ORDER
S. Kalyanam Member (J)
1. Stay – Since we propose to dispose of the appeal itself today on a short question of law, we grant waiver of pre-deposit of duty and penalty pending disposal of the appeal today.
2. Appeal. – The appeal is directed against the order of the Collector of Central Excise, Cochin dated 16-8-1993, directing the reversal of Modvat credit in a sum of Rs. 2,11,812/- on the waste/scrap of Graphite Electrodes used as an input by the appellant in the manufacture of Calcium Carbide for the period July 1989 to Feb. 1991, by issue of show cause notice dated 12th April, 1992 by invoking the longer period of limitation in terms of proviso to Section 11A of the Central Excises and Salt Act, 1944, the ‘Act’ for short, read with Rule 57-1 of the Rules.
3. Shri Vadhwan, the learned Consultant for the appellant at the outset submitted that initially the Department joined issue with the appellant on the question as to whether the Graphite Electrodes was an input at all eligible for Modvat credit and this issue was resolved in favour of the appellant by the order of the Collector of Central Excise (Appeals), Madras dated 30-3-1988. Now in the present case when credit has been taken on Graphite Electrode as inputs; in respect of the waste generated out of the same, the Department has initiated proceedings for reversal of the credit proportionately attributable to the waste generated in the use of the Graphite Electrode as input and assailed the correctness of the finding. The learned Consultant contended that under the scheme of the Central Excise Act, the waste generated out of the input in question is not an excisable commodity and notwithstanding the fact that a specific plea was taken expressly in the reply to the show cause notice, the same has not been traversed, much less considered and a finding given. The learned Consultant further submitted that even in terms of Rule 57D(1), the Department cannot call upon the appellant to reverse Modvat credit in respect of waste generated in the course of using an input entitled to Modvat credit under the Modvat scheme. Finally it was urged that there was no suppression at all on the part of the appellant and, therefore, the Department cannot invoke the longer period of limitation. In support of his plea the learned Consultant submitted that the Departmental authorities have been periodically visiting appellant’s factory and scrutinising the records and, therefore, the entire manufacturing activities of the appellant were known to the Department, including the sale proceeds of scrap.
4. Shri Gregory, the learned SDR contended that waste generated is liable to excise duty and has been admittedly sold in some quantity and therefore, is proved marketable on the showing of the appellant itself. Therefore, the credit taken in regard to the same is liable to be reversed, inasmuch as the appellant did not follow the procedures in terms of Rule 57F(4) of the Act under the Modvat Scheme. The learned SDR submitted that fire appellant also did not keep the Department informed about the sale of the goods in question, rendering them liable to be proceeded against on grounds of suppression by invoking the longer period of limitation.
5. We have carefully considered the submissions made before us. On going through the entire records we find that no finding has been given in the impugned order in regard to the specific plea of the appellant in regard to the non-excisability of the goods in question. Be that as it may, prima facie the reading of Rule 57D(1) of the Act would bear out that “credit of duty in respect of any input shall not be denied or varied on the ground that part of the input is contained in any waste, refuse or by-product arising during the course of the manufacture of the final product, whether exempted or not”. Be that as it may, we would like to note that the appellant has admittedly sold certain quantity of the waste and the question of excisability has to be looked into and considered from this perspective of its marketability. We do not have enough records to go into the question as to whether the appellant was guilty of suppression in not disclosing the relevant facts to the Department. Therefore, without expressing any opinion on the merits of the issue, inasmuch as a finding has not been given on the plea taken by the appellant in the impugned order, as set out above, we set aside the impugned order and remand the matter to the original authority for reconsideration of the issue in accordance with law, after affording the appellant a reasonable opportunity of being heard. Ordered accordingly.
V.P. Gulati, Member (T)
6. I observe that the learned lower authority has ordered the recovery of the Modvat credit for the reason that the appellant had not followed Rule 57F procedure in regard to the clearance of the waste generated in the course of manufacture of the notified finished product. The Modvat credit sought to be reversed is equivalent to the amount of the input contained in the waste generated. I observe that various Rules have been framed for Modvat purposes with reference to the various stages envisaged and which have to be taken into consideration for the purpose of allowing the Modvat credit and recovery in case the same has not been properly taken. Rule 57A permits taking of Modvat credit in respect of notified inputs and the procedure for taking Modvat credit has been set out in Rule 57G. It is not in dispute that the appellant was eligible for Modvat credit taken by them. Once Modvat credit has been taken the next stage is the utilisation of the same. It is also not in dispute that the appellant had utilised the Modvat credit in respect of the notified finished product. The issue has arisen only in the context of the waste generated. So far as the Modvat credit taken in respect of the inputs contained in the waste is concerned Rule 57D clearly envisages that there could not be any variation or recovery of the Modvat credit for the reason that some of the inputs on which the Modvat credit was taken are contained in the waste product. The Rules have separately provided as to how the waste has to be treated. Rule 57F(4) stipulates the removal of the waste either on payment of duty or for destruction of the same. In the present case, admittedly the waste was cleared out of the factory. All that the authorities, therefore, can demand from the appellant is the duty which is liable to be paid on this waste, treating, it as a waste based on its price and the tariff heading under which the waste falls. For this purpose, classification of the waste, its excisability and also determination of the tariff heading under which this will fall will have to be taken into consideration and this not having been done, I hold that the ld. lower authority’s order is not a proper one and therefore, the same has to be set aside and the matter remanded for de novo consideration of the issue afresh and order accordingly.