ORDER
Sidharath S. Sekhon, Member (T)
1(a). The above appeals have come up before this Bench on reference. In view of the differences in views held by Western Regional Bench, (WRB) and Southern Regional (SRB). Before discussing the controversial issue and the present scenario, it would be interesting to know the background of this issue with the Departmental instructions and relevant case laws in brief on the subject.
(b) As per Rules 57F(4) [old rule 57F(2)] of Central Excise Rules, 1944 the inputs can also be removed as such or after they have been partially processed by the manufacturer of the final products to a place outside his factory under the cover of a challan specified in this behalf by the CBE&C, for the purpose of test, repair, refining, re-conditioning or carrying out any other operation necessary for the manufacture of the final products or for manufacture of intermediate products necessary for the manufacture of final products and return the same to his factory. (This shall be done only after debiting an amount equal to ten per cent of the value of such inputs or, as the case may be, the partially inputs declared by him on the challan under which such inputs or partially processed inputs are cleared from his factory).
(c) Rule 57F(18) [old Rule 57F(4)] provided that any waste, arising from the processing of inputs, in respect of which credit has been taken may be-
(i) removed on payment of duty as if such waste is manufactured in the factory; or
(ii) destroyed in the presence of the proper officer on the application by the manufacturer and if found unfit for further use, or not worth the duty payable thereon, the duty payable thereon being remitted.
(d) The first clarification on this issue was given by the Board way back in the year 1988 vide its Telex F. No. 261/76/88-CX. 8, dated 4-10-1988 addressed to all Collectors in relation to erstwhile Rule 57F(2). The question was raised before the Board whether Turnings and Borings arising during the processs of manufacture of pistons out of Aluminium ingots in respect of which Modvat credit is taken can be removed under Rule 57F(2) without payment of duty or not for reconversion into ingots. The Board clarified vide above Circular that the Turnings and Borings of Aluminium are neither inputs as such nor partially processed inputs and hence their removal under the provisions of Rule 57F(2) without payment of duty will not be in order and they can only be removed on payment of appropriate duty.
(e) Subsequently, Board vide Circular No. 15/89 issued vide F. No. 261/76/2/88-CX.8, dated 19-4-1989 permitted clearance of scrap of Aluminium as above under Rule 57F(2) for converting the same into the Aluminium ingots and return thereof for subsequent manufacture of pistons. The said instructions were made applicable mutatis mutandis to Zinc Scrap arising during the manufacture of zinc products also. (Circular 267/48/90-CX. 8, dated 21-6-1990).
(g) The issue was re-examined by the Board apparently in the light of recommendations made by the 3rd North Zone Conference and in the light of Tribunal judgment dated 6-8-1991 in the case of Nucon Inds. Pvt. Ltd. -1992 (59) E.L.T. 122. In this said decision, the Tribunal held that Rule 57F(2) [now Rule 57F(4)] is applicable only for removal of the inputs as such or after they have been partially processed. Scrap generated during the course of manufacture of the inputs cannot by itself be treated as input nor as partially processed inputs and as such this has to pay duty in terms of Rule 57F(4) [now Rule 57F(18)j.
(h) The Board, therefore, withdrew the instructions issued vide Circular dated 19-4-1989 and 21-6-1990 and clarified that removal of waste and/or scrap of any kind outside the factory should be allowed only under the provisions of Rule 57F(4) and directed to Collectors that any permission granted to this effect may please be withdrawn. (Refer Circular No. 2/93-CX. 8, dated 12-1-1993)
(j) The decision of the Tribunal in:-
A. favour removals under Rule 57F(2).
Waste and scrap being not a new product coming into existence but emerging as remnants of the inputs when sent for reconver-sion into ingots themselves, the same would fall within the purview of Rule 57F(2) and provisions of Rule 57F(4) need not be resorted to. So long as the Department was satisfied that the scrap generated had been sent to job worker and the processed goods had been returned, there was no purpose in recovering the duty and again giving it as credit. The demand for duty could be confirmed only if there was a diversion of generated scrap for any other purpose.
This views were held by the CEGAT (WRB) in the case of Chloride Industries Ltd. – 1993 (63) E.L.T. 633 order dated 2-9-1992 and Press N. Forge -1994 (74) E.L.T. 894 order dated 15-4-1994.
B. endorsing removals under Rule 57F(4) only on payment of duty.
(i) It was held that Aluminium scrap sent to job worker is not a case covered by Rule 57F(2) but by Rule 57F(4)(a). (India Piston Ltd. -1994 (51) ECR 353 SRB – Order dated 10-1-1994).
