ORDER
G.R. Sharma, Member (T)
1. Being aggrieved by the orders in Appeal No. E/1979 and 2004/91-NRB passed by the Collector, Central Excise (Appeals) M/s. India Gypsum Ltd. the appellant in this case have filed this appeal. As the two appeals arise out of the same order they are being dealt with by this common order. The Collector (Appeals) in his order had held :-
“I notice that in this case, there is no dispute about the fact that the appellants had applied for destruction of goods in question on the ground that these were unfit for consumption. The order of the Collector of Central Excise, New Delhi remitting the duty involved were subject to certain conditions one of which was that the modvat credit if any taken on the inputs used in the manufacture of the said goods (which were to be destroyed) will be reversed by making a suitable debit entry in RG 23A Pt. II Register. The appellants accordingly debited the relevant sum under protest on account of the inputs credit availed of on the inputs contained in the goods which were destroyed. The decision of the Collector was conveyed by the Asstt. Collector to the appellants under cover of his letter dt. 1-6-1989 in which it was clearly indicated that the modvat credit if any taken on the inputs used in the manufacture of the said goods will be reversed by making a suitable debit entry in the RG 23A Pt. II Register of the appellants. These conditions were imposed by the Collector in terms of the authority granted to him under Rule 49 of the Central Excise Rules. Therefore this is a decision by the Collector under the provisions of the Central Excise Rules and all that the Asstt. Collector did is to go by this decision of the Collector only since the destruction was allowed subject to certain conditions one of which was the reversal of the modvat credit. Therefore, unless the said decision is appealed against and annulled by the higher appellate authority, neither the Asstt. Collector could change it nor is it within the competency of the Collector (Appeals) to sit in judgment over the decision of the Collector. The appellants claimed that they reversed the modvat credit under protest. This does not make the decision by the Collector invalid. The appellants had agreed to the destruction and thereby impliedly complied with all the conditions that accompanied the order of the destruction. For, otherwise, the destruction itself would not have been allowed by remitting the duty amount if any, if the condition was not complied with. If they are aggrieved by such a decision, they should have at least filed an appeal before the competent authority and thereby got a final decision thereon. Having not done so they had deprived themselves of their right to question the same decision before a lower authority by claiming the refund. If the Asstt. Collector would have allowed the refund claim, it would have meant that the conditions imposed by the superior authority was negatived by a subordinate authority which is neither legal nor proper. Therefore, the rejection of the refund claims, in any case, is sustainable in law. The appeals thus fail on this ground itself. I, therefore, confirm the order of the rejection of the refund claims and reject the appeals.”
2. Briefly stated the facts of the case are that M/s. India Gypsum Ltd. had filed refund claims for Rs. 14,720.16 and Rs. 5,314.72 on the ground that the appellant had debited Modvat credit in respect of inputs used in the manufacture of Gypsum Board which was destroyed as per the orders of the Asstt. Collector, Central Excise under Rule 49 of the Central Excise Rules, 1944. The Department was of the view that as the item destroyed was a final product and therefore the concession under Rule 57D was not applicable to them, whereas the appellant contended that in terms of Rule 57D of the Central Excise Rules, 1944, credit of input duty could not be denied to the appellant as the material destroyed was waste, rejects and defective boards and were fully covered under the provision of Rule 57D of the Central Excise Rules.
3. Ms. Archana Wadhwa, the ld. Advocate appearing for the appellant challenged the findings of the Collector, Central Excise (Appeals) on the ground that it was not open to Collector (Appeals) to take up a point which was dropped by the Asstt. Collector, inasmuch as the Collector (Appeals) had held that, the Collector had permitted destruction of the material under certain conditions and that unless those conditions were complied with by the appellant, the order of destruction could not be implemented and, therefore the ld. Counsel submitted that the ld. Collector (Appeals) had passed the order, was not a speaking order nor did it deal with issues raised. In support of this contention the ld. Counsel relied on the decision of the Tribunal in the case of Foam Rubber Factory v. CCE, reported in 1989 (43) E.L.T. 489 and in the case of Brooke Bond India Ltd. v. CCE, reported in 1983 (13) E.L.T. 1169. The ld. Collector (Appeals) had erred in holding that having not appealed against the order, the appellants have deprived themselves of their right to question the same decision before the lower authority by claiming the refund and that if the Asstt. Collector had allowed the refund claim he would have negatived the conditions laid down by the Collector. On this ground alone the ld. Collector (Appeals) rejected the appeal of the appellant. The ld. Counsel submitted that the ld. Collector (Appeals) findings are not maintainable in law in view of the two decisions cited and relied upon by the appellant.
