[Order per : Archana Wadhwa, Member (J)]. - As per facts on records appellants are engaged in the manufacture of various Iron & Steel products and were availing the benefit of Modvat credit of duty in respect of capital goods The dispute in the present appeal relates to clearance of such capital goods i.e. steel rolls by the appellant as used/broken/scrapped cast Iron/Steel Rolls and by classifying the same as waste and scrap under Heading 8455.90 after payment of duty at the rate of 15% ad valorem. It is seen that before clearing the said steel rolls, appellant filed a classification declaration under Rule 173B of Central Excise Rules classifying the said used and scrap iron/steel rolls under Heading 8455.90. The said declaration was not accepted by the Assistant Commissioner, who modified the same with directions to the appellant to pay duty on the said used capital goods under Rule 57-S(2)(b). However, it is seen that the said modification of the classification declaration was neither challenged by the appellant nor obeyed. As such, the appellant cleared the said used rolls as waste and scrap on payment of duty leviable on waste and scrap.
2. In view of the above backdrop, they were issued four show cause notices raising differential demands of duties on the alleged grounds that the said rolls should have been cleared in terms of the provisions of Rule 57-S(2)(b).Accordingly, notices raised differential demands totally amounting to Rs. 7,88,56,590.23 (Rupees seven crores eighty-eight lakhs fifty-six thousand five hundred ninety and twenty-three paise). The said demands stand confirmed by the Commissioner vide his impugned order, who also imposed personal penalty of Rs. 10,00,000/- (Rupees ten lakhs only) upon the appellant. Hence the present appeal.
2. We have heard Shri B.L. Narasimhan, ld. Advocate appearing for the appellant and Shri V. Valte Ld SDR appearing for the Revenue.
3. The short point involved in the present appeal is as to whether the modvatable capital goods, on which the appellant had availed the Modvat credit, were liable to be cleared under the provisions of Rule 57-S(2)(b) or in terms of the provisions of Rule 57-S(2)(c). For better appreciation we reproduce the said relevant Rule :
(2) ”In a case, -
(a) Where capital goods are removed without being used from the factory for home consumption, on payment of duty, or for export on payment of duty of excise, such duty of excise shall in no case be less than the amount of credit that has been allowed in respect of such capital goods under Rule 57Q;
(b) Where capital goods are removed after being used in the factory for home consumption on payment of duty of excise or for export under rebate on payment of duty of excise, such duty of excise shall be calculated by allowing deduction of 2.5 per cent of credit taken for each quarter of a year of use or fraction thereof, from the date of availing credit under Rule 57Q; and
(c) Where capital goods are sold as waste and scrap, the manufacturer shall pay the duty leviable on such waste and scrap”.
As is clear from the reading of the above Rules where capital goods are removed after being used in a factory on payment of duty of excise, such duty of excise has to be calculated by allowing deduction of 2.5% of credit taken for each quarter of a year of used. However, where the capital goods are sold as waste and scrap, duty leviable thereon has to be assessed as duty on waste and scrap, As such, the essential question to be decided in the present case is as to whether the used Iron and Steel Rolls were actually sold as waste and scrap or as used rolls. The adjudicating authority concluded against the appellant by observing that they have failed to produce any supporting documentary evidence regarding the period/duration of use of such CI/Steel Rolls before the sale/removal of the same as waste and scrap. During the course of arguments before us, the ld. Advocate has fairly conceded that there exists an elaborate system of constitution of a Committee for declaring the various capital goods as waste and scrap and such a declaration is obtained from the head of the specific department dealing with the grooving and maintenance of the Rolls. The rolls which are broken during the process of rolling are also scrapped of and sent to the scrap yards for which a register is maintained. After the same are declared scrap, they are sent to the material recovery department or disposal yarn as scrap accompanied by a dispatch advice for which proper records are also being maintained. However he fairly agreed that such elaborate documentary evidence, samples of which have now been attached to the appeal, were not submitted before the adjudicating authority. He also agreed that description of the rolls in the sale invoices was only as used/rejected rolls. As such it becomes all the more important for the appellant to prove beyond doubt that used and rejected rolls were not sold as second hand goods to their buyers but as waste and scrap. This could be proved by the appellant from the documentary records maintaines by them for the said purpose or from the buyers, who have purchased the same and the use to which the same has been put to. Admittedly no efforts have been made by the appellant to substantiate their claim of the said capital goods having become waste and scrap. As such, we are of the view that the matter need to be remanded back to the adjudicating authority, in the interest of justice, so as to gave a fair chance to the appellant to establish their stand. The appeal is accordingly allowed by way of remand.
