By TIOL News Service

ALLAHABAD, AUG 14, 2013: ALBERT David Ltd., the appellant, is engaged in manufacture of goods including intravenous fluids (IV Fluids) falling under the Chapter 30 of the Central Excise Tariff Act, 1985. During the course of manufacture (iv fluids) by form fill and seal technology plastic scrap is generated as waste. The appellant availed exemption on clearance of waste and scrap under notification No. 89/95-CE dated 18th of May, 1995. The stand of the appellant that waste and scrap are exempt was not accepted by the department on the ground that the appellant was also manufacturing exciseable goods other than the exempted goods. The case of the department is that the exemption under the aforesaid notification is not applicable to units where exciseable goods other than the exempted goods are also manufactured.

A show cause notice dated 1st of June, 2001 was served on the appellant on the ground that the appellant has wrongly availed the CENVAT credit on plastic granules equivalent to the quantity cleared by them as wastes and scrap. Through the said notice, a sum of Rs.22 ,58,960 /- was payable by the appellant for wrongly availing exemption. The reply to the show cause notice did not find favour with the Commissioner of Central Excise, Meerut who vide order dated 30th of March, 2002 upheld the show cause notice by holding that the wastes and scrap was generated during the course of manufacture of (iv fluids) and as such wastes and scrap is not final product of the appellant. This order was challenged in appeal before the Customs, Excise and Service Appellate Tribunal. Before the Tribunal there was a difference of opinion between the member (judicial) and member (technical) of the Tribunal and the matter was referred to a third member. By the order of majority the Tribunal held that Cenvat Credit is not available to the appellants.

Hence the present appeals before the High Court.

The two substantial questions of law before the High Court were :-

(1) Whether in view of the admitted fact that plastic scrap generated in the manufacturing process has been treated as final product by the department on which the Excise duty has been demanded by the department and paid by the appellant under Central Excise and Tariff Entry No.39.15 , hence the appellant was entitled for the Cenvat Credit under Rule 57AA ?"

(2) Whether in view of the Circular issued by the Central Board of Excise & Customs dated 29th August, 2000 clarifying that Cenvat can be utilized for payment of duty on waste and scrap since they are final products within the definition of the word final products under Rule 57 AA (c) of the Rules, hence the Tribunal was not justified in denying the benefit of Cenvat Credit duty paid on in puts used in the manufacture of final products namely, the plastic scrap?"

The High Court observed,

"The majority view of the Tribunal proceeds on the footing that the appellant is not entitled to the Cenvat Credit in case the final product is exempt from the payment of duty. There appears to be no quarrel to this proposition. But here is a case where one of the final products of the appellant is exempt from the payment of duty. At the same time, the department is charging the duty on the plastic scrap generated in the manufacturing of product which is exempt from the payment of duty. It could not be disputed by the counsel for the department that the waste of plastic is liable to duty at 16 per cent under tariff Entry no.39.15 of the first schedule of the Central Excise Tariff Act. The appellant submitted that on clearance of waste and scrap of plastic, duty @ 16 per cent has been paid under the aforesaid tariff heading no.39.15."

The High Court referred to a Board Circular dated 29th of August, 2000, its clause-6 in particular which reads as follows :-

6. Some references have been received seeking clarification whether CENVAT credit can be utilized for payment of duty on waste and scrap. The answer to this query lies in the affirmative for the simple reason that waste and scrap are "final products" within the definition under Rule 57 AA (c).

and observed, "The above circular issued by the department supports the contention of the appellant and the said circular is relevant being contemporaneous exposition by competent authority. Although reference was made to certain decisions of the Apex Court holding that such circulars issued by the department which are against the department and favours the assessee /manufacturer is binding on the department. It is not necessary to burden this judgment by referring them.

In view of the fact that the waste and scrap is final product and exciseable item, taking into consideration the scheme of CENVAT Credit, it is but obvious that the appellant is entitled to claim CENVAT Credit on the inputs of plastic granules proportionate to the waste and scrap. The Tribunal lost the sight of this aspect of the matter."

Held : it is held that the appellant was entitled for CENVAT Credit under Rule 57AA of the Central Excise Rules on proportionate plastic granules which generated the scrap in the manufacturing process of intravenous fluids (IV Fluids).

The impugned orders holding that the appellant is not entitled for CENVAT Credit on waste and scrap are incorrect in law.

(See 2013-TIOL-621-HC-ALL-CX)