The Delhi Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has recently held that no excise duty can be charged on scrap of pipes produced for manufacture of excisable goods.
Appellant/assessee CairnIndia Limited, engaged in the production of oil by drilling. In the process of manufacture/production of oil, plastic barrels in which the input chemicals are procured arise as scrap. Appellant sells the waste/scrap raised from the production process to a third party. The revenue charge excise duty on scrap in the process of manufacture of excisable goods namely oil. Against this order assessee filed an appeal.
Kumar Visalaksh and Shri Archit Gupta, counsel for appellant submits that, waste and scrap in the form of pipes and barrels only arises in the process of production of oil and this waste and scrap is not manufactured by the appellant.
Further pipes are in the nature of capital goods and are not inputs although the use of such capital goods is absolutely essential for production of excisable products namely oil.
Rakesh Agarwal, counsel appeared for revenue submits that,
“Pipes in this case have significance because the entire oil is produced with the help of pipes, therefore, these are in the form of an input to the manufacturing process itself as opposed to other companies where they may be simply capital goods” and it will be considered as final goods for levy excise duty.
After considering the contentions of the both parties the division bench of CESTAT compraising P.V. Subba Rao, Member (Technical) allowed the appeal filed by the appellant/assessee and observed that, pipes did not get consumed and did not get transformed into oil and it was used to manufacture/production of oil. These pipes are capital goods for production of oil but which are not inputs.
Moreover when such pipes need repair or replacing and waste is generated in the process, it was a waste generated during the repair or maintenance of capital goods and not during the process of production of oil or any process incidental or ancillary to it. Hence no excise duty can be charged on the scrap of pipes produced in this manner.
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