4. Now coming to the question of rejection of the refund claim, the ld. Counsel submitted that the Collector (Appeals) did not deal with the main issue that is whether the appeal was admissible under the provisions of Rule 57D; that in the instant case the following distinct issues were involved. The first issue was whether destruction under the provisions of Rule 49 of Central Excise Rules, 1944 where Collector had prescribed certain conditions would debar the appellant from claiming the benefit under any other rule; the second issue was whether the Collector could prescribe the conditions in contravention of the previsions of Rule 57D; the third issue was whether the goods which were destroyed in the presence of Central Excise Officers could be treated as waste material under the provisions of Rule 57D.
5. The ld. Counsel submitted that in so far as the question of destruction is concerned, the ld. Collector had permitted destruction of the material on the condition that Modvat credit on the inputs used in the final product permitted to be destroyed is reversed; that this condition prescribed by the ld. Collector while allowing destruction of the goods was in contravention of the provisions of Rule 57D and that this order of the Collector was not legal and was not in conformity with the requirement of Rule 57D. The ld. Counsel therefore submitted that the Collector was not competent to impose a condition which was in violation of the provisions of another rule.
6. Explaining that the goods permitted to be destroyed by the ld. Collector were in the form of waste material, the ld. Counsel submitted that there is a catena of decisions of the Tribunal in which the Tribunal had held that Modvat credit of inputs need not be reversed in case the final product is defective, damaged and not fit for marketing. In support of this contention, the ld. Counsel cited and relied on the decision of the Tribunal in the case of CCE v. Mysore Polymer and Rubber Products (P) Ltd., reported in 1990 (48) E.L.T. 294 and in the case of CCE v. Srichakra Tyres Ltd. reported in 1990 (50) E.L.T. 314. Summing up her arguments the ld. Counsel submitted that the appellant was entitled to claim refund and therefore, prayed that the impugned orders may be set aside.
7. Shri B.D. Bhagat, the ld. JDR, appearing for the respondent submitted that Rule 49 read with interpretary rules clearly shows that even semifinished products are final products and that once the Collector had allowed destruction of the goods under certain conditions and one of the condition was that the Modvat credit on that portion of the inputs which was used in the manufacture of the goods allowed to be destroyed should be reversed, this condition should have been observed by the appellant; that since this condition was not observed, therefore, the lower authorities had rightly rejected the refund claim. The ld. JDR also submitted that remission of duty on the goods destroyed coupled with the remission of duty on the inputs used in the manufacture of these goods will amount to creating bonanza for the appellants which he contended was not the intention of the framers of the law, that is why there is a specific provision under Rule 49 that the Collector may prescribe certain conditions while permitting destruction of the goods. Referring to the order of the Collector (Appeals) that appeal proper should have been filed against the order communicated by the Asstt. Collector, the ld. JDR submitted that the ld. Collector (Appeals) had rightly taken this point and rejected the appeal.
8. Heard the submissions of both sides and considered them. In the instant case, we find that goods were damaged defective and not up to the standard and therefore permission for destruction thereof was sought by the appellants and granted by the Collector. The Collector had granted the permission under certain conditions, under the provisions of Rule 49. The condition prescribed by the Collector was to reverse the credit of input duty used in the manufacture of the goods offered for destruction. On this point, the ld. Counsel argued that under Rule 57D of the Central Excise Rules, 1944 it has been specifically provided:
1. “Credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse or by-product arising during the manufacture of the final product, (other than those cleared either to a unit in a free trade zone or 100% export oriented unit); whether or not, such waste, refuse or by-product is exempt from the whole of the duty of excise leviable thereon or chargeable in Nil rate of duty or is not specified as a final product under Rule 57A.”
