pvt. Ltd. v. Commissioner of C.Ex., Tirupathi reported in 2010 (249) E.L.T. 232 wherein it was held that the value of scrap need not be included in the assessable value of the products manufactured by the Appellant.
- Noted that, while estimating the value of the goods cleared to the principal, the Appellant has taken the value of the entire raw materials received by them. The scrap generated during the process of manufacture has been cleared by them on payment of appropriate duty.
- Stated that, the scrap is generated after the process of manufacture and the same is not includible in the assessable value of the goods cleared by the job worker to the principal.
- Held that, impugned orders are set aside.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
Brief facts are that the appellants are engaged in the manufacture of tractor parts and components on job work basis to M/s. TAFE Ltd. and are clearing the same to M/s. TAFE Ltd.
2. The Department was of the view that the appellants had not included the value of the scrap and have not discharged Excise Duty on the same. Show Cause Notices were issued proposing to demand Excise Duty on the value of scrap generated during the course of manufacture of tractor parts on job work basis.
3. After due process of law, the Original Authority confirmed the duty along with interest and imposed penalty. The appellants filed appeals before the Commissioner (Appeals), who vide orders impugned herein upheld the orders passed by the Adjudicating Authority. Hence, these appeals.
4.1 On behalf of the appellant, Shri N. Viswanathan, Learned Counsel, appeared and argued the matter. He submitted that the appellant is a job worker for M/s. TAFE Ltd. and is converting cast articles into tractor parts. For the manufacture of components on job work basis, the appellant was receiving raw materials from the principal manufacturer; the appellant paid Excise Duty based on the value determined on cost construction basis under CAS-4 in which the landed cost of the cast articles was taken into account. During the course of manufacture on job work basis, certain waste and scrap of metal is generated. The appellant cleared the scrap on payment of appropriate duty; the Department has now objected to the method of valuation adopted by the appellant alleging that the value of scrap which was sold on payment of Central Excise Duty has to be included in the value of parts cleared to the principal manufacturer. He argued that since the appellant has already discharged duty on the scrap, the present demand cannot sustain.
4.2 It is submitted by the Learned Counsel for the appellant that on identical facts, in the appellant’s own case for an earlier period from April 2004 to March 2009, the Tribunal vide Final Order No. 43165 of 2017 dated 18.12.2017 had set aside the demand. Similarly, for the period from January 2010 to March 2012 and from April 2013 to March 2015, the demand was set aside by the Tribunal vide Final Order Nos. 41772 to 41776 of 2021 dated 23.08.2021, by relying upon the decision in the case of M/s. P.R. Rolling Mills Pvt. Ltd. v. Commissioner of C.Ex., Tirupathi reported in 2010 (249) E.L.T. 232 (Tribunal – Bangalore). The said decision has been later affirmed by the Hon’ble Supreme Court as reported in 2010 (260) E.L.T. A84 (S.C.).
4.3 He prayed that the appeals may be allowed.
5. Sridevi Taritla, Learned Authorized Representative for the respondent, supported the findings in the impugned orders.
6. The issue to be considered is whether the value of scrap arising during the process of manufacture and retained by the job worker is includible in the value of the goods cleared by the job worker to the principal manufacturer.
7. The said issue was considered in detail in the case of M/s. P.R. Rolling Mills Pvt. Ltd. (supra). The issue was held in favour of the assessee therein.
8. In the present case, it has to be noted that while estimating the value of the goods cleared to the principal manufacturer, the appellant has taken the value of the entire raw materials received by them. The scrap generated during the process of manufacture has been cleared by them on payment of appropriate duty. The scrap is generated after the process of manufacture and the same is not includible in the assessable value of the goods cleared by the job worker to the principal manufacturer.
9. In the appellant’s own case for a different period, the Tribunal has relied upon the decision and discussions in M/s. P.R. Rolling Mills Pvt. Ltd. (supra) and set aside the demand.
10. Following the decision passed in the appellant’s own case, we are of the opinion that the demand cannot sustain.
11. The impugned orders are set aside.
12. The appeals are allowed with consequential reliefs, if any, as per law.
(Order pronounced in the open court on 10.06.2022)
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