ORDER
S.L. Peeran, Member (J)
1. In all these appeals, a common question of law and facts are involved, hence they are all taken up together for disposal as per law. The appellants are engaged in the manufacture of Galvanized C.R. Sheets falling under Chapter 72 of the Schedule to the Central Excise Tariff Act, 1985. The main raw material is C.R. Coils on which they were availing MODVAT Credit under Rule 57A of the Central Excise Rules, 1944. They had received C.R. Coils and examined it. Some of the Coils which were found to be deformed/deshaped/defective on account of transportation and handling then those were returned to the supplier. Those which were found defective after a few process of cleaning by water, passing of hot air and by acid, then those were removed and sold by the appellants as ‘waste and scrap’ at the rate of Rs. 1000/- PMT. The departments case is that this ‘waste and scrap’ had not been generated during the course of manufacture of final product, and hence this should have been cleared as C.R. Coils only, after debiting the same MODVAT Credit already taken on them in terms of Rule 57F(1) of Central Excise Rules, 1944. The appellants had taken a stand that the raw material for manufacture of the product is cold rolled coils falling under Chapter Heading Nos. 7209.20,7209.30 & 7211.51, for which they were availing MODVAT Credit under said Rule 57A and that they have filed their declaration under Rule 57G of Central Excise Rules, 1944 from time to time. They have submitted that during the course of manufacture of galvanised C.R. Sheets, one of the process involved is to sort out and segregate such portion of C.R. Coils/Sheets which have defects like centre folds, chemical composition defect, pin holes, herving bones and due to these defects, the same cannot be galvanised. It is stated by them that this process is not possible at the time of receipt of C.R. Coils. They cut the defective portion of C.R. Coils after examination and sell them as- waste and scrap. Initially, before they carried out such physical examination if they find defective ones, then at that stage itself they returned the same to the suppliers. But, in the first case such C.R. Coils are fed on de-coiling machines and passed through degreasing tank, where oil and grease are removed by spraying alkaline solutions and then the C.R. Coils are rinsed with water and passed through hydrochloric acid where any rust found on the surface of coil is removed. It is stated that this process is a continuous process. In between these two processes i.e., after degreasing, rust removing and, galvanising, if the defective materials are found, the same are removed as “waste and scrap” and sold to separate parties under invoices. They are all resellers of C.R. Coils and not remelters. In view of these circumstances, the department issued show cause notice alleging that the goods which has been found to be not fit for galvanisation cannot be treated as ‘waste and scrap’ but they are original C.R. Coils which are sold at higher prices then ‘waste & scrap’, therefore, the MODVAT Credit is required to be reversed at the rate, at which they had taken credit originally. The appellants resisted the demands and had urged before the original authorities that the defective C.R. Coils are nothing but ‘waste and scrap’. As such, they are entitled to get the benefit under Rule 57F on so much of duty on which these ‘waste and scrap’ are sold. The lower authorities have rejected their plea and have held that the defective C.R. Coils cannot be considered as ‘waste and scrap’. It has been further held that they have violated the provisions of Rule 57F and hence they had called upon to pay the duty confirmed under Rule 571 of Central Excise Rules, 1944 read with Section 11A of the Central Excises and Salt Act, 1944.
2. We have heard the Learned Advocate Shri V. Sridharan for the appellants and the Learned DR Shri Somesh Arora for the Revenue.
3. At the outset, the Learned DR submitted that all the issues are covered against the appellants as per ruling of the Tribunal rendered in the case of Bajaj Auto Ltd. v. Collector of Central Excise, as reported in 1995 (75) E.L.T. 382. The Learned Advocate submitted that the citation is distinguishable on facts. The Learned Advocate submitted that what was removed from their factory was ‘waste and scrap’ and not the original input bought by them and hence they were entitled to claim the benefit and not reverse the Credit at the rate on the C.R. Coils. He explained the process of manufacture and submitted that Rule 57F(1) is not attracted. He submitted that in terms of Rules 57F(1) only those inputs which are removed as such for home consumption are considered as goods as if manufactured in the factory. While in the present case, the C.R. Coils are used in galvanising and during the course of galvanisation, certain defective portion arise and such ones cannot be considered as inputs removed as such. Accordingly, he submitted that the provisions of Rule 57F(1)(ii) are not applicable to the present case, as the defective portions cannot be considered as if manufactured in the appellant’s factory. He also submitted that defect noticed in the C.R. Coils during the manufacture are waste and scrap and hence no duty is liable to be paid since the defective portions cannot be considered as goods manufactured in terms of Section 2(f).