(ii) Relying on Nucon and Indian Pistons, it was held that clearance of such scrap would be covered by Rule 57F(4) and would not come within the mischief of Rule 57F(2) as admittedly what was cleared from the appellant’s factory was not duty paid inputs but waste generated during the processing of inputs in the course of manufacture of end product. (Madras Electrical Conductors (P) Ltd. -1995 (61) ECR 641 SRB order dated 4-7-1995).
(iii) The Bench observations in this case are worth noting. The Bench held that these provisions of the rules are to be interpreted on their own terms. Rule 57F(4) specifically provides for the manner in which the waste arising as a result of processing or use of inputs has to be treated for excise purposes. Under Rule 57F(4) there are three modes for the same provided under the Rule is ‘either it has to be cleared on payment of duty or without payment of duty if it is cleared for certain notified purpose as notified purpose as notified or be destroyed’. Once the product obtained after the use of input is identified as waste, in law the same can be cleared and dealt with only in the manner above. That the waste is to be recycled does not take away its character as waste for the purpose of treatment in terms of Rule 57F(4). By virtue of recycling of waste, it cannot be acquire the status of input (in this case it was noted that the decision in Chloride Industries was passed without having the benefit of the earlier order in Nucon Industries) C.C.E., v. Mercury Fittings -1996 (86) E.L.T. 285 (SZB) order dated 8-4-1996.
(iv) in the case of Triton Valves -1997 (89) E.L.T. 233 SZB – order, dated 5-7-1996 it was held that facility under Rule 57F presupposes payment of duty and as such scrap cleared thereunder to be removed only after payment of duty.
(g) Vide order dated 30-7-1988 in the case of CCE. v. Indian Steel and Allied Industries – 1999 (113) E.L.T. 209, West Zonal Bench referred this matter to Larger Bench in view of conflicting decisions of various Benches of Tribunal relying on Mercury Fittings and referring to Chloride Industries and Nucon Industries. The contention of departmental representative that where a job worker to whom the scrap is sent for making rods, availing of a small scale exemption Notification and does not avail of Modvat credit would be detrimental to department’s revenue is sound was appropriated. It was further held that the decision of Chloride Industries requires reconsideration. However, this case is not listed before us.
(k) In subsequent matter in the case of C.C.E. v. EX Protecta – 1999 (112) E.L.T. 76 (WZB) – order dated 20-4-1999 relying on Chloride Industries. It was held that generated scrap sent for reconversion into ingots and utilised the same as inputs is in order under Rule 57F(2) as such process being process of reconditioning of inputs and that no specific meaning is given to the word “recondition” for the purpose of interpretation of the Rules. (It seems the earlier decision in the case of Indian Steel was not brought to the notice of the Hon’ble Member in this case).
(1) Latest decision in the case of Maharaja Engg. -1999 (35) RLT 800 B-l order dated 30-7-1999 held that benefit of Notification No. 214/86-C.E. is not available as it covers only inputs of semi-finished goods received as such and sent to job worker.
(m) In the cases listed before us the case in Appeal No. E/733/93-Bom. Wyeth Laboratories Ltd. v. C.C.E. the issue involved is “reconditioning” (reprocessing of catalyst) being got conducted under the provisions of Rule 57F(2) while in the other cases the issue is not involving catalyst but involves the issue of inputs processed which cannot be further processed into the desired final end product.
2. The matter was heard, when ld. Counsel Shri J.R. Cama in Appeal No. E/732/93, Shri V. Lakshmikuraman, ld. Counsel in Appeal No. E/135/94-Mad., E/113/94-Mad., E/278/95-B and Shri Dilip Vasudevan, ld. Counsel in the case of E/171/95-CAL appeared and Shri Sanjeev Srivastava, ld. D.R. appeared for the Revenue.
