Excise Duty Not Payable On Scrap Sent To The Job Workers For Manufacture Of Angles And Channels: CESTAT

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that excise duty is not payable on the scrap that has been sent to the job workers for the manufacture of intermediate products such as angles and channels.

The two-member bench of Sulekha Beevi C.S. (Judicial Member) and Vasa Seshagiri Rao (Accountant Member) has observed that the Department has vaguely alleged that the appellant has suppressed facts with the intention to evade payment of duty. There is no evidence to show that the appellant has done any positive act to deliberately suppress the facts so as to evade payment of duty.

The appellant/assessee is registered as a manufacturer of hand pumps, EB line material, benches, desks, etc. It availed itself of a small-scale exemption under Notification No.8/2003-CE dated 1.3.2003, and after crossing the exemption limit, it cleared the products on payment of duty.

The appellant obtained cenvat credit while paying duties on the finished product. On verification of records, it was found that the appellant had converted steel scrap into angles and channels through job workers, for which purpose they removed scrap under Rule 4(5(a) of the Cenvat Credit Rules, 2004, and gave it to the job worker. The scrap that was sent to the job worker was returned to the appellant as angles and channels. While returning the goods to the appellant, the job worker discharged his duty liability on angles and channels.

The Department was of the view that the appellant ought to have paid duty on scraps while removing them to the job worker. A show cause notice was issued proposing to recover an amount as Central Excise Duty on scrap removed by job workers for the period from September 2008 to February 2010, to demand interest, and to impose a penalty under Section 11AC of the Central Excise Act, 1944.

The appellant contended that at the time of the audit, the audit team was satisfied that the quantity despatched to the job worker had been brought back to the factory as converted into angles and channels. In fact, all the delivery challans were available, and the demand has been quantified on the basis of such challans. Therefore, the show cause notice issued alleging suppression of facts is without any factual basis.

The issue raised was whether the appellant is liable to pay duty on the scrap that has been sent to the job workers for the manufacture of intermediate products such as angles and channels.

The tribunal noted that the removal of the scrap from the job worker was done as per Rule 4(5)(a) of the Cenvat Credit Rules, 2002. The job worker cleared intermediate goods in the nature of angles and channels to the appellant by paying duty and raising invoices.

The tribunal, while allowing the appeal, has held that the department has vaguely alleged that the appellant has suppressed facts with the intention to evade payment of duty.

Case Title: M/s.Tansi Pump Unit Versus The Commissioner of GST & Central Excise

Citation: Excise Appeal No.41503 of 2013

Date: 07.03.2023

Counsel For Appellant: P.C. Anand

Counsel For Respondent: K. Komathi

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