Full Judgment
2. The issue involved in the case is as to whether as per the provisions of Rule 57AC(5)(a)/ the appellants are liable to pay the Central Excise duty on the scrap generated at their job worker's end (while processing inputs sent by the appellants) if the said scrap is not returned by the job worker to them? 3. M/s. Rocket Engineering Corporation Ltd., Unit No. 1, Kolhapur, are engaged in the manufacture of excisable goods viz. IC Engines, P.D.Pumps and spray pumps. The IC Engines are to be manufactured by assembly of various parts. The appellants are purchasing castings of various parts of IC Engines on payment of Central Excise duty from various manufacturers. The said castings are required to be machined before using them as parts of IC Engines. The appellants are carrying out machining operations on the said castings in their factory and are also sending the said castings to various job workers for carrying out machining operations.
4. During the course of machining operations, scrap is generated. The said scrap is of two types i.e. - The recoverable scrap can be collected and can be sold in the market at some price. However, the non-recoverable scrap is nothing but dust/very fine particles of metal, which is not collectable and hence cannot be sold in the market.
5. The appellants are always clearing the recoverable scrap generated in their factory on payment of appropriate Central Excise duty. Whereas the recoverable scrap generated at the job workers' premises is retained by the job workers and is sold by the job workers in the market.
6. During the period 1998-99 to 2000-01, the total irrecoverable scrap generated at the appellants' factory as well as at their job workers' end is 45,285 kgs. Whereas during the period 2001-02 to 2002-03, the total scrap generated at the appellants' job workers' end and not returned to them is 1,70,394 kgs.
7. Show Cause-cum-Demand Notice dated 25-3-2003 was issued to them to show cause as to why - (i) Central Excise/Cenvat duty amounting to Rs. 1,57,431/- for the period from 1998-99 to 2002-03 (up to September, 2002) should not be demanded and recovered from the appellants under the provisions of Rule 57-I as amended by Rule 57AH of the Central Excise Rules, 1999 and Rules 12 of the Cenvat Credit Rules, 2001, read with Section 11A(1) of the Central Excise Act, 1944.
(ii) Interest under Section 11AB of the Act should not be recovered from the appellants; and (iii) Penalty equal to the duty determined should not be imposed upon the appellants under Section 11AC of the Act.
8. The Joint Commissioner, who adjudicated the matter, though dropped the demand for Central Excise duty of Rs. 45,285/- (in respect of irrecoverable scrap pertaining to the period from 1998-99 to 2002-03), confirmed the demand for Central Excise duty of Rs. 1,12,146/- (in respect of recoverable scrap not returned from the job workers pertaining to the said period) under proviso to Section 11A(1) of the Central Excise Act and also imposed equal amount of penalty under Section 11AC of the Act to be recovered with interest under Section 11AB. Thereafter, the appellants preferred appeal before the Commissioner (Appeals), Pune.
9. During the course of personal hearing, the appellants were directed to pre-deposit an amount of Rs. 1,12,146/- through PLA. Accordingly, the amount was deposited.
10. The Commissioner (Appeals) after hearing the parties upheld the Order-in-Original. Hence this appeal.
11. The appellants contend that the Commissioner (Appeals) failed to appreciate the vital fact that nowhere in Rule 57AC(5)(a)/Rule 4(5)(a) of the Cenvat Credit Rules, there is any provision made to compel the principal manufacturer to bring back the scrap generated at the job workers' end or to pay the Central Excise duty on the said scrap.
12. The Central Excise duty cannot be demanded from the appellants since the job worker is the manufacturer of the said scrap, which is retained by him and sold in the market.International Tobacco Co. Ltd. v. CCE, Ghaziabad . It is observed that no process of manufacturing taking place in respect of waste and scrap generated during the course of manufacture of cigarettes. Moreover, provision for durability of waste and scrap existed only in the erstwhile Central Excise Rules, 1944 (Rule 57F) and no such provision is there in the Cenvat Credit Rules, 2001. Duty is not leviable under Section 3 of the Central Excise Act, 1944.
14. As the issue involved in this case is well-settled in the aforesaid case, these appeals are also disposed off on similar terms.