1. This appeal arises from order-in-appeal dated 11-6-1985 passed by Collector (Appeals), Bombay.
2. The facts of this case giving rise to this appeal are as follows.
The appellants were manufacturing flats out of duty paid Steel Ingots, semifinished steel and re-rollable scrap or combination thereof. They had filed the classification list as per Rule 173B of Central Excise Rules, 1944, in respect of 'flats' manufactured by them under Tariff Item No. 26AA classifying as Iron & Steel products on 2-11-1982 claiming set-off of Rs. 330/- per M.T. under Notification No. 55/80, dated 13-5-1980 as amended. The classification list had been approved by ACCE, Pune III Divn. on 22-11-1982. However, it has been alleged that the scrap generated during the manufacture of iron & steel products, was not classified by them in the classification list. The department had noticed that they had manufactured 'flats' out of duty paid steel ingots & semi-finished as well as combination of semi-finished steel and re-rollable scrap and had cleared 1307.220 M.T.of flats produced out of steel combination of semi-finished steel or re-rollable scrap and availed set-off of Rs. 4,31,514.60 during the period from Feb., 1983 to July, 1983 @ Rs. 330/- per M.T. on the clearances as per Notification No. 55/80, dated 13-5-1980. Further, it was noticed that they had cleared the scrap obtained in the manufacture of Iron & Steel products during the period Sept., 1982 to July, 1983 to the tune of 119.750 M.T. without paying duty on it and availing the set-off on the products during the manufacture of which such scrap was generated. Therefore, a show-cause notice dated 9-12-1983 was issued by the Superintendent of Central Excise, Philips India Range asking the assessee to show-cause as to why the amount of set-off availed by them on the clearances of Iron & Steel products should not be recovered from them. A demand of duty on 119.750 M.T. of scrap cleared during the period Sept., 1982 to July, 1983 was also issued by the Range Superintendent on the same day.
The assessee challenged the issue of show cause notice on several grounds. The Assistant Collector in order-in-original has listed the defence taken by the assessee, which is listed hereinbelow :- "They have been clearing flats made out of Ingots, semi-finished goods and re-rollable scrap since a long time and the classification lists are approved to the effect by Central Excise authorities. The C.L. No. 150/80, dated 29-2-1980 was approved by Assistant Collector, Central Excise Pune III Division granting exemption to flats under Notification No. 152/77, dated 18-6-1977 and Notification No. 206/63, dated 30-11-1963.
2. They had filed the classification lists from time to time and these were approved granting the exemption and flats were cleared under Iron & Steel products TI 26AA on the basis of Classification No. 31, dated 2-11-1982 finally approved by A.C., Central Excise Pune III Division.
3. There is no reference to the classification list in the show-cause notice and unless the proceeding to revise the C.Ls.
finally approved are initiated the present show cause notice is not correct, proper and legal.
4. They have relied on the approved C.L. and cleared the goods accordingly.
5. They manufacture 'flats' from Ingots, semi-finished goods and re-rollable scrap of which accounts are maintained and Notification No. 55/80, dated 13-5-1980 is applicable to them as all the conditions of the Notification are satisfied by them.
6. The reference to other materials made in the Notification perhaps is to re-rollable scrap and the scrap that is used by them is duty paid and it is the intention of the legislation that the final products should not bear full rate of duty when manufactured from duty paid goods and as they use duty paid raw material there is no justification to demand full rate of duty on final products i.e.
flats.
7. The duty should be restricted to the duty payable on goods manufactured from duty paid re-rollable scrap duty [sic] assuming Notification No. 55/80 is not admissible.
8. There is no bar to use duty paid goods i.e. re-rollable scrap in the manufacture of flats as no wording such as only inclusively is used in the notification and as such they are not required to pay the duty demanded. They cited out Supreme Court judgment in case of Union of India and Ors. v. Iron & Steel Co. Ltd., Jamshedpur.
9. As per Notification No. 154/77, dated 18-6-1977, re-rollable scrap has to bear the duty of Rs. 330/- per M.T. and the scrap they used was duty paid, and as per Notification No. 75/67, dated 20-5-1967. They were entitled to set-off of the duty on products if they are made from duty paid goods.
