Per Sidharath S. Sekhon :

1(a). The above appeals have come up before this Bench on reference. In view of the differences in views held by Western Regional Bench, (W.R.B) and Southern Regional (SRB). Before discussing the controversial issue and the present scenario, it would be interesting to know the background of this issue with the Departmental instructions and relevant case laws in brief on the subject.

(b) As per Rules 57 (F)(4) (old rule 57F(2) of Central Excise Rules, 1944 the inputs can also be removed as such or after they have been partially processed by the manufacturer of the final products to a place outside his factory under the cover of a challan specified in this behalf by the CBE&C, for the purpose of test, repair, refining, re-conditioning or carrying out any other operation necessary for the manufacture of the final products or for manufacture of intermediate products necessary for the manufacture of final products and return the same to his factory. (This shall be done only after debiting an amount equal to ten per cent of the value of such inputs or, as the case may be, the partially processed inputs declared by him on the challan under which such inputs or partially processed inputs are cleared from his factory).

(c) Rule 57 (F)(18) [(old Rule 57F(4)] provided that any waste, arising from the processing of inputs, in respect of which credit has been taken may be.

(i) removed on payment of duty as if such waste is manufactured in the factory: or

(ii) destroyed in the presence of the proper officer on the application by the manufacturer and if found unfit for further use, or not worth the duty payable thereon, the duty payable thereon being remitted.

(d) The first clarification on this issue was given by the Board way back in the year 1988 vide its Telex F.No. 261/76/88-CX-8 dt. 4.10.1988 addressed to all Collectors in relation toerstwhile Rule 57F(2). The question was raised before the Board whether Turnings and Borings arising during the process of manufacture of pistons out of Aluminum ingots in respect of which Modvat credit is taken can be removed under Rule 57F(2) without payment of duty or not for reconversion into ingots. The Board clarified vide above Circular that the Turnings and Borings of Aluminium are neither inputs as such nor partially processed inputs and hence their removal under the provisions of Rule 57F(2) without payment of duty will not be in order and they can only be removed on payment of appropriate duty.

(e) Subsequently, Board vide Circular No. 15/89 issued vide F.No. 261/76/ 2/88-CX.8 dt. 19.4.1989 permitted clearance of scrap of Aluminium as above under Rule 57F(2) for converting the same into the Aluminium ingots and return thereof for subsequent manufacture of pistons. The said instructions were made applicable mutatis mutandis to Zinc Scrap arising during the manufacture of zinc products also. (Circular 267/48/90-CX.8 dt. 21.6.1990)

(f) The issue was re-examined by the Board apparently in the light of recommendations made by the 3 rd North Zone Conference and in the light of Tribunal Judgement dated 6.8.1991 in the case of Nucon Indus. Pvt. Ltd. 1992 (59) ELT 122. In this said decision, the Tribunal held that Rule 57F(2) [(now Rules 57F(4)] is applicable only for removal of the inputs as such or after they have been partially processed. Scrap generated during the course of manufacture of the inputs cannot by itself be treated as input nor as partially processed input and as such this has to pay duty in terms of Rule 57F(4) [(now Rules 57F( 18)].

(g) The Board, therefore, withdraw the instructions issued vide Circular dt. 19.4.1989 and 21.6.1990 and clarified that removal of waste and/ or scrap of any kind outside the factory should be allowed only under the provisions of Rule 57F(4) and directed to Collectors that any permission granted to this effect may please be withdrawn.

(Refer Circular No. 2/93-CX.8 dt. 12.1.1993)

(h) The decision of the Tribunal in:-

A. favour removal