The ld. Counsel argued that in terms of this clear provision of the Rule, the Collector was not competent to prescribe that condition and that condition ab initio was illegal and without jurisdiction. The ld. Counsel, therefore, pleaded that the short issue for decision before the Tribunal was whether the item destroyed under the provision of Rule 49 of Central Excise Rules could be termed as waste, refuse or by-product arising during the course of manufacture of the final product. Elaborating it further, the ld. Counsel submitted that what they-had applied for destruction was waste rejects, defective pieces and pieces of sub-standard quality which were not marketable and, therefore, could be termed as waste or refuse. In support of this contention the ld. Counsel relied on the decision of the Tribunal in the case of CCE v. Mysore Polymer and Rubber Products (P) Ltd. The Tribunal had held :-
“6. It is observed that the provisions in Sub-rule (2) to Rule 56A by Explanation makes available the credit in respect of inputs which may be contained in the waste, refuse or by-product came into force sometime in 1981 and this provision has been specifically made to take care that the assessees may not be required to vary the credit because some waste, etc. arise during the process of manufacture. The term ‘during the process of manufacture’ has to be understood with reference to the various processes which take place culminating in the production, in the end, of the product in respect of which benefit under Rule 56A was allowed. Any defective product, which is accepted by the authorities as not marketable and product, has to be considered as waste. A defective tyre and tube emerges because of some defect left in the product during the process of manufacture and hence it has to be considered that the cut tyres and tubes which are cleared, are the result of the activity during the manufacturing process. The departmental authorities themselves in the context of Modvat credit under Rule 57D(1), as evidenced by the Trade Notice No. 197/89, dated 20-10-1989 of Karnataka Collectorate, have taken this view. The explanation added to Sub-rule (2) of Rule 56A of later date and it is to give relief to the manufacturers who, no doubt, had utilised the inputs in the manufacturing stream for the intended purpose of manufacturing the end-product for which the credit had been allowed, but because of some defects in the manufacturing process or because of the inherent nature of the activity has to lose a part of the inputs in the waste and by-products etc. In the face of the specific relief given, I hold that any defective product which emerges in the manufacturing process has to be given the status of waste or by-product and the credit to be taken in respect of the inputs contained therein has to be taken to be available to the appellants. In view of this I find no infirmity in the lower appellate authority’s order and I uphold the same and dismiss the appeal of the Revenue.”
9. In the case of CCE v. Srichakra Tyres Ltd., the Tribunal had held :-
“4. We have considered the submissions made before us. Division Bench of the Delhi High Court in Modi Rubber case cited supra, has observed as under :-
“It cannot however be said that waste/scrap is the result of any treatment or any labour or any manipulation by the petitioner Company whereby a new and different article emerges. At various stages of the manufacture of tyres, tubes, flaps and other rubber products which are admittedly goods manufactured, rubber cutting and waste is generated and comes into existence. The process whether essential or incidental or ancillary to fall within one ambit of the expression ‘manufacture’ is one which must have some relation to the manufacture of a finished product. The waste scrap is obtained not by any process of manufacture but in the course of manufacturing process to produce the end product of tyres, tubes, flaps etc. The waste/scrap is obtained in the course of manufacture and not out of manufacture of the end-product. In our “- opinion, it is not as a result of the manufacture because no’ one would produce any such deregarding or even inferior thing. If the raw material of rubber compound has undergone some change in the process of manufacture so as to turn into waste or scrap, it cannot be equated with finished product. There is a change in the raw material is not manufacture. There is no transformation in case of waste/scrap of a new and different article. No one has brought into existence to a new substance having distinctive name, character or use.”
5. This Bench of the Tribunal also in the aforesaid Ruling as held as under :-
“A defective tyre and tube emerges because of some defect left in the product during the process of manufacture and any defective product which is accepted by the authorities as not marketable end-product, has to be considered as waste and the Tribunal further observed that any defective product which emerges in the manufacturing process has to be given the status of waste or by-product and the credit to be taken in respect of the inputs contained therein has to be taken to be available to the appellants.”
6. We also find that the issue has been clarified in the Trade Notice No. 14/MODVAT/89-115/89, dt. 20-11-1989 issued by the Collector of Central Excise, Madurai which reads as under :-
“Admissibility of Modvat credit on ‘cut tyres and tubes’ clarification Regarding doubts had been raised as to whether ‘cut tyres and cut tubes’ would be classifiable under Heading No. 40.04 of the Central Excise Tariff as ‘waste parings and scrap of rubber’ and whether the Modvat credit of duty paid on the inputs going into the manufacture of such cut tyres and tubes in course of manufacture of tyres and tubes would be available under Rule 57D(1) or not.
The matter has been examined. It is clarified that as cut tyres and tubes are not definitely usable as such and are disposed of as waste and scrap it would be appropriately classifiable under Heading 40.04 as mentioned in Note 6 of Chapter 40 of the Schedule to the Central Excise Tariff Act, 1985.
Also it is held that since such cut tyres and cut tubes are nothing but waste and scrap the credit of duty paid on inputs would not be denied or varied on the ground that part of the inputs is contained in such waste/scrap by virtue of Rule 57D(1) of the Central Excise Rules, 1944. This may be brought to the notice of all constituent members of your Trade Association.”
