1. M/s. Ambika Forgings have filed this appeal against the order of Collector of Central Excise (Appeals). The Collector in his order had held :- "In reply to the cross objection, the respondents have stated that the grounds set out in the memo of appeal regarding the waste and scrap of steel arising during the manufacture of hand tools is not exempt under Notification No. 171/88, dated 13-5-1988 as the same arises out of the exempted goods and the condition under Col. 5 against Sr. No. 3 of Notn. is not satisfied, is not correct which merits to be rejected. The respondents have further stated that the exemption to waste and scrap emerging during the course of manufacture of hand tools is available under Notification No. 171/88, dated 13-5-1988 as amended because the waste and scrap has arisen out of duty paid material. Respondents relied on the judgments quoted as 1978 (2) E.L.T. (J 399), 1988 (35) E.L.T. 142, 1987 (32) E.L.T. 521 to interpret the term 'paid' Nil rate of duty.
They have contended that whatever duty was payable on the raw material was paid. Since such duty in terms of Notification No. 214/86 is 'nil', the goods cleared without payment of duty are to be taken as duty paid.
The case of the respondents was argued by Shri S.L. Chopra, Advocate reiterating the submissions made in the memorandum of cross objections. No one appeared on behalf of the department. On going through the appeal memorandum, I hold that the exemption benefit under Notification No. 171/88, dated 13-5-1988 is only available when goods are manufactured out of duty paid goods. Col. 5 of the said Notification is clear. The relied upon judgments do not cover the case in view of the fact that Col. 5 of the Notification is clear. Therefore, the benefit accorded by the impugned order is incorrect.
2. Briefly stated the facts of the case are that the appellants are engaged in the manufacture of hand-tools. The appellants received duty paid steel bars. Benefit of modvat credit of duty paid on steel bars is not availed by the appellants. In the course of manufacture of hand-tools from steel bars, waste and scrap arises. The appellants claimed exemption under Notification No. 171/88-C.E., dated 13-5-1988 as amended for clearance of waste and scrap falling under Chapter Heading 72.04. The appellants sent the scrap and waste to job workers for converting the same into steel bars/flats and returning the same bars/flats to the appellants. The appellants also applied for permission under Notification No. 214/86-C.E. Such permission was granted by the Asstt. Collector. However, the department issued a show cause notice alleging that the appellants were not entitled to the benefit of Notification No. 171/88-C.E. for the waste and scrap cleared inasmuch as it could have arisen out of the goods received from the job workers availing the benefit of Notification No. 214/86-C.E. It was alleged that in view of the conditions in the Notification No. 171/88 that it ought to have arisen from goods on which duty of excise leviable or the additional duty leviable on such goods, may be, has already been paid. It was alleged in the show cause notice that since the flats and bars received from the job workers were exempt under Notification No. 214/86, the condition is not fulfilled and the benefit of the notification cannot be extended to the waste and scrap cleared during the period 24-1-1992 to 20-3-1992. A show cause notice was issued on 15-7-1992 proposing to demand duty amounting to Rs. 28,470.66.
3. Shri V. Lakshmikumaran, the ld. Advocate appearing for the appellants submitted that waste and scrap arising during the course of manufacture of hand tools is being captively used in, or in relation to manufacture of hand tools and therefore it qualifies for exemption under Notification No. 214/86-C.E., dated 2-4-1986. It was argued that the said waste/scrap is an input which is sent for conversion into bars/flats on job work basis and is further used for manufacture of hand tools; that waste and scrap is not sold but used in or in relation to the manufacture of hand-tools; that waste and scrap is exempt under Notification No. 171/88, dated 13-5-1988; that since duty in terms of exemption Notification No. 214/86 is nil, the goods cleared on payment of nil duty, therefore, are to be taken to be duty paid. In support of this contention, the ld. Advocate relied on the decision of the Hon'ble Supreme Court in the case of N.B. Sanjana, Asstt. Collector of C. Ex.
v. The Elphinstone Spinning and Weaving Mills reported in 1978 (2) E.L.T. (J 399), decision of the Tribunal in the case of I.E.L. Ltd. v.CCE reported in 1988 (35) E.L.T. 142 and the judgment of Patna High Court in the case of Tata Yodogawa Ltd. v. UOI reported in 1987 (32) E.L.T. 521. The ld. Counsel also referred to letter No. 345/15/87-TRU, dated 28-7-1987 of Ministry of Finance clarifying that duty already paid would also apply when duty paid is 'nil' while interpreting Notification No. 269/86-C.E. and that material was initially duty paid and that it is incorrect to look for payment of duty on each and every stage.
4. Sh. Somesh Arora, ld. JDR appearing for the respondent submitted that the pertinent point to be noted here is that waste/scrap arises out of exempted goods and the condition under Column No. 5 against S.No. 3 of Notification is not satisfied; that in the instant case, the scrap/waste was sent to the job workers for conversion into flats/bars of steel and were received back by the appellants without payment of duty, therefore, the scrap/waste that arises in manufacture of hand tools from these non-duty paid bars/flats will not be eligible for exemption; that the waste and scrap of steel will be liable to Central Excise duty under sub-heading 7204.30. The ld. JDR reiterated the findings of the lower authorities.
