GRASIM INDUSTRIES LTD Vs. UNION OF INDIA

JUDGEMENT

(1.) This appeal is directed against the judgment and Order dated 31.07.2008 of the High Court of Judicature of Rajasthan in Central Excise Appeal No. 60/2006. By the impugned Order, the High Court has set aside the Order dated 09.08.2005 of the Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as the Tribunal) whereby the Tribunal had dropped the entire duty demand and penalty imposed on the Assessee.

(2.) The issue before us is: Whether the metal scrap or waste generated whilst repairing of worn out machineries or parts of cement manufacturing plant amounts to manufacture, and thereby, is excisable to excise duty.

(3.) The Assessee is the manufacturer of the white cement. The Assessee repairs worn out machineries or parts of the cement manufacturing plant at its workshop such as damaged roller, shafts and coupling with the help of welding electrodes, mild steel, cutting tools, M.S. Angles, M.S. Channels, M.S. Beams, etc. In this process of repair certain metal scrap or waste is generated. In a surprise inspection conducted by the officials of the Central Range-II, Jodhpur, it was found that the Assessee has cleared various types of metal scrap and waste without the payment of the excise duty for the period from 1.10.1995 to 16.07.1999. A show cause notice dated 05.10.2000 was issued to the Assessee demanding a duty of Rs. 10,81,736/- under Section 11A of the Central Excise Act, 1944 (hereinafter referred to as the Act) along with equal amount of penalty under Section 11AC of the Act and further penalty under Rule 173 Q of the Central Excise Rules, 1944 (hereinafter referred to as the Rules) for non-payment of excise duty on clearance of said metal scrap and waste. On the request of the Assessee on two occasions, the revenue has granted extension of time, first up to 31.12.2000 which was further extended till 22.01.2001, in order to reply to the said show cause notice. Thereafter, the Assessee further made a request for some more time to file reply vide letter dated 20.01.2001, the same was rejected whilst confirming the duty demanded and penalty proposed in the show cause notice vide Order dated 08.02.2001 of the Additional Commissioner. The Assessee filed appeal before the Commissioner (Appeals), Jaipur. The Commissioner (Appeals) vide its Order dated 30.04.2004, set aside the demand of duty along with equal amount of penalty pertaining to scrap and waste arising out of the dismantling of used capital goods and the packing materials to the extent of Rs. 6,05,955/-. The Commissioner (Appeals) also set aside the demand of penalty under Rule 173Q(1)(a) of the Rules, whilst, upholding the demand of duty and equal amount of penalty of Rs. 4,75,781 under Section 11AC of the Act on metal scrap and waste generated during course of repair and maintenance of the machinery or parts of the plant on the ground that such metal scrap and waste has been generated during mechanical working of metal in the workshop, as contemplated by the definition of the waste and scrap under Section Note 8(a) of Section XV of the Central Excise Tariff Act, 1985 (hereinafter referred to as the Tariff Act) and, in view of the decision of the Tribunal in Budhewala Co-op. Sugar Mills Ltd. v. CCE, Chandigarh-I, 2002 (141) ELT 490 (Tri. Delhi). Being aggrieved by the portion of the Order of the Commissioner (Appeals), pertaining to confirmation of demand of duty along with equal amount of penalty of Rs. 4,75,781 on the metal scrap and waste generated during repair of machinery, the Assessee preferred an appeal before the Tribunal. The Tribunal, vide its Order dated 09.08.2005, allowed the appeal and set aside the demand of duty and penalty confirmed by the said portion of the Order of the Commissioner (Appeals) on the ground that metal scrap and waste cleared by the Assessee does not arise out of any manufacturing activity and, thereby, not excisable to any excise duty in view of the decision of the Tribunal in CCE v. Birla Corpn. Ltd., 2005 (181) ELT 263. The Revenue, aggrieved by this Order, filed an appeal under Section 35G of the Act before the High Court of Rajasthan. The High Court, vide its judgment and Order dated 31.07.2008, allowed the appeal, set aside the Order of the Tribunal and restored the Order of the Commissioner (Appeals) on the ground that the generation of scrap amounts to manufacture as it is incidental or ancillary to the manufacture of spare or replaceable part. The spare or replaceable part comes into existence as distinct product during the repairing of the parts of the cement plant. Also, the generation of scrap need not be in the process of manufacture of the excisable end product such as cement. Being aggrieved, the Assessee has filed this appeal under Section 35L of the Act against the judgment and order of the High Court.