Judgment:
1. This appeal is against the order of the Collector of Central Excise, Guntur. The learned lower authority in his order held that the appellants had wrongly availed of the Modvat credit of Rs. 6,23,617.55 by mis-declaring the inputs as lead waste suppressing the real nature of the inputs which were found to be lead ash/residue and he has ordered the reversal of the Modvat Credit and re-crediting to the Government. He has also imposed a penalty of Rs. 2.00 lakhs on the appellants. Proceedings were initiated as a result of the follow-up action taken on a surprise check of the inputs which had been declared for the purpose of manufacture of lead sub-oxide. The inputs were also tested chemically and were not found to be lead scrap and waste as declared by the appellants and comprised of lead oxide 72.9% and lead 9.2% and ash and it was found not to have the characteristics of lead.
These inputs were found to be falling under Chapter 26 of Central Excise Tariff which was not eligible for the grant of deemed Modvat Credit in terms of Notification issued under Rule 57G.2. The learned Consultant for the appellants pleaded that the inputs could be considered as lead waste and scrap in the absence of any definition for waste and scrap of lead under Section XV of Central Excise Tariff under which the lead waste and scrap is covered. He pleaded that in the absence of any definition, since the goods have been purchased as lead waste and scrap, we have no need to go beyond this description. In any case he pleaded the samples taken should not be taken as representative and therefore the results of the test should not be relied upon for the whole period. To a specific query, the learned Consultant stated that while they had challenged the test results in general terms, they had not asked for re-testing of the goods. He pleaded reliance of the learned lower authority on the H.S.N.was misplaced and the learned lower authority should have interpreted the tariff entry as set out in the Central Excise Tariff. In this connection he referred us to the observation of the learned lower authority in para 9 of the order, which is reproduced for convenience of reference : "The explanation of ash and residue, as per the H.S.N. Note, is "ash and residue which contain metal or metallic compounds which are of a kind used in industry either for the extraction of metals or as a basis of chemical compounds of metals, result from treatment of ores or intermediate metallurgical products or from electrolytic chemical or other processes which do not involve mechanical working of metal". The metal scrap arising out of mechanical working of metal should be predominantly of the metal. The low content of the metal in the sample clearly indicates that the sample is not metal scrap/waste as declared by the assessee. In this connection, I have also referred to the invoices relating to the purchase of scrap".
He pleaded that the appellants had bought the goods which had been described as old battery lead waste and battery waste and the appellant's understanding was that this could only be described as lead waste and scrap. He has pleaded that the appellants have not suppressed any fact and pleaded that the demand would be hit by limitation as the same has been raised for the period 5-4-1989 to 30-9-1990 and the show cause notice was issued on 3-1-1991. He fairly conceded that part of the demand would fall within the 6 months. He pleaded the appellants in fact did not know as to what was the material supplied by the suppliers. He pleaded, therefore, the appellants could not be held guilty of any suppression and referred us to the judgment of the Hon'ble Supreme Court in the case of Tamil Nadu Housing Board and Hindustan Motors - 1994 (74) E.L.T. 9 (SC), and 1995 (76) E.L.T. 97 (SC) respectively. He further pleaded that the Collector has not dealt with the case law cited above by the appellants before him.
3. The learned Departmental Representative urged that the appellants had made a declaration for the inputs as lead waste and scrap falling under Tariff Heading 7802.00. This heading, he pleaded, is for lead and articles thereof. He pleaded, chemical composition of goods as set out in the report clearly shows that these could not be covered under this heading which falls under Section XV of the Tariff and which covers Base Metals and Articles of Base Metal. He pleaded that the appellants were buying battery waste but chosen to declare the same as lead waste and scrap. He adopted the reasoning of the learned lower authority as set out in the order of the learned lower authority and pleaded that there was an element of suppression and the appellants could not be taken to be eligible to the benefit of Modvat Credit.
4. We have given a careful thought to the pleas urged by both the sides. We observe that the inputs declared by the appellants is lead waste and scrap falling under Tariff Heading 7802.00. This Tariff Heading 7802.00 falls under Section XV of the Tariff which covers Base Metals and Articles of Base Metal. Under this Chapter under Note-6, it has been set out as under : "6. In this Section, the following expressions have the meanings hereby assigned to them : (a) Waste and Scrap : Metal waste and scrap from the manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting-up, wear or other reasons".
It is clear from this that, what is covered under Chapter 7802.00 as waste and scrap of lead is the one which comprises mostly of metal waste and scrap. The goods declared as inputs by the appellants as lead waste and scrap falling under Tariff Heading 7802.00, on test have been found to be comprising of lead oxide 72.9% and lead 9.2%. This certainly cannot be considered as metal waste and scrap but a chemical waste which has some lead content in it. The appellants have admitted that what they were buying was battery waste. The term 'battery waste' obviously goes by a specific name in the Trade and the appellants would have known as to what it would comprise of. The appellants declared to the authorities that they were manufacturing lead sub-oxide out of the metal lead received by them in the form of waste and scrap. When the material received by them was in the form of battery waste comprising of over 72.9% lead oxide, it is not understandable how they could have declared that they were manufacturing lead sub-oxide out of the lead metal waste. The goods have been brought as inputs with the composition as above, falling under Tariff Heading 26.20 which is not covered under the notification for deemed Modvat Credit. The appellants obviously in their anxiety to take Modvat Credit have mis-described the goods when they fully well knew that what they received was only battery waste.
There is no plea from the appellants that what they have ordered for was lead waste and scrap having certain percentage of metal content.
They had been accepting this material and had been using also the same for the manufacture of lead sub-oxide. We observe that the process of manufacture of lead sub-oxide out of the lead metal waste would be different from that out of lead oxide. The manufacturing process being chemical in nature has to comprise of certain steps depending upon the inputs received. It is not the case of the appellants that in respect of the inputs received namely battery waste having over 72% lead oxide the process of manufacture would be the same for the manufacture of lead sub-oxide as out of lead metal waste and scrap. Chemically this would not be feasible. The appellant's plea that they did not know at any time as to what was the material supplied to them, cannot be accepted. The appellants were manufacturing a chemical product and they had to subject the input material to specified manufacturing processes to get the end result. This could have done only after knowing what was the material being received by them. In view of the above we hold that the appellants had knowingly received the materials which were not eligible to the benefit of Modvat Credit and had deliberately mis-declared the inputs in the declaration filed by them and it was only on account of the vigilance of the Department that the appellants were found out. A plea has been taken before us that the test result could not be made applicable to all the inputs received by them. We observe, admittedly the appellants received the battery waste from a particular supplier and this battery waste has been found on chemical test having over 72% of lead oxide. There is no plea from the appellants that the battery waste which had been received had different chemical composition and different product mix chemically or otherwise and therefore different consideration will apply to different lots. The battery waste as it is seen results from the used up batteries which have suffered chemical processes and the metal vised has undergone chemical change. In the above view of the matter we find no force in the plea of the appellants. We therefore hold that the demand made against the appellants is maintainable in law. However, taking into consideration the facts and circumstances of the case and also the fact that the appellants are a small scale manufacturer, we hold that the ends of justice will be served if the penalty imposed is reduced to Rs. 1,00,000/- (one lakh). But for the above modification the appeal is otherwise dismissed.