ORDER
A.C.C. Unni, Member (J)
1. These are three appeals filed against the Order-in-Appeal passed by the Collector of Central Excise (Appeals), New Delhi dated 10-4-1991. Since common issues are involved and the appeals have arisen from the same impugned order, they were heard together and are being disposed of by this common order.
2. The common issue involved is whether ‘MS sheet cuttings’ can be considered to come within the expression “steel sheets” mentioned in column 2 of the Govt. of India Order No. 342/1/88-TRU, dated 1-3-1989 followed by its Order No. 342/1/88-TRU, dated 1-6-1989.
3. All the appellants are engaged in the manufacture of MS Ingots’. They obtain ‘MS sheet cuttings’ from the market and use them in the manufacture of their final product namely ‘MS Ingots’. By the Govt. of India orders dated 1-3-1989 and 1-6-1989 deemed credit had been allowed on inputs described as ‘steel sheets’ of thickness not exceedings 5 mm. and whether or not in coils. The relatable Chapter Headings/sub-headings in the Tariff are 7208.29, 7209.20,72.10, 7211.49 and 72.12.
4. The Asstt. Collector in the initial adjudication Orders held that MS sheet cuttings cannot be taken to be covered by the description ‘sheet’ and in fact they were actually waste and scrap. He therefore, held that deemed credit facilities will not be available to the product in question.
5. The Collector (Appeals) in the impugned order upheld the Asstt. Collector’s findings and held that ‘sheet cuttings’ used by the appellants were not covered by the expression ‘sheets’. He also confirmed the Asstt. Collector’s order stating that sheet cuttings were actually waste and scrap as per the definition given to “waste and scrap” in the relevant Central Excise Tariff.
6. Shri D.N. Mehta, ld. Advocate appearing for the appellants argued that the appellants have a strong case in their favour and drew attention to various judgments in support of his contentions. He referred to Rules 57A and 57G of the Central Excise Rule, 1944 under whose provisions the appellants had availed the benefit of Modvat credit of duty on inputs in the manufacture of their final product, ‘Steel Ingots’. As per Rule 57G a manufacturer of final products is entitled to take credit of duty paid on the inputs received by him provided the same were accompanied by gate passes or other specified documents evidencing payment of duty on such inputs. He referred further to the provisions of Rule 57G which provided that the Central Govt. may direct, having regard to the demand and supply position of any inputs in the country and any other relevant considerations, all stocks of specified inputs in the country except such stocks lying in a factory, Customs area or a warehouse etc. may be deemed to be duty paid and credit of duty on the said inputs may be allowed at such rate and subject to such conditions as the Central Govt. may allow on the basis of documents evidencing payment of duty. In exercise of the said power, the Central Govt. had issued an Order No. 342/1/88-TRU, dated 1-3-1989 and subsequently another Order No. 342 (a) 88-TRU, dated 1-6-1989 by which deemed credit of Rs. 500/- MT. was allowed inter alia on ‘Steel sheet’ of thickness not exceedings 5mm. and falling under Heading No. 7208.29 to 72.12 which were used as inputs in the manufacture of final products i.e. ‘Steel Ingots’. Counsel stated that the appellants had started availing the deemed Modvat credit on steel sheet cuttings purchased by them from the open market and used them in the manufacture of their final products in terms of aforesaid order of the Govt. of India and after filing due and proper declaration before the Jurisdictional Asstt. Collectors. These declarations were duly acknowledged which imply permission to avail the deemed credit claim.
7. The appellants were however asked to show cause later as to why credit availed should not be recovered from them under Rule 57-I and why penalty should not be imposed on them.
8. Shri Mehta drew attention to the relevant Govt. of India Orders allowing deemed credit and submitted that there was nothing in the said orders to suggest that these ‘steel sheet cuttings’ not exceeding 5 mm. thickness used by the appellants as input was not covered by the expression ‘sheets’ occurring at S. No. 3 of the Table to the said orders. He contended that ‘Steel sheet cuttings’ were nothing but pieces of steel sheets. There was no dispute as to the thickness of the Steel sheet cuttings used by the appellants. The dispute was merely as to whether ‘steel sheets’ meant sheets, simpliciter or it also took into account pieces of ‘Steel sheets’ like cuttings. He referred to the impugned order in which the Collector (Appeals) had observed that it was clear that sheets including cuttings of such sheets are classified under the same Tariff entry.