(Pronounced in Court on )
| | | Sd/- (Archana Wadhwa) Member (Judicial) |
4. [Order per : C.N.B. Nair, Member (T)]. - Upon perusing the record and considering the contentions raised by both sides, I am of the view that revenue has not made out a case for demanding Modvat credit and for that reason the appeal is to be allowed. I may explain.
5. The allegation in the show cause notice was that the waste and scrap removed by the appellant during July 1998, August - September 1998, April - July 1999 and September 1999 were actually clearances of ‘iron and steel rolls’ on which Modvat credit had been taken. Perusal of the notice shows that this allegation has been made without regard to any specific record relating to Modvat credit (RG 23 etc.) or any other material. The show cause notice does not bring out as to when the Modvat credits were taken on these rolls under removal and what those amounts were. Most of the waste and scraped removed were disposed of as such. There is no case made out or evidence brought on record that the items in question were disposed of as “used rolls”. There is also no material, which is indicative of the disposal of the items as anything other than waste and scrap.
6. The appellant’s explanation all along was that the rolls have a life span of 5 to 20 years and thereafter they are condemned and it is such condemned rolls which were cleared as scrap. The assessee is a several decade old steel maker. Therefore, it is normal that, from time to time, used rolls were condemned as unfit for continued use and they are cleared as waste and scrap. Therefore, the appellant’s contention that the waste in question arose on account of scraped rolls merited acceptance, unless there was evidence to the contrary. There is no such evidence in the present case.
7. That Revenue’s case is bereft of any positive evidence is clear from the order itself. In Para 5.3 of the order, the Commissioner observed as under :
“They did not produce any documentary evidence regarding the availment of correct amount of Modvat credit on such CI/steel rolls as capital goods and subsequently sold/removed them without observing the procedure as laid down under Rule 57-S(2)(b) of ‘the Rules’. Moreover the party also failed to produce any supporting documentary evidence regarding the period/duration of the use of such CI/steel rolls before the sale/removal of the same, as ‘waste and scrap’, as to extend the abatement under Rule 57-S(2)(b) ‘the rules’.”
It is clear from the above that the Demand has been made merely because the assessee failed to produce any documentary evidence regarding availment of correct Modvat credit on the rolls in question cleared. This was an impossibility since the appellant’s contention was that the rolls in question had been in use for several years and at the time when they were received, Modvat credit was not available on the capital goods. The absence of any evidence about taking of credit on these items or removal of modvated capital goods by the appellant remains admitted all through the show cause notices and the impugned order. A demand cannot be raised without evidence.
8. In fact Revenue is proceeding on a mere presumption. That too quite unwarranted. Modvat credit on capital goods is a recent phenomenon (1994). It does not follow that all clearances of scrapped capital goods from 1994 are modvated capital goods. Such a presumption is contrary to observed facts also. Capital goods like steel rolls have a long period of use. Therefore, the presumption is grossly erroneous and unreliable.
