V.P. Gulati, Member (T)

1. This appeal is filed by the Department against the order of the Collector of Central Excise (Appeals), Madras. The learned lower appellate authority in view of the trade notice issued by the Hyderabad Collectorate under which movement of scrap generated during the course of manufacture has been allowed under Rule 57F(2) has held that the original authority was in error in demanding duty in respect of such scrap. Brief facts are that the Respondents are manufacturers of pneumatic control equipment. They have been permitted under Rule 57F(2) by the Central Excise authorities to remove scrap of aluminium, brass and zinc to job worker for conversion of the same into castings, forgings, rods etc. Later however, the authorities issued show cause notice to the Respondents in terms of Rule 57F(4)(a) asking them to show cause as to why duty should not be demanded in respect of the scrap sent out from their factory for conversion.

2. The learned SDR for the Department pleaded that Trade Notice No. 94/89 was issued in respect of Aluminium scrap and the same could not be extended in respect of scrap arising from brass and zinc removed from the Respondents' factory. He pleaded that there is a specific provision for removal of scrap on payment of duty under Rule 57F(4)(a) and the scrap could not be removed under Rule 57F(2). He pleaded for setting aside the order of the learned lower appellate authority.

3. The learned Consultant for the Respondent pleaded that no doubt Trade Notice 94/89 covers only aluminium scrap but the scrap of brass and zinc could not be treated differently so far as the manufacturer is concerned as the purpose and use of the scraps in question is also the same set out in the trade notice.

4. We observe that this is a case where one wing of the Government has allowed removal of the scrap for recycling without payment of duty and the other wing of the Government wants to nullify the effect of the instructions issued in the matter. The best course in such a situation would have been for the Department to approach the Board for issue of necessary notification exempting all the scraps generated in the country sent out for recycling in case it was the intention of the Govt. to allow removal of scraps without payment of duty. In the facts set out above, we do not find the circumstances under which the trade notice mentioned above was issued and the provision of law under which the department allowed clearances of the scrap duty free. We, therefore, proceed to examine the provisions of law to arrive at a conclusion whether in terms of that the benefit as allowed in terms of the trade notice issued is admissible. Rule 57F(2) under which the benefit of removal without payment of duty was allowed in stipulation that the inputs in respect of which MODVAT Credit has been taken can be removed as such or after the inputs have been partially processed during the course of manufacture of the final products to a place outside factory for certain specified purposes as set out under sub-rule (a) and (b) of Rule 57F(2). Rule 57F(2) permits only removal of the inputs as such or after these have been partially processed. Scrap generated during the course of manufacture of the inputs which have been utilised for the manufacture of finished products in the factory cannot by itself be treated as input nor as partially processed input. It, in fact, is one of the by-products generated during the course of manufacture of the finished product. Permission allowed under Rule 57 F(2) therefore was misconceived. The legislature has made specific provision for the treatment of the scrap under Rule 57F(4). The said Rule for the purpose of convenience is reproduced below:

"(4) Any waste, arising from the processing of inputs, in respect of which credit has been taken may -

(a) be removed on payment of duty as if such waste is manufactured in the factory; or

(b) be removed without payment of duty where it belongs to such class or