10. Now analysing the facts before us in the light of the two decisions cited and relied upon by the appellant we find that at various stages of manufacture of Gypsum Board which is admittedly the final product manufactured defective and damaged pieces of Gypsum Board are generated. These damaged and sub-standard pieces are obtained not by any process of manufacture but in the course of manufacture to produce the product Gypsum Boards. It can thus be said that the damaged and sub-standard Gypsum Board is obtained in the course of manufacture and not out of manufacture of the end-product. In our opinion therefore, it is not a result of manufacture because no one would manufacture or produce any such damaged or defective pieces. We are, therefore, of the view that these defective pieces of Gypsum Board are nothing but waste and scrap, the credit of duty paid on inputs would therefore, not to be denied or varied on the ground that part of inputs is contained in such waste/scrap by virtue of Rule 57D(1) of Central Excise Rules, 1944.
11. The ld. Counsel challenged the impugned order on the ground that the ld. Collector (Appeals) had erred in holding that the appellants had agreed to the destruction of the goods subject to certain conditions and that if they were aggrieved by these conditions they should have filed an appeal against this order of the Collector. Elaborating her arguments, the ld. Counsel submitted that the orders of the Collector were in the nature of administrative orders and not the orders passed as a quasi-judicial authority; that these orders were conveyed by the Asstt. Collector were not in the nature of quasi-judicial orders and, therefore, there was no question of filing an appeal against this order.
In support of this contention, the ld. Counsel cited and relied upon the decision of the Tribunal in the case of Brooke Bond India Ltd. in which the Tribunal had held :-
“4. For the Revenue, it was not controverted that the assessee was agitating before the excise authorities that there should have been a proper adjudication with regard to the dispute of classification. On the facts before us, we are of the considered view that a proper and speaking order should be passed by the Appellate Collector. We are accepting the appellant’s plea that letter of 30th June, 1975 addressed by the Dy. Collector cannot be considered as an order of adjudication. We could understand if the Appellant Collector has referred to the assessee’s communications filed before the Collector of Central Excise and had come to the conclusion that representations were not correct, but the type of orders which has been passed and which was made the subject matter of revision application before the Government and is, therefore, before us under appeal, cannot be said to be proper.”
The appellant also cited and relied upon the decision of the Tribunal in the case of Foam Rubber Factory v. CCE. In this case the Tribunal had held :-
“The so-called order dt. 18-6-1982 of the Collector is, in fact, a communication addressed to M/s. Foam Rubber Factory by the Superintendent of Central Excise, Adjudication Branch, Hyderabad with reference to the former’s letter dt. 5-6-1982 to the Collector of Central Excise, Hyderabad and informing the factory that the redeemed goods (redeemed in terms of Adjudication Order No. 151/73, dt. 1-11-1973 passed by the Collector of Central Excise, Hyderabad) could not be cleared without payment of duty. The so-called order of the Appellate Collector is a communication from the Supdt. for Collector (Appeals) informing M/s. Foam Rubber Factory that the aforesaid communication of 18-6-1982 was only a communication of the order passed by the Collector and, therefore, the appellate authority was this Tribunal. Evidently this letter cannot be treated as an order against which an appeal lies. The communication dt. 18-6-1982 of the Supdt., Adjudication Branch, Hyderbad, also cannot be treated as an appealable order since it only seeks to convey an order which apparently the Collector had passed. In the circumstances, we are of the view that the purported appeal is not maintainable, which is, therefore, dismissed.”
12. Now examining the matter in dispute, in the light of the decisions in the above two cases cited and relied upon by the appellant, we find that the decision of the Collector was conveyed by the Asstt. Collector had agreed for remission of duty on the goods proposed to be destroyed subject to the condition that the Modvat credit taken on the inputs used in the manufacture of the goods proposed to be destroyed is reversed. We find that this order did not deal with the submissions made by the appellant nor can it be termed as an order passed in an adjudication proceedings and, therefore this communication from the Supdt./Asstt. Collector cannot be treated as an appealable order because it only seeks to convey an order which apparently the Collector had passed. In the circumstances, agreeing with the ratio of the decision in the above two cases we are of the view that the ld. Collector (Appeals) was not right in holding that the appeal should have been preferred against this order. Having regard to the above findings we allow the appeal and set aside the impugned order. Consequential relief if any, shall be admissible under the relevant provisions of law.