ORDER
Shri S.L. Peeran, Member (J)
1. This Revenue appeal arises from Order-in-Appeal No.63/2002 Dated : 30.09.02. The Ld. Commissioner after due consideration of the matter has come to conclusion that waste and scrap generated by dismantling of worn out machinery previously installed in the appellants’ factory does not come within the definition of the term “manufacture” appearing under Sec. 2(f) of the Act as well as the provisions of the Sec. Note 8(a) of Section XV of the Schedule of the CETA. The finding relied by the Commissioner from Para 6 to 10 is reproduced herein below:-
“6. The basic issue involved in the instant appeal, is the duty liability on waste and scrap generated by dismantling of worn out machinery previously installed in the appellant’s factory. The adjudicating authority, after examining the issue, has taken a view that dismantling of worn out machinery amounts to manufacture and the resultant scrap is accordingly liable to duty under the provisions of Central Excise Act, 1944. The adjudicating authority, while deciding matter, has relied upon the definition of “manufacture” appearing under Sec.2(f) of the Central Excise Act, 1944, as well as the provisions of Section Note 8(a) of Sec. XV of the Schedule to the Central Excise Tariff Act, 1985. In the light of these provisions, he has held that the waste and scrap generated by the appellants fall in the category of metal goods definitely not usable as such because of breakage, cutting up, wear or other reasons and has accordingly concluded that the impugned goods come under the purview of Note 8(a) of Section XV of the Central Excise Tariff Act, 1985 read with the definition of “manufacture” appearing under Section 2(f) of the Central Excise Act, 1944 and are liable to duty as scrap. The adjudicating authority has made the following further observations in support of his stand:
“The expression “any process” as used in Section 2(f) of the Act is wide enough to cover the processes which are not carried out intentionally and which occur by chance. Similarly, the said expression “any” process covered not only constructive processes but also destructive processes. If a destructive process results in the emergence of a new product, that destructive process also amounts to manufacture under the Central Excise Act, 1944 and the resultant product is excisable. This reasoning is in line with the definition of metal waste and scrap as given in Note 8(a) of Section XV of the C.Ex. Tariff as amounting to manufacture for the purpose of Sec. 2(f) of the Central Excise Act, 1944.”
7. As per the definition of the manufacture under Sec. 2(f) of the Central Excise Act, 1944, manufacture includes any process:
“(i) incidental and ancillary to the completion of a manufactured product; and
(ii) which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture”
When the activity of generation of scrap by dismantling the appellants’ worn out machinery is tested by applying the above definition, it is observed that the process of dismantling of worn out machinery is neither incidental nor ancillary to the completion of the manufactured product in the subject case. Regarding the coverage of the impugned goods under Note 8(a) of Section XV of the Central Excise Act, 1944, I observe that the said note covers “metal waste and scrap from the manufacture or mechanical working of metals and metal goods definitely not usable as such because of breakage, cutting up, wear or other reasons.” In fact, when the above definition is read with Section Note 9 of Section XV, its connotation becomes more clear. The aforesaid Section Note 9 provides that “in relation to the products of this Section, the process of obtaining goods and materials by breaking up of ships, boats and other floating structures shall amount to manufacture.” Head it been the intention to treat dismantling of old and used machinery as manufacture under Sec. XV of the aforesaid Schedule, the same would have been obviously specified under Section Note 9 thereof, which is restricted to breaking of ships, boats and floating structures only and not dismantling of old and worn out machinery. It is further observed that Section Note 1(f), under Section XV, excludes articles of Sec. XV (machinery, mechanical appliances and electrical goods) from the purview of Section XV.
8. The view that worn out machinery since dismantled cannot be treated as scrap under the Section Note XV supra is also supported by the following two important case laws, wherein the issue has been discussed at length. The North Regional Bench of the CEGAT, in the case of Diesel Components Works Vs. CCE, Chandigarh reported in 2000 (120) ELT 648(TRI) held that”
“Coming to the question of duty liability on the scrap, two types of scraps are generated in the factory of the appellant. The first category belongs to metal waste and scrap generated from the manufacture or mechanical working of metal and metal goods used in the factory. It is conceded before us that such scrap is liable to duty. Majoor quantity of the scrap and waste is generate din the course of dismantling of old and damaged locomotives… Commissioner has erred in placing reliance on the decision of the Calcutta High Court to support his stand that the scrap and waste generated during the dismantling of old locomotives is also liable to duty… Chapter Note 7 deals with waste and scrap generated in the process of breaking of ships and boats and other floating structures. Breaking of locomotives will not fall under any of these categories covered by Chapter Note 7 to Chapter XV. so, the duty imposed on scrap requires modification. The entire scrap and waste originated in the course of dismantling of the locomotives must be excluded from the purview of assessable waste. That much quantity of waste which is generated from the manufacture or mechanical working metals or metal goods can be subjected to payment of duty.”
9. The North Regional Bench of the CEGAT, in the case of Hindalco Industries Ltd. Vs. CCE, Allahabad, reported in 2002 (144) ELT 339 (Tri-Del), took a similar stand when it held that “the waste and scrap, which is liable to duty, are the waste and scrap arising from the manufacture or mechanical working of iron or steel. It is not the metal scrap arising from dismantling of buildings, repair of machinery etc. This position remains settled by the various decisions of the Tribunal as relied upon by the appellants.”
10. Following the ration of the above decisions of the Tribunal, I hold that waste and scrap arising out of breaking up of old and worn-out machinery is not liable to duty.
The Order of the Deputy Commissioner is set aside with consequential benefits to the appellants, if any.”
2. We have heard both sides in the matter.
3. Ld. DR re-iterated the grounds of appeal and submitted that the waste and scrap in the form of old scrap machinery fall under Chapter Sub-heading No. 7204.90 of the CETA.
4. Ld. Counsel submitted that it does not come within the ambit of Section note 8 and 9 of Sec.XV as they are not arising out of manufacture. There is no manufacture involved in the generation of this waste and scrap in the form of old and scrap machinery. He submits that the issue is not longer resintegra and is covered by the judgment rendered by this Bench in the case of Hindustan Petroleum Corpn. Ltd Vs. CCE (2002 (144) ELT 555. He also relied on the judgment rendered in the case of Southern Agrifurance Industries Ltd Vs. CCE [2003 (158) ELT 323].
5. On a careful consideration of the submission we notice that the Commissioner (Appeals) has analysed the matter more clearly and has given a legal and proper order. For the purpose of holding an item to be goods it has to arise out of the process of manufacture It has to be goods which are known in the market and it should be in a marketable position. Therefore worn out machinery cannot be considered as having arising out of process of manufacture in terms of Sec. 2(f) of the Act and the Commissioner’s finding is in the light of the judgment rendered by the Tribunal in the case of Hindalco industries Ltd. Vs. CCE [2002 (144) ELT 339]. This Bench also in the case of Hindustan Petroleum Corpn. Ltd (supra) has on an identical circumstances, held that damaged parts of plant cannot be considered as goods and applying the ratio of the judgments noted therein i.e., Diesel Components Work Vs. CCE [2000 (120) ELT 648], ACC Limited Vs. CCE [2001 (133) ELT 648], has allowed the assessee’s appeal.
6. We find that the ratio of all the judgments is clearly applied to the facts of the case and hence there is no merit in the Revenue appeal and the same is dismissed.