5. Heard the submissions of both sides and considered them. The main contention of the appellant was that when bars/flats are received by the appellants for manufacture of hand tools they are duty paid and subsequently it is a continuous process; that scrap is generated, sent for conversion to the job workers, job workers send back the bars/flats without payment of duty, bars and flats are used in the manufacture of hand tools and thus the process goes on. For the sake of convenience Notification No. 171/88-C.E., dated 13-5-1988 as amended by Notification No. 66/89-C.E., dated 1-3-1989 is set out below : * * * * * * * It would be seen that the Notn. reads "As the duty on the goods has already been paid but the credit of such duty has not been taken under Rule 56A or 57A of the Central Excise Rules, 1944." When the Bench pointed out that this Notn. speaks that the duty has already been paid but the credit of such duty has not been taken invariably refers to taking of credit of duty this would require the payment of duty at same rate as credit of nil duty cannot be taken. The ld. Counsel submitted that duty paid at 'nil' rate is duty paid. A lot of emphasis was laid by the appellants upon the judgment of the Hon'ble Patna High Court in the case of Tata Yodogawa Ltd. The relevant paras [16 to 21 & 33] of the judgment are reproduced below :- 6. We also find that in the case of I.E.L. Ltd. the Tribunal had held [in para 8] :- 7. In the case of the Elphinstone Spinning and Weaving Mills the Hon'ble Supreme Court had held :- "14. We are not inclined to accept the contention of Dr. Syed Mohd that the expression 'levy' in Rule 10 means actual collection of some amount. The charging provision Section 3(1) specifically says "There shall be levied and collected in such a manner as may be prescribed the duty of excise..." It is to be noticed that Sub-section (1) uses both the expressions "levied and collected" and that clearly shows that the expression "levy" has not been used in the Act or the Rules as meaning actual collection. Dr. Syed Mohammad is, no doubt, well founded in his contention that if the appellants have power to issue notice either under Rule 10-A or Rule 9(2), the fact that the notice refers specifically to a particular rule, which may not be applicable, will not make the notice invalid on that ground as has been held by this Court in J.K. Steel Ltd. v. UOI1969-2 SCR 418 : AIR 1970 SC 1173.
"If the exercise of a power can be traced to a legitimate source, the fact that the same was purported to have been exercised under different power does not vitiate the exercise of the power in question. This is a well settled proposition of law. In this connection reference may usefully be made to the decisions of this Court in B. Balakotaiah v. UOI (1958) SCR 1052 : AIR 1958 SC 232; and Afzal Ullah v. Slate of U.P., (1964) 4 SCR 991" AIR 1964 SC 264.
8. From the facts it emerges that the waste and scrap of steel answering the description specified under the Notification No. 171/88, dated 13-5-1988 were exempted from excise duty provided that on Bars and Flats appropriate duty of excise leviable had already been paid and by Notification 214/86-C.E. Bars and Flats were exempted from payment of duty if they were received from the job workers, the job workers had no liability to pay any excise duty on bars and flats in view of the exemption by Notification No. 214/86. The contention of the department was that excise duty is leviable on waste and scrap arising in the manufacture of hand-tools manufactured out of Bars and Flats as the Bars and Flats had been received by the appellants without payment of duty.
9. In view of the said stand taken by the parties before us, contentions are limited to the interpretation that they put to the words used in Notification No. 171/88, dated 13-5-1988 namely, "on which duty of excise leviable under the said Schedule or the Addl. Duty leviable under Section 3 of the Customs Tariff Act, 1975 (51 of 1975) as the case may be, has already been paid, but the credit of such duty has not been taken under Rule 56A or 57A of the Central Excise Rules, 1944." 10. The Hon'ble Patna High Court after analysing the ratio of the various decisions of the Hon'ble Supreme Court and other High Courts held that the duty already paid used in Notification No. 66/73 must on the facts of this case mean the duty contracted to have been paid, no consideration of other contentions raised by the ld. Counsel is necessary.
11. We observe that Notification No. 171/88, dated 13-5-1988 has exempted from duty on waste and scrap of steel arising during the manufacture of hand tools, when duty has been paid on Bars and Flats.
As duty paid may mean a duty contracted to have been paid, the job workers may be said to have contracted the said duty and thus have paid it to satisfy the requirement of Notification No. 214/86. To this interpretation, one [sic] support from contem-poranea expositio by the Revenue in as much as Ministry of Finance in their letter No.345/15/87-TRU, dated 28-7-1987 clarified that duty already paid would also apply when duty paid is 'Nil' while interpreting the Notification No. 269/86-C.E. and also clarifying further that the material was initially duty paid and that it is incorrect to look for payment of duty on each and every stage. It is well settled principle of law that the Administrative construction i.e. contemporaneous construction placed by Administrative or Executive Officers charged with executing statute, generally to be accepted, [sic] 12. On perusal of the above judgments, we find that in the Notification dealt with in the case of Tata Yodogawa by the Hon'ble Patna High Court, similar condition of payment of duty for availing exemption was there. Admittedly, the position in the instant case is that when Bars and Flats were purchased from the market for manufacture of hand-tools, duty was paid on Bars and Flats and no credit under Rule 56A or 57A of the duty paid on Bars and Flats was taken by the appellants and therefore, the position of the two Notifications, in the instant case is similar to the two Notifications, dealt with by the Hon'ble Patna High Court in the case of Tata Yodogawa. Having regard to the fact that the Hon'ble Patna High Court as well as the Hon'ble Supreme Court has already held that nil rate of duty is payment of duty, we hold that once Bars anf Flats are purchased from the market on payment of duty and no credit under Rule 56A or 57A of the Central Excise Rules, 1944 on these Bars and Flats is taken then the waste and scrap generated in the process of manufacture of hand tools, and it is subsequent conversion into Bars and Flats by job wokers, in the continuous process will not require payment of duty and hence we hold that no duty is required to be paid on waste and scrap generated in the process of manufacture of hand tools and cleared for conversion into Bars and Flats by job workers for subsequent return to the manufacturer of hand tools.
13. Having regard to the facts and circumstances and respectfully agreeing with the decision of the Hon'ble Patna High Court we allow the appeal and set aside the impugned order.