Scraps emerged as by-products during the Course of Manufacture of other Products not eligible to Excise Duty : CESTAT sets aside Demand Order

The demand order imposing excise duty on the scraps that occurred during the manufacturing of the products was overturned by the Chennai bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT).

The succinct facts of the case is that the appellant, Vasan Engineering Industries Private Limited, engaged in the manufacture of boiler components falling under CETH 84029090 of the first Schedule to the Central Excise Tariff Act, 1985.

The appellant submitted that they were doing fabrication of boiler components as job work to Bharat Heavy Electricals Limited (BHEL), Trichy during the year 2004 onwards.

On completion of job work at the factory premises of the assessee, the finished products boiler components were shipped to BHEL under a job work challan, and the scrap produced during production was kept by the appellant. The appellant has not paid the excise duty for the scrap generated.

According to documentation provided by BHEL, the scrap was sold to the appellant in exchange for the payment of excise duty.  It was stated by the appellant that such scrap was either used by them in their manufacturing activity or sold to others as resale of duty paid scrap by raising commercial invoices.

Show cause notice was issued to the appellants proposing to demand duty along with interest and for imposing penalty. Further, the appellants preferred appeal before the Commissioner (Appeals) who upheld the same.

The counsel of the appellant submitted that the appellant company does not have any intention to manufacture scrap and their final product is not scrap. The scrap generated is inevitable during the course of manufacture. So, Section 2(f) of the Central Excise Act, 1944 is not attracted for levy of service tax.

The bench of Ajit Kumar and Sulekha Beevi C S considered the decision of Bombay High Court in the case of Hindalco Industries Ltd which was upheld by the apex court that the waste and scrap are emerging as by-products during the course of manufacture of other products and therefore are not eligible for excise duty.

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