3. After considering the submissions made by both sides and the materials on records it is found :-
(a) Rule 57 F(2) reads as follows :
“(2) Notwithstanding anything contained in Sub-rule (1), a manufacturer may, with the permission of the Collector of Central Excise and subject to such terms and conditions and limitations as he may impose, remove the inputs as such, or after the inputs have been partially processed during the course of manufacture of final products to a place outside the factory: for the purposes of test, repairs, refining, reconditioning or carrying out any other operation necessary for the manufacture of the final product or remove the same without payment of duty under the bond for export, and return the same to his factory for further use in the manufacture of the final product, provided that the waste, if any, arising in the course of such operation is also returned to the said factory;
(b) for the purpose of manufacture of intermediate products necessary for the manufacture of final products and return the said intermediate products to his factory for further use in the manufacture of the final product or remove the same without payment of duty under bond for export, provided that the waste, if any, arising in the course of manufacture of such intermediate products is also returned to the said factory.”
and Rule 57(4) reads as follows :-
“(4) Any waste, arising from the processing of inputs, in respect of which credit has been taken may..,.”
Rule 57D of the Modvat Rules specifies that credit allowed in respect of inputs shall not be denied or allowed on the part of the inputs contained in any waste or refuse or by-product arising during the manufacture.
(b) Words used in these Modvat Rules, like repairing, rejoining, reconditioning, waste, refuse, by-product, are not defined in the Rules.
(c) Reading of these Rules 57D, 57F(2), 57F(4) in the light of common understanding of the words would indicate, that inputs in their course of conversion, or when used in or in relation to the manufacture of the final products, may require reprocessing, reconditioning or any other further processing and due to such partial and final processing can undergo and result in any stage of intermediate goods, by-products; refuse or/and waste.
(c) Commercial prudence and technological feasibility would induce a manufacturer to reconvert, reprocess, recondition and otherwise deal with intermediate goods, by-products, scrap, refuse, waste etc. to obtain maximum targeted production of the final product by utilising the facilities available in his premises or by sending them out on job work to other places. Only when final product is no longer profitable or technologically possible, a manufacturer would treat such resultant stage of by-product, refuse, scrap to be no longer useful and therefore a waste. In this view the word “waste” used in rule 57F(4) has to be understood to denote a form of inputs, after partial, full or reprocessing which could not in a technological/commercially feasible manner be converted to a final product or desired to be converted further. Thus what would be ‘waste’ for a manufacturer, may not be a ‘waste’ in the case of another manufacturer, even in the case of same kind of goods. It is significant to note, that while Rule 57D talks of three stages i.e. waste, Refuse or by- product, Rule 57F(4) only talks of waste. Therefore, it appears, that the framers of the rules have used the word ‘waste’ in Rule 57F(4) to be understood in a limited fashion; this has to be restricted to such converted inputs which are not desired to be used any further, for use, in or in relation to the manufacture of the final product.
(e) Once we give such a meaning to the word ‘waste’ occurring in Rule 57F(4), then inputs, semi-processed, fully processed or converted into any other stage or further form, called by any name, would be covered by the provisions of the Rule 57F(2) used, inside or outside the Modvat credit availers facilities i.e. on job work, provided job work procedures are followed, such movements would be permissible as long as the manufacturer availing the Modvat desires. Rule 57F(2) proviso itself provides that whatever cannot be processed any further on job work, under Rule 57F(2) would be ‘waste’. Such waste would thereafter be dealt with as provided by Rule 57F(4). The rules do not impede the desire of the manufacturer to extract as much final product out of the inputs under Rule 57F(2) as possible or desired. The procedures under Rule could be ‘aborted’ and recourse taken to Rule 57F(4) at a stage, but only at the option of the assessee. The option to exercise the routes available between 57F(2) and 57F(4) procedures remains with the manufacturer and is not lost by a change in form of the input, due to processing.
(f) We, therefore, cannot find any reason to deny the facility of Rule 57F(2) for ‘spent catalyst’ which are recharged by re-processing/reconditioning them further. The following grounds as found by the Commissioner (Appeals) in his order in the case of Wyeth Laboratories Ltd.
“…The catalyst was used in the process but was not itself subjected to any such process. It was a result of process of raw materials that the catalyst became spent and could not be used further. Therefore, in the manufacturing activity under consideration, catalyst was not subject to any process and could not be said to have been processed in the catalyst was the subject of the manufacturing process.”
are not correct. As we find that a catalyst is entitled for input credit under Rule 57A, as no distinctions are made in the Modvat rules between input catalyst or input raw material, no limitations on desire of the assessees of the catalyst under Rule 57F(2) are called for by invoking the route of Rule 57F(4). A catalyst, by its very nature would be subjected to a process or assist in the processing of goods and would get consumed or by its very nature require reconditioning.
