ORDER
S.L. Peeran, Member (J)
1. The appellants have filed the above three appeals arising from a common order in Appeal No. 234 to 236(G) (A. No. 419 to 421(G) No. 25/85 to 27/85) dated 23-6-1986 passed in three appeals by Collector of Central Excise (Appeals), Madras and the appellants have sought for restoration of order-in-original No. 29/85 dated 27-9-1985 passed by the Assistant Collector of Central Excise, Kakinada. The Collector of Central Excise, Guntur is the appellant.
2. The respondents are a re-rolling mills. They manufacture M.S. round bars from among the re-rollable inputs available to them from the scrap market and raw material in the form of M.S. fabricated rejects received from M/s. Hindustan Shipyard Vizag; M.S. Billets from M/s. Steel Crete Pvt. Ltd., Vizag and M/s. A.P. Steels Ltd., Polancha; ‘Miss Roll’ from M/s. Andhra Steel Corporation, Vizag and inputs received by them from ship breaking units like M/s. Vizag Shipping & Metal Processors, Vizag and M/s. Ushodaya Shipping Pvt. Ltd., Vizag. The respondents during the various periods of the year 1984 had purchased inputs from various suppliers stated above for manufacture of their product.
2. The officers of the appellants, on their routine check, found that the materials purchased by the respondents, had not been duty paid and hence issued three separate show cause notices to the respondents. The respondents submitted their explanation to the said show cause notices and also appeared before the Assistant Collector, Kakinada and had put forth their case accordingly. The Assistant Collector after examining their case in detail, held that the inputs from various suppliers, other than those supplied by the ship breaking units namely, M/s. Vizag Shipping & Metal Processors, Vizag and M/s. Ushodaya Shipping Pvt. Ltd., Vizag, were not covered under the Notification No. 208/83 dated 1-8-1983 and by his three separate orders, called upon the respondents to pay the excise duty to the extent of materials purchased from these ship breaking units. The respondents being aggrieved by these three orders-in-original, filed three appeals bearing Nos. 234 to 236/86(G) before the learned Collector of Central Excise (Appeals), Madras. The learned Collector of Central Excise (Appeals) by a common order dated 23-6-1986 upheld the contentions of the respondents and allowed the appeals and held that the materials purchased from the ship-breaking units are inputs as recognisable in the Explanation to Tariff Item 25 and further held that on these inputs duty have already been paid. He also held that those of the inputs on which additional duty levied under Customs Tariff Act are clearly recognisable as duty paid stocks. The Collector further held that inputs obtained from breaking of Ocean going ships and having paid additional duty leviable under Customs Tariff Act, the same are allowed to be taken as inputs for the purpose of exemption contained in the Notification under Tariff Item 25. The Collector rejected the contention of the Assistant Collector that such additional duty should be paid under Tariff Item 25 as not maintainable in as much as proper duty has already been paid under the Customs Tariff Act and, therefore, the demands raised for different rates of duty by the Assistant Collector on the materials obtained from the ship breaking units were held as not maintainable by the Collector of Central Excise (Appeals) and hence allowed the three appeals of the respondent by a common order.
3. The Collector of Central Excise, Guntur, being aggrieved by the order of Collector (Appeals) has preferred these three appeals, before this Tribunal. Since a common question of law on facts arise in these appeals, hence they were clubbed together and heard together and a common order is being passed.
4. M/s. Choday Apparaw Steel Re-rolling Mills, Kakinada, the respondent, are manufacturers of M.S. round bars falling under the sub-item 9(ii) of Item 25 of the revised Central Excise Tariff that came into effect from 1-8-1983. The Government of India has issued an Exemption Notification No. 208/83-C.E., dated 1-8-1983 in respect of iron and steel products according to which the finished products M.S. round bars manufactured by the manufacturer falling under sub-item 9(ii) of Item No. 25 would be eligible for exemption from whole of Central Excise Duty leviable thereon only if made from duty paid specified inputs mentioned in Col. 2 at Serial No. 2 of the table to the notification. The specified inputs mentioned therein are sub-item 6(ii) ingots, blocks, lumps and similar form of steel; 7(ii) flooms, billets, lumps and sheet bars (including tin plate bars and hoe bars); 8 pieces roughly shaped by rolling or forging form of steel not elsewhere specified; 9(ii) & (11) Angles, shapes and sections other than slotted angles and slotted channels, rolled, forged, extruded, formed, finished sheet piling or iron or steel whether or not drilled punched or made from assembled elements. Another condition for the eligibility of the exemption contained therein is that such final products are made from inputs on which duty of excise leviable under said Act or the additional duty leviable under the Customs Tariff Act, 1975 (51 of 1975) has already been paid.