10. As per the Act, the demand has to be issued within six months from the date of payment of duty and as such the demand notice issued is time barred.
In case of show-cause notice demanding duty of Rs. 39,517.50 on the scrap, they replied on 12-1-1984 and raised the following points : 1. The scrap that was cleared from their factory was only cut ends of bars and angles and not scrap as such.
2. They manufacture Bars and Angles in their factory from duty paid material and enjoy exemption under Notification No. 206/63, dated 30-11-1963. During the process of manufacture i.e. cutting of Bars and Angles, the cut ends of bars and angles remain and they are not marketable as such.
3. In view of their identification with the Bars and Angles, the cut ends cannot be considered as scrap/waste in terms of Notification No. 54/64 as referred in the notice.
4. In effect Bars & Angles are exempted from payment of duty as they get set-off to the extent of Rs. 330/- per M.T. as per Notification No. 152/77, dated 18-6-1977. So the cut ends of Bars and Angles of shorter length would also enjoy the exemption under the said Notification and as such there is no justification for payment of duty on Bars & Angles.
5. The demand notice should be restricted to the period of six months from the date of issue, in the event if the department not agreeing to non-payment of duty on clearances of cut-ends of Bars & Angles".
3. The Assistant Collector rejected all the contentions raised by the assessee and has concluded that the scrap generated during the manufacture of Bars & Angles i.e. (Iron & Steel products) would fall under Tariff Item 25 of the First Schedule of Central Excises and Salt Act, 1944 and the duty at the rate of Rs. 330/- per M.T. would be payable, as exemption under Notification No. 54/64, dated 1-3-1964 would not be available to them as per the conditions of the Notification, as set-off of duty has already been availed on Bars & Angles. Thus duty of Rs. 4,31,514.60 paid short on the above quantity of flats has been confirmed, besides confirming the classification of scrap generated during the manufacture of Bars and Angles under Tariff Item 25 and directed payment of Rs. 31,517.50 on the clearances of scrap cleared during the period Sept., 1982 to July, 1983.
The learned Assistant Collector has held that flats manufactured out of duty paid steel ingots and semi-finished steel for which raw material account has been maintained, would be entitled to the benefit of the Notification No. 55/80, dated 13-5-1980. However, flats manufactured out of the combination of duty paid semi-finished steel & re-rollable scrap obtained from the market, and where no RG 1 account of such manufacture has been maintained, would not be entitled to the said benefit. The ld. Assistant Collector has held that as per 2nd proviso of the notification, re-rollable scrap used in the manufacture of 'flats' does not get the benefit of the notification.
He has also rejected the plea of the time bar raised by the assessee, as according to him, the classification list did not indicate the use of re-rollable scrap in the manufacture of 'flats', as also because no separate account for raw material in Form IV had been maintained in respect of flats manufactured out of semi-finished steel and steel ingots and that with the combination of re-roll-' able scrap. He has also rejected the plea for the benefit of the Notification No. 152/77, as scrap in the form of Bars & Angles is not marketable as such being shorter in length, and that they are not known in the trade as 'Bars & Angles', but known only as scrap and it has also not been classified as scrap in the classification list. He has held that there is a mis-statement and hence larger period under Section 11A can be invoked and duty confirmed for the extended period.
4. The ld. Collector (Appeals) held that the demands cannot be confirmed for the extended period and hence he directed the Assistant Collector to readjudicate the case for demands falling within the period of six months. He has confirmed the findings pertaining to the non-availability of the benefit of the relevant notifications. The ld.Collector confirmed the demand of Rs. 39,517.50 under Section 11A passed by Assistant Collector.