(g) When we do not find any provisions of law to impede and raise duty liability at any stage on the assessees efforts/desire to use the inputs in or in relation to the manufacture of the final products. Therefore, Rule 57F(4) cannot be read to be applicable to partially processed inputs or inputs required to be sent for repairs, refining, reconditioning or carrying out any other operation necessary as the case may be, for the manufacture of the final product, as long as procedure of Rule 57F(2) is followed.
4. We, therefore, find the interpretation placed by the West Regional Bench in the Chloride Industries -1993 (63) E.L.T. 633 case to be the correct interpretation of Rules 57F(2) & F(4) and do not find any reason to uphold the contrary view of S.R.B. The Reference is answered as follows :
“It is for the assessee to opt for provision of Rule 57F(2) and comply with the same and the Rules do not bar the route available to him of Rule 57 (2) as long as he complies with the procedure provided therein. Only when the assessee does not want to opt for the same, he would be covered by the provisions of Rule 57F(4) for the inputs which may be remaining with him at any stage of processing/conversion.”
Sd./- Sd./- Sd./- (Sidharath S. Sekhon) (G.A. Brahma Deva) (S.S. Kang) Member (T) Member (J) Member (J) G.R. Sharma, Member (T) 5. I have perused the order proposed by my learned brother, Shri S.S. Sekhon, Member (T). I tried to persuade myself to agree with him but I could not do so for the following reasons :
In sub-para (b) at page 4 of the order, it has been stated that in the Modvat Rules words like waste, refuse, by-product are not defined. However, I note that the waste in regard to metals has a definite connotation and has been defined in chapter note 8(a) to Section XV of the Central Excise Tariff. Note 8(a) reads “Metal waste and scrap from the manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting up, wear or other reasons.”
6. Same meaning has been assigned to waste and scrap under chapter note 6(a) of HSN. At page 987 of HSN under the heading waste and scrap it has been mentioned that the heading covers waste and scrap of iron or steel as defined in Note 6(a) to Section XV. Such waste and scrap of iron or steel is of a miscellaneous nature and generally takes the form of : waste and scrap from the manufacture or mechanical working of iron or steel.
7. At page 988 it has been further explained that waste and scrap is generally used for the recovery of metal by remelting or for the manufacture of chemicals.
8. Reading all this together shows that the waste and scrap in respect of metals is not waste as such because of breakage, cutting up, wear or other reasons and is that part of waste which is used for the recovery of metals by remelting or for the manufacture of chemicals.
9. A somewhat similar clarification was issued by the CBEC in their Circular No. 27/89 dated 21-9-1989 reported in 1990 (47) E.L.T. T13 in which it has been clarified that “The matter has been examined by the Board and it is felt that heading 7204 would not cover an article which could be converted into another article by hot rolling without it being necessary to remelt the metal first. The Board, therefore concluded that heading No. 7204 read with Note 6(a) to Section XV of HSN and Explanatory Notes at pages 987-988 would cover only such waste and scrap as would generally be used for remelting and consequently would not cover re-rollable scrap. Such waste and scrap which is not for re-melting will have to be classified in the other appropriate headings of the tariff.”
10. Thus, we find that for determination whether particular product is waste the various tests set out above are necessary for its classification as waste under heading 72.04. Heading 72.04 according to the classification given by the Board covers metallic waste meant for melting, if it is not used for re-melting purpose but is converted into something else without the process of re-melting then it cannot be waste classifiable under chapter heading 72.04.
11. We also find that Note 6(a) of Section XV of HSN also speaks that only that part is waste and scrap which is not usable as such. Notes on pages 987-988 of HSN further support the view that waste and scrap of metal is generally used for the recovery of metals by re-melting or for the manufacture of chemicals.
12. Analysing the above contentions in the context of what is waste and scrap we come to the inevitable conclusion that waste and scrap of metal is that part which is not usable as such but is used for re-melting or for the manufacture of chemicals. We further note that the waste and scrap cannot be used as such if it is used as such then it is not waste classifiable under chapter heading 72.04.
13. Admitted position is that in the instant case waste has been used for re-melting purposes and was not used as such and, therefore was classifiable under heading 72.04.