5. The records of the respondents disclosed that the description of the materials received from M/s. Vizag Shipping & Metal Processors; M/s. Ushodaya Shipping Pvt. Ltd., Vizag and M/s. P.S. Enterprises, Vizag are given as (i) Re-rollable plate scrap; (ii) Un-serviceable ship scrap; (iii) M.S. fabricated rejects and (iv) M.S. scrap cutting. The materials supplied by others are described as (v) M.S. Billets (vi) Miss Roos (vii) Angle cuttings, Section cuttings (ix) Angle goods and round cuttings (x) Angle Cutting, Sections (xi) Angle cutting (xii) flate shearings. The Assistant Collector held that the items falling in 1 to (iv) above do not come within any of the items of Notification No. 208/83-C.E., dated 1-8-1983. The Assistant Collector’s reasoning is that the ship breaking units are getting the scrap by breaking up of old ships and that they are paying customs duty under Customs Tariff heading 89.04 read with Item 68 of Central Excise Tariff. That they are not paying so far Central Excise duty under Central Excise Item 25. That the entire quantity of re-rollable ship scrap supplied by these two ship breaking units are clearly identifiable as non-duty paid stocks for the purposes of Notification No. 208/83 dated 1-8-1983 and further held that re-rolling ship scrap would attract Central Excise duty at Rs. 330/- per M.T. (B.E.D.) and 10% of B.E.D. as S.E.D.
6. The Collector of Customs (Appeals) as stated earlier, had held that the ship breaking units had paid additional duty leviable under Customs Tariff Act and they are recognisable as duty paid stocks and exempted under the notification.
7. The common question that arises for consideration in these three appeals is as to whether the materials procured from breaking of ocean going unworthy ships for manufacture of M.S. round bars by the respondents, attract the exemption under Notification No. 208/83-C.E., dated 1-8-1983. The main ground urged by the appellants in their Memo of appeal is that the activity of ship breaking is considered as ‘manufacture’ under Section 2(f) of Central Excises and Salt Act, 1944 and Iron scrap results on account of such manufacturing process. That scrap is entirely different in characteristics from the ship which is subjected to manufacturing process (ship breaking). The iron and steel known in the commercial parlance as scarp is entirely distinct from the ship and is leviable to Central Excise Duty under Tariff Item 25 of Central Excise Tariff. The further ground made out is that the iron scrap was purchased and cleared from the ship breaking unit without payment of Central Excise duty by the respondents. As such, the Department has correctly held that this iron scrap was clearly non-duty paid stock which disentitled the respondents from the duty exemption benefit under the Notification No. 208/83-C.E., dated 1-8-1983. The customs duty is paid on the ship and no additional duty is paid on scrap arising from ship breaking. The respondents have not produced any documents/information leading to the nature of payment of duty on the inputs and hence the appeals are to be allowed and the order of the Assistant Collector to be restored.
8. Shri V.M. Doiphode, the learned Departmental Representative appearing for the Department, reiterated the grounds of appeal and further argued that the duty has not been paid on scrap. The respondents have purchased scrap from the ship breaking units. The custom duty has only been paid on the ship and not on the scrap arising as a result of ship breaking. The activity of ship breaking is a manufacture and on the scrap received from such ship breaking is an input and duty is leviable on it. The custom duty, if at all, paid on the ship before breaking; it, cannot be said to have been paid on scrap retrieved from such ship-breaking. The scrap has not been purchased from the market and hence is not entitled for exemption.
9. Shri P.S. Bedi, Consultant appearing for the respondents, countered the arguments of the Department by relying upon the replies made earlier in respect to the show cause notice by the Assistant Collector and submitted that the inputs procured from the ship breaking units are not scrap but bars, rods and rolling materials. The scrap is meant for melting while the inputs in question have to be re-rolled and not melted. He further relied on a order issued by the Board in Central Excise Tariff, 1983 by which re-rollable materials available in market is not chargeable to duty. Shri Bedi further submitted that these materials are ‘nil duty” inputs and not non-duty materials. He further argued that all materials available in the market are either duty paid or ‘nil duty” materials. These materials which are ‘non-duty’ materials are liable for seizure by the Department. As the Department has not seized these materials, it only indicated that they are ‘nil duty’ materials and inputs. The ship breaking units have already paid customs duty before breaking the ships and it follows that on the materials retrieved from such ship breaking, duty is deemed to have been paid. Shri Bedi sought for upholding the order of the Collector (Appeals) and urged that the inputs are all exempted under Notification No. 208/83 and that the Collector was right in rejecting the contention of the Department.