5. We have heard Shri P.S. Bedi for the appellant and Shri A.K.Singhal, ld. JDR for the Revenue.
6. Shri P.S. Bedi submitted that at the relevant time, there were Notifications No. 55/80, dated 13-5-1980, 76/72, dated 17-3-1972,152/77, dated 18-6-1977 and 54/64, granting the benefit to the assessees manufacturing Iron & Steel products under the then Tariff Item 26AA. The authorities had failed to examine these notifications and further had misread and misapplied the proviso to the Notification No. 55/80. The assessee had not utilised proforma credit or set-off, while clearing the final product, but had only availed reduction of the duty as provided in the Notification No. 54/64 and hence, the denial of benefit, under the premise that the assessee had utilised proforma credit of set-off for the inputs is a wrong finding of facts. The Notification No. 76/72 granted benefit to flats manufactured from re-rollable scrap, which had also been unjustly denied. It was further submitted that the Govt. of India in 1977 had transferred the incidence of duty on the product stage leviable on products covered under sub-items (i) and (ia) of Item 26AA to Ingot stage and accordingly notifications were so devised, so as to enable manufacturers of steel products to pay duty after reduction of the duty, on duty already paid on ingots or semi-finished steel. Similarly Notification No. 76/72 granted permission if flats were made out of re-rollable scrap and Notification No. 206/63 covered products under Item 26AA(ia) made out of old scrap, products covered under Item 26AA(ia) are from fresh unused duty paid scrap and thus duty payable on such products was nil.
Therefore, it was argued; that the lower authorities had not examined the case on all these pleas. It was also submitted that no duty liability arises if the exemption under these notifications is granted.
The ld. Advocate also referred to the Finance Minister's budget speach of 1977 to press his argument that the Govt. had no intention to levy duty on the flats manufactured out of scrap. He also referred to the Board's Tariff Advice 16/81, dated 6-7-1981, which clarified that the cut ends of MS rounds used in the manufacture of flats and those used in combination were entitled to the benefit. The assessee did not have a melting scrap furnace and thus they had only used re-rollable scrap, which was clearly identifiable as such and were thus entitled to the benefit of the notification. He also submitted that there was no mis-statement and the department had approved the CL's from time to time and hence the demand for extended period confirmed in respect of second demand is unsustainable.
7. ld. JDR submitted that the Govt. policy cannot be taken into consideration, while interpreting the notification. The end cuts used in the manufacture of 'flats' were not entitled to the benefit and hence the denial of benefit -is justified. Even the notification does not specify the use of inputs in combination. The Notification No.54/64, dated 1-3-1964 is not available to waste scrap used in the manufacture of 'flats' and hence duty of Rs. 39,517.50 confirmed for larger period is justified. The party had also not filed classification list. The party had admitted that they had used bars and angles and not waste and scrap and hence the duty confirmed is justified. In reply, ld. Advocate submitted that the department's understanding of the term 'in combination' has not been elucidated in the orders and hence the finding given by the lower authorities is unsustainable.
8. We have carefully considered the submissions made by both the sides and have perused the record. The points that arise for our consideration are : (i) as to whether flats manufactured by the appellants out of duty paid steel ingots & semi-finished as well as combination of semifinished steel & re-rollable scrap, cleared to an extent of 1307.220 M.T. for the period from Feb., 1983 to July, 1983 @ Rs. 330/- per M.T. are entitled to the benefit of Notification No. 55/80, dated 13th May, 1980 or any of the other notifications namely 76/72, dated 17-3-1972,152/77, dated 18-6-1977 and 54/64 available to them and whether duty for six months period be confirmed as held by ld. Collector? (ii) whether duty can be demanded on scrap clearance of 119.750 M.T. without paying duty on it and availing the set-off on the products during the manufacture of which such scrap was generated, for the period Sept., 1982 to July, 1983 by extending the larger period under Section 11A of the Central Excises and Salt Act, 1944? On the first point, the authorities have held that the scrap used in the manufacture of re-rollable products in combination with semi-finished steel is not entitled to the benefit of the Notification No. 55/80 and the ld. Collector has held that the duty can be demanded for the six months period.
On the second point, it has been held that the scrap generated is not 'cut ends of Bars & Angles' as contended by the appellants but is scrap only and it is not marketed as 'Bar & Angles' but as scrap only. The benefit of Notification No. 152/77 has been denied and duty has been confirmed for larger period.
On both the points, the appellants have contested and have pointed out that they have not used scrap but semi-finished steel and re-rollable scrap, as scrap cannot be used for re-rolling purpose, and scrap is used only by melting mills possessing furnace. This is a valid and acceptable point. It is not in dispute that the appellant is only a rolling mill and that they do not have a melting furnace. It could only be re-rollable scrap, which could be used again for manufacture of flats and not melting scrap. Therefore, it has to be seen as to whether such re-rollable scrap is entitled to the benefit in any of the notifications cited by them.
