ORDER
K.C. Mamgain, Member (T)
1. This appeal is against the Order-in-Appeal No. 67/2001, dated 27-11-2001 passed by the Commissioner of Central Excise (Appeals), Hyderabad-I.
2. Shri G. Mohan Rao, Advocate, appeared for the appellants. He pleaded that the appellants had applied to the Superintendent of Central Excise for permission to remove Spaghetti for re-processing and for manufacture of Vermicelli out of it. The Superintendent gave the appellant permission. They accordingly removed Spaghetti from their storeroom and after grinding it converted it into Vermicelli. He pleaded that the Spaghetti, which was removed by them, was not marketable and, therefore, the permission was taken. The duty demanded by the lower authorities on Spaghetti is not correct in law as the Board, in its Circular No. 22/71-C.Ex.6, dated 30-10-1971, has clarified that the manufacturers will be free to effect transfer of defective or damaged excisable goods from the store room of their factory for re-processing/reconditioning within the factory, without payment of duty, after making necessary entries in the accounts. He stated that the goods cleared for re-processing are not liable for duty. He relied on the following decisions :
(i) UP, State Sugar Corporation Ltd. v. CCE, Allahabad - 2001 (137) E.L.T. 948 (Tri. - Del.) (ii) Bharat Earth Movers Ltd. v. Collector of Customs, Madras-1 - 2001 (129) E.L.T. 580 (Mad.) (iii) R.B. Narain Singh Sugar Mills Ltd. v. Collector of Central Excise, Meerut -1996 (82) E.L.T. 588 (Tribunal) (iv) Cadila Laboratories (P) Ltd. v. CCE, Vadodara - 2003 (152) E.L.T. 262 (S.C.) - 2003 4 SCC 12
He stated that as per Self-Removal Procedure Handbook, (Para 8.4 of Chapter 8), “the manufacturer will be free to effect transfer of defective or damaged excisable goods from the storeroom of their factory for reprocessing/reconditioning within the factory after making necessary entries in the accounts”. He relied on the second proviso to Rule 49(1), according to which the proper officer may not demand duty due on any goods claimed by the manufacturer as unfit for consumption or for marketing subject to such conditions as may be imposed by the Collector by order in writing. He stated that since the goods were not fit for marketing, therefore, no duty is demandable on these goods.
3. Shri L. Narasimha Murthy, learned SDR appearing for Revenue, stated that the appellants had removed Spaghetti for re-processing and instead of manufacturing Spaghetti out of it, they manufactured Vermicelli. Spaghetti is chargeable to duty whereas Vermicelli is exempt from duty. Therefore, if Spaghetti is used in the manufacture of Vermicelli, then they have to pay the duty on Spaghetti. He also stated that from the letter of appellant, it is clear that the same was not unfit for consumption but they have removed it for re-processing as they could not sell the goods within one year. There is no doubt that when the goods are used within the factory for reprocessing and manufacturing of the dutiable goods, no permission is required for such removal and appellants would have made entries in their own records regarding reprocessing. However, in the present case, the appellants had themselves taken the permission of the Superintendent who has given them permission to re-process the goods. However, he has never stated in the permission that duty will not be chargeable on Spaghetti if the same is used in the manufacture of Vermicelli. According to the provisions of Rule 9(1) read with Rule 49 of Central Excise Rules, 1944, the appellants are required to discharge duty liability in case of goods removed for captive consumption; unless there exists an exemption notification for captive consumption. He said that since the appellant have not paid the duty on Spaghetti, which they could not market, and removed it for re-processing and used it in the manufacture of Vermicelli, which is chargeable to nil duty, they are required to pay duty on Spaghetti.
4. We have carefully considered the submissions made by both sides. We find that in this case, the appellant has removed Spaghetti on the ground that they could not market it and it was about one year old and they want its reprocessing. They did not claim that these goods are unfit for marketing. They have not asked for its destruction or considered it unfit for home consumption and had not requested for any remission of duty. After taking the Spaghetti from the storeroom, they had ground it and then used the material for manufacture of Vermicelli, which is not chargeable to excise duty. Since they have manufactured the goods, which are chargeable to nil rate of duty, therefore, they were required to pay the duty on Spaghetti in terms of Rule 9 read with Rule 49 of the Central Excise Rules. As Spaghetti was cleared within the factory and such clearance was not exempt from duty if it is used in the manufacture of goods, which are chargeable to nil rate of duty or exempt from duty, it should suffer duty. The decisions relied upon by the appellants are not relevant to the issue. The Commissioner has correctly decided the issue. We, therefore, find no merit in the appeal and the same is rejected.