14. Now let me examine the provisions of the relevant Rules. Most important question now is whether it will be covered by Rule 57F(2) or Rule 57F(4) of the Central Excise Rules, 1944. Rule 57F(2) has been tracted in the proposed order by my learned brother. Rule 57F(2) permits the manufacturer to remove with the permission of the Collector of Central Excise inputs as such, or after inputs have been partially processed during the course of manufacture of final product at a place outside for the purpose of repairs, refining, reconditioning or carry out any other operation necessary for the final product for the purpose of manufacture of intermediate product necessary for manufacture of final product. Rule 57F(2) provides for removal of inputs as such or after the inputs have been partially processed for purpose of manufacture of intermediate products necessary for manufacture of final product. In the instant case ingot is the input. It is processed. On processing two distinct things emerge. One is termed semi-processed ingot and the second is waste. Semi processed ingots are subjected to further processing to obtain the intermediate product for manufacture of final product. In Sub-rule (2) of Rule 57F, the specific requirement is that the inputs are removed as such or partially processed. Examining ‘waste’ in the light of the above, we find that the inputs on which Modvat credit has been taken is ingots, therefore, the waste is not input as such, therefore, the second issue arises whether it is partially processed input. Now, whether the waste can be called partially processed input or not is the pertinent question which needs to be examined and replied. A partially processed input will be that input which is subjected to further processing for obtaining the final product and not the input. Waste cannot be termed as partially processed input as it cannot be subjected to obtaining intermediate product or final product. It can be used only for re-melting to obtain ingots and thus cannot be termed as partially processed inputs.
15. The Apex Court in a number of cases has held that for the purpose of describing the product the common parlance test should be applied as to how the product is known and traded by those who have specific knowledge. Waste is common term and is known well by the people who deal in it and thus I am not in agreement with my learned brother that the waste generated can be treated as partially processed input because the input in the instant case is ingot and further working of the ingot is partially processed ingot. Thus, the waste generated in the process is neither the inputs nor the partially processed input and hence not covered by the provisions of Rule 57F(2).
16. Now let me examine Rule 57F(4). Rule 57F(4) provides any waste arising from the processing of inputs, in respect of which credit has been taken may be removed on payment of duty as if such waste is manufactured in the factory. Now examining the words used in the Sub-rule, we have to examine whether waste arises in the process or processing of ingots in respect of which Modvat credit has been taken. In the instant case the input is ingot. Modvat credit has been taken of duty paid on ingots. Waste arises in the process of working on the ingots and thus requirement of Sub-rule (4) is fully met. I, therefore hold that removal of waste which is admittedly the melting waste in the present case shall be covered by Sub-rule (4) of Rule 57F and not by Sub-rule (2) of Rule 57F.
17. Here we are not concerned to know as to when a particular product should be treated as waste. In the case of metals, the waste which is not usable as such but is used for melting purpose is a waste and covered by the provision of Sub-rule (4) of Rule 57F. Here we are not required to answer whether a particular product leads to maximum production by using it again and again or the profitability of the process or the product. Nor we are concerned in answering whether particular waste is usable or not. Rules 57F(2) and 57F(4) are very clear and do not lead to any ambiguity. Rule 57F(2) talks of removal of inputs as such or semi-processed inputs whereas Rule 57F(4) speaks of waste. There is no alternative option between Rule 57F(2) and Rule 57F(4). Rules are different covering different situations and different products and, therefore it cannot be held that in the case of waste meant only for re-melting, the assessee has the option to send it for re-melting by taking shelter under Rule 57F(2) and when it no longer is usable for him to pay duty under Rule 57F(4). I, therefore find that the interpretation placed by West Regional Bench in the Chloride Industries 1993 (63) E.L.T. 633 is not the correct interpretation. Reference is therefore answered that there is no option for the assessee to opt either for Rule 57F(2) or Rule 57F(4) for removal of waste generated in the process of working on ingots when the waste is meant only for re-melting and is not usable as such. In the circumstances, removal of waste shall be covered only by the provisions of Rule 57F(4).
Sd./-
(G.R. Sharma)
Member (T)
Dated 11-5-2000
I have had the privilege of going through the orders recorded by ld. brother Shri S.S. Sekhon, Member (Technical) and ld. brother Shri G.R. Sharma, Member (Technical). I express my opinion in favour of the views expressed by ld. brother Shri G.R. Sharma.
Sd./-
(A.C.C. Unni)
Member (J)
Dated 19-7-2000
By majority it is held that :-
“It is for the assessee to opt for provision of Rule 57F(2) and comply with the same and the Rules do not bar the route available to him of Rule 57F(2) as long as he complies with the procedure provided therein. Only when the assessee does not want to opt for the same, he would be covered by the provisions of Rule 57F(4) for the inputs which may remain with him at any state of processing/conversion.”
Reference is answered accordingly and appeals disposed of in above terms.