Notification No. 55/80-C.E., dated 13-5-1980 exempts Iron & Steel products falling under Tariff Item 26AA specified in Column 2 of the table of the Notification on the condition prescribed in the provision of the Notification S. No. 4 flats with specifications as indicated in (a) to (c) are granted the benefit of reduced rate on the conditions that: (i) where products made from steel ingots, falling under Item No. 26 are cleared prior to the 18-6-1977, on payment of duty, at the appropriate rate, the duty specified in the corresponding entries in column (3) of the table shall be reduced by [two] hundred rupees per metric tonne.
(ii) where products are made from semi-finished steel on which duty at appropriate rate has already been paid or from steel ingots falling under Item No. 26 of the aforesaid schedule which are cleared from the factory on or after 18-6-1977, on payment of duty, the duty specified in column (3) of the table is reduced by Rupees three hundred and thirty per M.T. (iii) provided also where the duty paid on steel ingots or semi-finished steel, as the case may be, used in the manufacture of any quantity of the products mentioned in the table is in excess of the duty leviable on such products, the amount eligible for adjustment towards the exemption shall be restricted to the amount of duty leviable on the quantity of the said products.
(iv) The remaining proviso of the notification deals with products manufactured with aid of electric furnace, and in which (a) old iron or steel melting scrap; (b) fresh unused steel melting scrap; (c) iron in any crude form falling under Item No. 25 (d) skull scrap and runners [and] risers arising in the course of manufacture of steel ingots with the aid of electric furnace; (e) imported melting scrap of iron & steel (other than heavy melting scrap of iron and steel); (f) imported sponge iron or (g) indigenous sponge iron has been specified as input.
9. Notification 152/71-C.E., dated 18-6-1977 as amended by Notification 262/79-C.E., dated 19-9-1979 exempts Iron or Steel products falling under Item 26AA. S. Nos. 1 & 2 deal with 'all forms of semi-finished steel falling under sub-item (i) of Item 26AA' and all products falling under sub-item (ia) of Item 26AA (other than rails & sleeper bars specified in serial No. 3) respectively. The first proviso states that steel ingots under Tariff Item 26 used for manufacture should have suffered duty, second proviso deals with products other than bars and rods falling under sub-item (ia) of Item 26AA made from semi-finished steel or from steel ingots, which has suffered duty. Proviso three deals about bars and rods falling under sub-item (ia) of Item No. 26AA made from semi-finished steel on which duty has been paid or from steel ingots falling under Item No. 26, which have been cleared on or after 18-6-1977 on payment of duty. The last proviso deals about adjustment of duty restricted to the extent to the amount of duty leviable on the quantity of the said products.
Notification No. 77/72 as amended by Notification 109/80, dated 19-6-1980 exempts Iron or Steel products falling under sub-items (ii) and (iii) of Item No. 26AA and made from old and used re-rollable scrap without undergoing the process of melting or from fresh unused re-rollable scrap on which appropriate amount of duty has already been paid, from so much of the duty of excise leviable on such products as is equivalent to the duty of excise leviable on semi-finished steel falling under sub-item (i) of 26AA. The proviso states that nothing contained in this notification shall apply to a manufacturer who avails of the special procedure prescribed under Rule 56A of the rules in respect of the duty paid on the said scrap.
Notification No. 54/64 as amended by Notification 164/78-C.E., dated 9-9-1978 exempts scrap iron & steel melting scrap falling under Item Nos. 25 & 26 respectively and obtained in the manufacture of iron & steel products from Iron in any crude form, or steel ingots, or iron or steel products, which have already paid the appropriate amount of duty of excise leviable under Item Nos. 25, 26 or 26AA of the said Schedule or the additional duty leviable under Section 3 of the Customs Tariff Act, 1975, as the case may be, from the payment of the whole of duty leviable thereon, provided no set-off of duty has already been availed.
Board's Tariff Advice No. 16/81, dated 6-2-1981 - ECR 1981/105B states : 'clarified that cut-ends of M.S. Round Bars, which can be re-rolled as such, would be treated as Bars and assessed to day under Tariff Item 26AA - GET, and where the cut-ends of the M.S. Round Bars, cannot be re-rolled as such, these would be regarded as melting scrap for assessment under Item No. 26-CET but would be entitled for exemption under Notification No. 56/64-C.E., dated 1-3-1964.
