JUDGMENT
G.A. Brahma Deva, Member (J)
1. Whether worn out and damaged goods/waste are excisable goods and whether they are chargeable to excise duty is an issue to be considered herein.
2. Shri Rajesh Chander Kumar submitted that the plant was constructed as early as in 1950. Due to lapse of time and in view of wear and tear, some parts became worn out and further due to fire accident, it had necessitated cutting up and removal of damaged parts of the plant which were sold. He said that since no manufacture has taken place, the question of excisability does not arise in the instant case. According to the Department, the metal scrap cleared by the party consisted miscellaneous steel melting scrap, copper-nickel heat exchanger tube scrap, miscellaneous iron and alloy steel scrap, steel scrap-damaged tank plates and structural, aluminium – brass heat exchanger tube scrap and steel scrap-damaged structural. The Commissioner observed that the above said scrap falls under two broad categories namely (1) worn out and damaged parts and equipments which were condemned as scrap (2) Equipment, structure etc. destroyed in fire accident, cut to pieces and removed as scrap. The Commissioner has adjudicated the matter demanding the duty on the above items based upon the statement given by the Manager as appeared in the Show Cause Notice which is as under : –
“5. Shri P.S.N. Murthy, Sr. Manager (Finance), M/s. HPCL (VR), in his statement dated 13-7-98 given before the Superintendent of Central Excise (Headquarters Preventive Unit), stated that :
(a) the scrap in Sale Lot No. 125C consists of old and condemned reactors, vessels, etc., which have been removed from their old Crude Topping Unit (CTU) constructed in late 1950s, (b) the scrap in Sale Lot No. 174 consists of badly damaged Aluminium - Brass tubes of Heat Exchangers in Crude Distillation Unit-I, (c) the scrap in Sale Lot No. 175 consists of badly damaged Copper -Nickel tubes of Heat Exchanger in Crude Distillation Unit-I, (d) the scrap in Sale Lot No. 176 & 193C consists of misc. melting scrap which includes CTU Heater, drums, coolers and exchangers in CDU-I along with the condemned spares and accessories of such equipments no more in usage, (e) the scrap in Sale Lot No. 191 consists of structural steel of maintenance shed, warehouses (both main as well as VRP-I), chemical shed, garage, which were damaged and are not in usable condition due to blast taken place in their refinery on 14-9-97, (f) the scrap in Sale Lot No. 192 consists of steel plates and structural steel of tanks which were destroyed in fire accident."
2. It was the contention of the party that the process of wear and tear which had reduced the usefulness of the articles of metal, cannot, under any stretch of imagination be called manufacture; that the cutting resorted only to remove the worn out parts from a major plant cannot be termed as manufacture; that the destruction of plant due to the fire which had necessitated the cutting and removal of the damaged parts of the plant cannot also be termed as manufacture. Shri Rajesh Chander Kumar, appearing for the appellants submitted that since no manufacturing process has taken place while removing the damaged parts of the plant and the sale of such worn out and damaged parts cannot at any stretch of imagination be called manufacture and accordingly they are not liable to excise duty. In support of his contention, he referred to the following decisions of the Tribunal :-
“1. Diesel Component Works v. CCE, Chandigarh [2000 (120) E.L.T. 648]
2. ACC Limited v. CCE, Bhopal [2001 (133) E.L.T. 375]”
Particularly he drew our attention to the finding portion of the Tribunal in the case of Diesel Component Works as appeared in Para 9, which reads as under : –
“9. 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. Major quantity of the scrap and waste is generated in the course of dismantling of old and damaged locomotives. In the impugned order, Commissioner observed :
“No dispute is involved in respect of the scrap and waste originated during the course of manufacture of parts but the dispute only restricts to the scrap and waste originated in the course of the dismantling of the locomotives. Admittedly, the scrap and waste originated during the course of dismantling of the locomotives is different and distinct item from the locomotives. Such scrap of iron and steel are classifiable under Heading No. 72.04 of said Schedule and that of aluminium is classifiable under Heading No. 76.02. In view of this I am of the opinion that the waste originated during the course of dismantling of the locomotive is also excisable good and the process of dismantling amounts to manufacture.”
The Commissioner proceeded to levy duty on such quantity of scrap and waste relying on the decision of the Calcutta High Court in M/s. S.S. Jain and Co. reported in 1986 (25) E.L.T. 14. 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. The Calcutta High Court was relying on the provisions contained in Heading 72 onwards of the Central Excise Tariff Act which stood at that time in relation to waste and scrap generated by breaking of ships and boats and other floating structures. So the said decision by the Calcutta High Court cannot have any application to the waste generated in the appellant’s factory. Consequently, the said decision of the Calcutta High Court or Note 7 to Section XV of the Central Excise Tariff Act cannot have any application to the facts on hand, 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 metals goods can be subjected to payment of duty. The Commissioner is directed to assess the quantity of waste generated in the process of manufacture and to levy duty on that quantity in accordance with law.”
He also referred to the Paras 12 and 13 of the decision of the Tribunal in the case of ACC Limited, which reads as under : –
“12. With regard to the duty demand on scrap, the submission of the appellant is that duty demand has been made in respect of scrap arising in the dismantling of condemned old machinery. It has been explained that the appellants had sold the condemned machinery on ‘as is where is’ basis. Therefore, no dismantling of the machinery, leading to generation of scrap was carried out by the appellant. The dismantling and removal of scrap were carried out by the buyers of condemned machinery. Further, dismantling of machines is not a process of manufacture leading to emergence of new goods. The ld. Counsel for the appellants also referred to the decision of this Tribunal in the case of Diesel Component Works, Patiala v. CCE, Chandigarh [2000 (120) E.L.T. 648 (T) = 2000 (40) RLT 641] that scrap arising in the dismantling of old railway engines was not liable to duty. For these reasons, the appellants have contended that demand of duty in respect of scrap involved in the present case is not legally tenable. As against this, ld. SDR submitted that, scrap is an excisable item specified in the Central Excise Tariff.
13. This Tribunal has already decided that scrap generated by dismantling of used machinery is not excisable goods. Duty of excise is on new manufactured goods. Dismantling of condemned machinery is not a manufacturing activity bringing into existence new goods. Nor did the appellants dismantle their old machinery and generate scrap. The duty demand in respect of scrap is not tenable.”
3. Shri Rajesh Chander Kumar further submitted that like in the aforesaid cases, in the instant case also the Commissioner has demanded the duty in respect of worn out and damaged waste.
4. Shri Narasimha Murthy appearing for the Revenue drew our attention to the finding portion of the Commissioner wherein it was observed that the above said scraps fall under two broad categories viz. (1) worn out and damaged parts of equipments which were condemned as scrap (2) equipment, structure etc. destroyed in fire accident, cut to pieces and removed as scrap. Shri Narasimha Murthy emphasized the word ‘cut to pieces’ and submitted that since the items were cut into pieces it amounts to manufacture as it was rightly held by the Commissioner and accordingly they are liable to duty.
5. We have carefully considered the submissions made by both sides and perused the records. It was submitted by the Counsel that the items were not cut into pieces after removal as urged by the other side but they were cut for removal of damaged parts of the plant. On going through the facts, we find that the cutting was necessary to remove the goods from the damaged structure. It is not even the case of the Department that the parts were cut into pieces with certain measurement after removal from the plant.
In the facts and circumstances, we are of the view that the ratio of the decisions referred to by the Counsel are clearly applicable to the facts of this case. Following the ratio of the aforesaid decisions, we accept the contention of the party on the issue of excisability and accordingly the appeal is allowed with consequential relief, if any.