9. The Collector (Appeals) had however held that merely because two items covered by the same Tariff entry for the purpose of classification it could not be argued that the two items become identical. Collector (Appeals) had referred to the definition to the sheets as given in Chapter 72 prior to its restructuring defining sheet as “a hot or cold rolled flat product rolled in rectangular section of thickness below 5 mm. and supplied in straight lengths and width of which is at least 100 times the thickness and the edges are either milled, trimmed, sheared or flame-cut and includes a corrugated sheet.” Since the definition did not stipulate that sheets would include cuttings of sheets also, he had come to the conclusion that cuttings of sheets were not included in the definition of sheets. As regards the expression ‘including’ appearing in the Tariff Heading 72.12 as it stood at the relevant time Counsel submitted that the said expression merely indicated that for purposes of classification of Tariff Heading 72.12 sheets would cover also cuttings of such sheets.
10. Shri Mehta argued that the expression “including” was used only for purpose of expressly classifying the position and even otherwise cuttings of Steel sheets would came within the expression ‘sheets’.
11. Advocate for the appellants also contended that the lower authorities have wrongly held that ‘steel cuttings’ were waste and scrap especially when the jurisdictional Asstt. Collector had earlier approved their classification lists as sheet cuttings falling under Heading 72.12 along with sheets in the various gate passes showing payment of duty on sheet cuttings at the rate applicable to sheets.
12. The Departmental Representative referred to the impugned order- in-appeal and submitted that the Collector (Appeals) has already considered the question of quantum of penalty and had modified the Asstt. Collector’s Orders in relation to the alleged shortage of 4.732 MT. of ‘Ingots’. On the question whether the Govt. of India Orders dated 1-3-1989 and 1-6-1989 covered sheet cuttings, he referred to the impugned order and supported the findings of the Collector (Appeals) holding that sheet cuttings could not be considered to come within the expression “sheet” and that the inputs namely ‘sheet cuttings’ were more in the nature of waste and scrap.
13. We have considered the submissions and perused the records. The question for consideration falls within a very narrow compass. The Larger Bench of the Tribunal in the case of M/s. Machine Builders and Ors. v. CCE reported in 1996 (12) RLT 817 has held that where there is a conditional exemption Notification in respect of inputs on which deemed Modvat credit is claimed, it is up to the Department to show that the conditions for such exemption have been fulfilled. In the cases before us we find that the lower authorities have decided the issue mainly on the basis that sheets were costlier than ingots and it would not have been possible for any manufacturer to use sheets in the manufacture of steel ingots, though small cuttings which could not be used for fabricating other goods could be melted for manufacture of ingots. The Department has argued that since such sheet cuttings would lose their character as sheets when melted, such steel cuttings as are used by the appellants can be considered only as ‘waste and scrap’ falling under Heading 72.04 and credit for their use was not permissible under Government of India orders on 1-3-1989 and 1-6-1989.
14. We see considerable force in the Department’s case inasmuch as the sheet cuttings, if they are still in the form of sheets (which are down stream finished products) could not have been used for purposes of melting for being processed into steel ingots. We agree with the observations of the Assistant Collector that it would be unthinkable that any manufacturer would use sheets (which are admittedly manufactured down-stream products) for manufacturing ingots by cutting them further and melting them. Though sheet cuttings simpliciter may come within the description of ‘sheets’, but will cease to be ‘sheets’ once they assume the form of cuttings sent for melting for further conversion into ingots. The exemption under the Government of India orders under reference cannot be said to extend to headings/sub-headings of such steel cuttings which are used for manufacturing steel ingots. We therefore hold that ‘steel sheets’ referred to in the said Government of India orders will not cover steel cuttings used by the appellants for manufacturing steel ingots. Lower authorities have therefore rightly held that they can be considered only as ‘waste and scrap’.
15. In view of the above we find no merit in the three appeals. The same are accordingly rejected and the impugned order upheld.