In the budget speech of 1977-78, the Hon'ble Finance Minister has stated: "Most steel re-rollers produce bars, rods, angles, etc., which attract an excise duty of Rs. 130 per tonne in addition to the duty already paid on ingots. It is proposed to shift this duty of Rs. 130/- per tonne from the re-rollers to the ingot manufacturers, namely, the main steel plants or the mini steel plants".
Therefore, the case is required to be interpreted in the light of these notifications, Board's clarification and the speech delivered by Hon'ble Finance Minister in his Budget Speech of 1977-78.
Notification 55/80-C.E., dated 13-5-1980 exempts the product in question provided it is manufactured from ingots or semi-finished steel. It is silent about re-rollable scrap and hence on the basis of doubt, the department has denied for the benefit to the extent of use of re-rollable scrap in the manufacture of flats. It is an admitted fact that flats can be manufactured from any of these items and the Board's circular referred above clarifies that cut-ends of M.S. Round Bars, which can be re-rolled can be considered as Bars and assessed to duty in Tariff Item 26AA CET. The department does not dispute to the duty paid nature of all the three ingredients. Semi-finished steel has not been defined in the notification nor steel ingots, whether re-rollable scrap can be considered as any of them has not been answered by the authorities. Steel ingot can be virgin coming directly from the steel mill or it can be semi-rolled one's yet not losing its identity as steel ingot, retaining still its capability of re-rolling also. The re-rollable materials used by the appellant are derived from the steel ingots and they are capable of being re-rolled again. Now the question is does it fall within the category of steel ingots for the purpose of the notification. The budget speech of the Finance Minister is a pointer not to levy duty on the steel re-rollers and to shift the duty element to the main steel plants or mini steel plants manufacturing the steel ingots. Therefore, the intention of Govt. not to levy duty on steel re-rolled product being clear, the notification cannot be read in a manner as to cause violence to it and make the notification otiose. A liberal interpretation is called for in this case and the meaning of steel ingot should be included also those rolled ingots which are also capable of re-rolling into products or else the intention of Govt. not to levy duty on products of re-roll-able scrap will be defeated. Further, the notification does not bar use of steel ingots, semifinished steel in combination or with re-rollable scrap.
We also notice that Notification No. 77/72 clearly exempts Iron or Steel products manufactured from old or re-rollable scrap without undergoing the process of melting or from fresh unused re-rollable scrap. This notification has clear applicability. Therefore, the interpretation placed by us for the term "steel ingot" is in keeping with the clear exemption granted under Notification No. 77/72 and in keeping with the understanding placed by Board and the intention of Govt. as expressed through the budget speech of Finance Minister.
As regards the second point, the Board Circular (supra) clarifies that the cut-ends of Bars and rods are melting scrap and held classifiable under Tariff Item 26A-CET and exempted under Notification No. 56/64 dated 1-3-1964. A simple reading of Notification No. 56/64 is also clear that the product is exempted from payment of duty. Hence, the duty confirmed on scrap generated is not justified.
10. In the result, the appellant succeeds in this appeal and the appeal is allowed.
11. I agree with the finding in the order recorded by Learned Brother Shri Peeran. As regards the finding that flats manufactured out of duty paid ingots and a combination of semi-finished steel and re-rollable scrap were not eligible for the benefit of the exemption under Notification No. 55/80, dated 13-5-1980 was erroneous also for the reason that there was no stipulation in the said Notification that the exempted product, namely, flats should have been manufactured exclusively out of duty paid ingot and/or semi-finished steel. Under these circumstances the flat manufactured out of duty paid ingots and a mixture of semi-finished steel and re-rollable scrap would also be eligible for exemption under the said notification on the ratio of the judgment of the Hon'ble Supreme Court in the case of Aluminium Corporation of India Ltd. v. Union of India and Ors. reported in 1978 (2) E.L.T. (J 452) wherein it was held that if a notification does not exclude from exemption altogether manufactures made 'partly out of duty paid and partly out of non-duty paid crude' the exemption cannot be denied on the reasoning that the sheets, circles etc. had not been manufactured wholly and solely out of duty paid slabs.