By TIOL News Service

MUMBAI, OCT 17, 2016: THE issue is whether the appellant is liable to pay Central Excise duty on the waste of Band-Aid generated in the hands of the job worker.

The appellant is a manufacturer of Band-Aid [Heading 30.04] chargeable to Excise duty.

They out sourced the activity of quality inspection by sending Band-Aid under job work challan to the job worker. Job worker, after completion of the inspection of the quality of the goods, packs them and sends it back to appellant along with the shredded unacceptable Band-Aid. The said shredded unacceptable Band-Aid is cleared by the appellant for incineration outside the factory premises.

Revenue wants to tax these clearances of shredded waste.

Both the lower authorities held against the appellant only on the ground that the goods when sent to appellant were already manufactured goods, hence provision of job work is not applicable and, moreover, appellant had not followed the procedure of Rule 21 of CER, 2002 for remission of duty.

Before the CESTAT, the appellant submitted that Rule 21 (remission of duty) is not applicable as the shredded waste of Band-Aid is not excisable. Further, Band-Aid falls under ch. 30 and there being no heading of 'Waste' in Ch. 30, the shredded waste is not excisable. [DSCL Sugar Ltd. - 2015-TIOL-240-SC-CX refers]

The AR reiterated the findings of the lower authorities.

The Bench observed -

++ It is undisputed that the product Band-Aid is falling under chapter 30. As per the provisions of the Drugs and Cosmetics Act, every product which is a P or P medicament, needs to be checked for the quality of the goods to be declared as fit to be used for consumption by human being. In pursuance to such provisions, the Band-Aid are tested in laboratory for acceptability. During the course of such testing, some quantity of band aid are rejected and held to be unmarketable. As per the provisions of Drugs & Cosmetics Act, such rejected Band-Aid cannot be marketed and needs to be disposed of by shredding and incineration. In pursuance of such statutory obligation, appellant shredded the non-marketable Band Aid and cleared the same for incineration.

++ The finished products Band-Aid can be considered finished product only when they packed and certified as fit for dispatch to the market, on approval of the quality control section of the appellant. In the case in hand the quality control has given approval only to the packed quantity received from the job worker. It is in the fitness of the things that the appellant had shredded the unmarketable Band Aid in order to avoid the misuse of the same and cleared the same for incineration. In our view, shredded Band-Aid may not become an excisable product as it is not a manufactured item and is a waste that gets generated during the course of manufacturing and packing of final product "Band-Aid" as the shredded Band-Aid has no market and the product is not marketable.

++ Final product Band-Aid falls under chapter 30, hence any scrap that arises during the course of manufacturing of final product needs to be classified which, in the case in hand, should be under chapter 30; there is no tariff heading for classifying the scrap arising during the course of Manufacturing of Chapter 30, hence in the absence of any classification of the product, demand of the duty is unsustainable.

The impugned order was set aside and the appeal was allowed.

(See 2016-TIOL-2706-CESTAT-MUM)