Sukumar Mukhopadhyay: Clarify the nature of waste

EXPERT EYE

The tribunal's latest judgment in the Commissioner of Central Excise vs BOC case, 2004 (166) 254 (tribunal), has given a clear enunciation of the correct legal position after some confusion was created by omitting an erstwhile rule 57D of the central excise rules while redrafting new rules. It was possibly thought that while simplifying and rewriting new Cenvat rules some obvious things need not be repeated.

But the unfortunate result is that the revenue department officers are now taking the view that since the rule has been dropped the benefit in the Rule 57D has been withdrawn. They are not realising that it was quite an obvious thing and the department took it as a settled issue. Once the legal position is understood, there is no need for a rule like the previous 57D.

The erstwhile rule 57D of Central Excise Rules, 1944 was clear that the credit of duty was not to be denied on the ground that inputs had become wastes during manufacture. Despite this, many cases have been filed because the revenue department has been raising objections about the nature of waste and other imaginary grounds, which travel to the tribunal.

The tribunal has in all cases ""The India Gypsum Ltd vs Commissioner of Central Excise case, 1995 (75)ELT 188 (tribunal), the Commissioner of Central Excise vs IPF Vikram India, 2002 (150) ELT 175 (tribunal), The Commissioners vs Atul Fasteners 2002 (150) 62 (tribunal), The Hindustan Petroleum Corporation vs Commissioner of Central Excise case, 2001 (136)ELT 943 (tribunal), and the Commissioner of Central Excise vs BOC, 2004 (166) ELT 254 (tribunal)""settled the issue in favour of the clear words in the statute (rule 57D) saying some wastes do arise in inputs during manufacture or in relation to manufacture and that there in no need to reverse the Modvat credit in relation to these wastes.

In this latest case, the tribunal decided that gases lost during manufacturing process would be considered processing or manufacturing loss. And this loss being inevitable in the nature of manufacturing, it has to be held that the goods have been used in relation to manufacture of the final products. So no duty is chargeable and no input credit is reversible.

In the new rules, the Cenvat Credit Rules, 2002, the rule 57 D has been omitted since it is clear that no duty is chargeable on the waste for the following reasons.

• The part, which is not used due to its being waste, is to be considered as being used in relation to manufacture.
• If it is destroyed, the question of paying duty does not arise.
• If the waste is sold then it can be charged to duty, provided they are excisable goods.

The Supreme Court has many cases like the Commissioner of Central Excise vs Tisco case, 2004 (165) ELT 386 (SC), and the Union of India vs Indian Aluminium Co case, 1995 (77) ELT 268 (SC), that wastes are not excisable just because they are sold.

Everything, which was sold was not necessarily a marketable commodity known to commerce and which was worthwhile to trade in, said the Supreme Court in the Tisco case.

Thus waste arising out of or in the process of manufacture of the final product is to be treated as used in relation to manufacture. But if they are marketed as excisable commodity, then duty can be charged on it. But since the confusion persists in the mind of excise officers, the department should clarify it in a circular or in the Cenvat rules.