4. The Learned DR supporting the view taken by the Learned Collector in the impugned order submitted that the parties were purchasing such material removals of C.R. Coils as inputs for manufacture of other goods. Therefore, it cannot be considered as waste and scrap. He further submitted that the appellant had not purchased ISI Specified C.R. Coils, and hence they had to undertake these processes prior to galvanisation, to clean the surface for use. He submitted that the defects have been noticed, prior to the input tinder-going manufacture. It has not been generated in the course of manufacture and it is only after they have cleaned with water, to remove grease, and dirt, it has been become for their manufacture. Therefore, they have sold the same C.R. Coils without sending back to the supplier and as such it cannot be considered as “waste and scrap”. He relied on the ratio of the Tribunal in the case of Bajaj Auto Ltd. (Supra).
5. We have carefully considered the submissions made by both the sides and have perused the judgments cited by the Learned DR before us. This citation is a detailed judgment which has considered a similar issue. The assessee therein was placed in a much worse situation. What had been generated in that case had been treated as waste and scrap as it had arisen during the course of manufacture. The said scrap had been rotting in the scrap yard exposed to all weather condition. The assessees therein had sold the said ‘waste and scrap’ to the scrap-merchants after calling for tenders. The scrap-merchants had segregated the scrap and replinesed sheets. These sheets, were sold to small scale industries and others, for manufacturing goods. The asses-see was also recovering cut material, before such waste and scrap was dumped in the scrap yield. The department had raised similar allegation as herein. The assessee had resisted the department’s allegation. However, the Tribunal negatived their plea by majority order. The finding given by the third member in para 50, 51 and majority order in 52 is reproduced herein below :
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6. The Learned DR submitted that this judgment fully covered on the present case. We agree with the submission of the Learned DR that the appellants herein are placed in a worse position inasmuch as, that they were not removing “waste and scrap” but were removing input itself, after the same had been cleaned by various processes and what had been sold was input itself and hence it cannot be treated as having arisen during the course of manufacture and hence it cannot be treated as waste and scrap. Therefore, they are required to pay the duty at the rate of the inputs as purchased by them. We are of the view that the Bajaj Auto Ltd.’s case is not distinguishable.
7. During the course of the arguments, the Learned Advocate could not produce any authority to show that the input purchased by them was as per IS Specification. However, he admitted that their inputs were not as per IS Specification and hence they were required to undertake the visual inspection of the coils at the initial stage itself and those found defective were returned to the supplier. But those found defective after the process of cleaning by water and the process of removal of dust with the hydrochloric acid; those materials were removed by them. It is appellants case that these are waste and scrap and not the same material received by them. We are not agreeable with this plea. It is clear that the input was in a condition not fit for galvanisation and it is also clear that the material received by them was not as per IS Specification or fit enough for use for galvanisation process. Therefore, they had to undertake these cleaning processes carried out by water, hydrochloric acid and compressed air. Only those material found fit after this stage was taken for the process of galvanisation. Hence, we hold that these materials continue to remain as C.R. Coils and not as waste and scrap.
8. In that view of the matter, the stand taken by the department cannot be challenged as there is no infirmity or illegality in the impugned order. The various other submissions made by the Learned Counsel has been answered by the lower authorities and we confirmed these findings. The findings are also supported by the view taken by the Tribunal’s case Bajaj Auto Ltd. as well as in the judgment redered in the case of L.M.L. Ltd. etc. as reported in 1984 (44) E.L.T. 119.
9. There is no merit in these appeals, and hence these appeals are rejected.