10. Shri Bedi relied on the judgment rendered in the case of Collector of Central Excise v. Kapsons Electro Stampings [1988 (37) E.L.T. 323] of this Tribunal wherein it is held that the goods available in market are all duty paid goods and that the Collector (Appeals) has rightly held the materials as inputs available in the country openly and duty paid ones.
11. In reply to the arguments of Shri Bedi, Shri Doiphode, reiterated the contention of the Department that the materials are merely scrap and not angles and hence liable for duty and not for exemption under Notification No. 208/83. Shri Doiphode while distinguishing the above citation submitted that the judgment referred to does not apply to the facts of this case and further relying upon the judgment in the case of Mysore Metal Industries v. Collector of Customs, Bombay [1988 (36) E.L.T. 369 SC] that the burden of proof lay on the party to prove that the exemption in the notification is applicable to them.
12. We have heard both the sides, examined the contentions and gone through the records. The dispute in all the three appeals is whether the benefit of Notification No. 208/83-C.E., dated 1-8-1983 is admissible in respect of M.S. round bars cleared by the respondents during the period from 1-1-1984 and which were manufactured out of re-rollable scrap supplied by M/s. Vizag Shipping & Metal Processors, Vizag and M/s. Ushodaya Shipping Pvt. Ltd., Vizag. The Assistant Collector of Central Excise has observed that re-rollable scrap used in the manufacture of M.S. round bars has arisen out of breaking up of old ships. He has held that the ship breaking unit did not pay Central Excise duty on the re-rollable scrap under Central Excise Tariff Item 25 and hence the entire quantity of such scrap supplied by these two ship breaking units is clearly identifiable as non-duty paid stock for the purpose of Notification No. 208/83-C.E., dated 1-8-1983. Accordingly, he has demanded Central Excise duty on the M.S. round bars in question. The Collector (Appeals) has held that in so far as the inputs have paid duty under the Customs Tariff Act, they are clearly recognisable as duty paid stock. He has, therefore, set aside the order of the Assistant Collector. Under Notification No. 208/83-C.E., dated 1-8-1983, the Central Government exempted the final products specified in Column (3) of the table appended to the Notification and falling under Item 25 of the First Schedule to the Central Excises and Salt Act, 1944 from the whole of duty of excise leviable thereon under Section 3 of the said Act provided that such final products are made from any inputs of the description specified in the corresponding entry in Column (2) of the said table and falling under the said Tariff Item 25 on which duty of excise leviable under the Central Excises and Salt Act, 1944 or the additional duty of Customs under the Customs Tariff Act, 1975 as the case may be, has already been paid. Explanation below this notification says that for the purposes of this notification all stocks of inputs in the country except such stocks as are clearly recognisable as being non-duty paid, shall be deemed to be inputs on which duty has already been paid. In the present case, the ship breaking units paid customs duty on the ship under Heading 89.04 and additional duty of customs under Item 68 of the Central Excise Tariff. The inputs which arise out of the ship breaking fell under Central Excise Tariff Item 25 and such inputs in the present case have not discharged the Central Excise duty under that Tariff Heading. What the ship breaking units have paid is the additional duty of customs equivalent to Central Excise duty on the ship under Tariff Item 68 of the Central Excise Tariff. Therefore, the inputs are clearly recognisable as non-duty paid for the purpose of this Notification. The condition laid down in the proviso to the aforesaid notification is not, therefore, fulfilled. Hence, the benefit of notification is not applicable to the M.S. round bars manufactured by the appellants out of the inputs supplied by M/s. Vizag Shipping & Metal Processors, Vizag and M/s. Ushodaya Shipping Pvt. Ltd., Vizag. The inputs supplied by these two suppliers out of ship breaking do not stand on the same footing with the other inputs purchased from the market. There is no material before us to hold that the inputs purchased from the market are identifiable as non-duty paid, whereas the inputs supplied by the above two suppliers are clearly identifiable as non-duty paid as it is an admitted fact that Central Excise duty under Item 25 of the Central Excise Tariff was not paid thereon. In the circumstances, we set aside the inpugned orders of the Collector (Appeals) and allow all the three appeals filed by the Revenue.