9. It is well settled that a notice should bring out the charge and the evidence upon which the charge is based. In the present case, the charge is made because the appellant has failed to show as to when the scrapped rolls were purchased and what was the credit taken. This is no way of raising or sustaining a tax demand. That the appellant has not shown when the original rolls were received in the factory does not mean that Modvat credit was taken on them at the time of original receipt. In fact, it was most unlikely that credit would have been taken on the old and scrapped rolls since the Modvat credit on capital goods became available only from 1994. Thus, the Revenue’s presumption of taking of Modvat credit was not warranted in the context (time) in which the waste and scrap were being removed. The demand has no basis in evidence also.
| | | Sd/- (C.N.B. Nair) Member (T) |
Difference of Opinion
10. Whether the appeal is required to be remanded, as observed by Member (J) or the same is to be allowed, as held by Member (T).
Registry is directed to place the matter before the Hon’ble President, CESTAT, New Delhi for doing the needful on the above question.
| Sd/- (C.N.B. Nair) Member (T) | | Sd/- (Archana Wadhwa) Member (J) |
11. [Order per : S.S. Kang, Vice-President]. - The following difference of opinion has been referred :-
“Whether the appeal is required to be remanded, as observed by Member (J) or the same is to be allowed, as held by Member (T) ?”
12. The brief facts of the case are described in para 1 and 2 of the order passed by Hon’ble Member (Judicial). Therefore, these need not be reproduced again. The Hon’ble Member (Judicial) has held as under :
“As such, the essential question to be decided in the present case is as to whether the used Iron and Steel Rolls were actually sold as waste and scrap or as used rolls. The adjudicating authority concluded against the appellant by observing that they have failed to produce any supporting documentary evidence regarding the period/duration of use of such CI/Steel Rolls before the sale/removal of the same as waste and scrap. During the course of arguments before us, the learned Advocate has fairly conceded that there exists an elaborate system of constitution of a Committee for declaring the various capital goods as waste and scrap and such a declaration is obtained from the head of the specific department dealing with the grooving and maintenance of the Rolls. The rolls which are broken during the process of rolling are also scrapped of and sent to the scrap yards for which a register is maintained. After the same are declared scrap, they are sent to the material recovery department or disposal yard as scrap accompanied by a dispatch advice, for which proper records are also being maintained. However, he fairly agreed that such elaborate documentary evidence, samples of which have now been attached to the appeal, were not submitted before the adjudicating authority. He also agreed that description of the rolls in the sale invoices was only as used/rejected rolls. As such, it becomes all the more important for the appellant to prove beyond doubt that used and rejected rolls were not sold as second hand goods to their buyers but as waste and scrap. This could be proved by the appellant from the documentary records maintained by them for the said purpose or from the buyers, who have purchased the same and the use to which the same has been put to. Admittedly no efforts have been made by the appellant to substantiate their claim of the said capital goods having become waste and scrap. As such, we are of the view that the matter needs to be remanded back to the adjudicating authority, in the interest of justice, so as to give a fair chance to the appellant to establish their stand. The appeal is accordingly allowed by way of remand.”
13. On the other hand, the Hon’ble Member (Technical) has held that the Revenue proceeded on presumption that credit has been taken as capital goods on the rolls. The Hon’ble Member (Technical) has held that there is no evidence to show that credit has been taken by the appellants in respect of the rolls. Therefore, no demand can be made under Rule 57-S(2)(b) of Central Excise Rules.
14. The factual position as narrated by both the Hon’ble Members requires verification whether credit has been taken or not or whether the rejected tools are cleared as second hand goods or waste and scrap. Therefore, I agree with the view taken by Member (Judicial) for reconsideration. Therefore, the appeal is allowed by way of remand.
Matter be placed before the Regular Bench.
(Order dictated and pronounced in the open Court on 15-9-2006)
| | | Sd/- (S.S. Kang) Vice President |
FINAL ORDER
15. In view of the majority order, the impugned order is set aside and the matter remanded for de novo decision in the light of the observation made in the order.
| Sd/- (C.N.B. Nair) Member (T) | | Sd/- (Archana Wadhwa) Member (Judicial) |