1. In this matter, filed as a Revision Application before the Government of India under Section 36 of the Central Excises and Salt Act, 1944, and now transferred as an appeal before the Tribunal, Shri S.P. Kampani, Consultant, appears before us on-behalf of the appellants and Shri V. Lakshmikumaran, S.D.R., on behalf of the respondent.
2. Briefly, the facts are that on 22nd April, 1975, the appellants were issued a show cause notice that they have contravened the Central Excise Rules inasmuch as they have removed 872.780 M.Ts. of re-rollable steel scrap of steel products such as end-cuts, short-length pieces and defectives falling under Central Excise Tariff Item 26AA on various dates in March, 1974, without payment of duty at appropriate rate, without giving correct description of goods in Excise documents and without including them in the classification lists. It is stated that they were incorrectly described as medium melting scraps under Tariff Item 26, which was then leviable to Basic Duty @ Rs. 100 per M.T. and Auxiliary Duty @ 75% of the basic duty whereas, actually, as re-rollable steel scrap of steel products the goods were liable to duty under Central Excise Tariff Item 26AA @ Rs. 165 per M.T., besides auxiliary duty @ 75%. Appellants were, therefore, asked to show cause why the differential duty should not be demanded from them to the extent of Rs. 56,730.70 (basic duty) and Rs. 42,548.02 (auxiliary duty).
3. Shri S.P. Kampani, Consultant, submits before us that the appellants were, in fact, manufacturing steel melting scrap, which was declared by them in Form I as classifiable under Item 26 of the Central Excise Tariff and duly approved by the department. It is urged that medium or heavy or all other kinds of such scrap is melting scrap which was despatched to the Alloy Steel Plant, which melted them for the manufacture of steel ingots. It is especially emphasised that M/s.
Alloy Steel Plant were availing the procedure under Rule 56A of the Central Excise Rules in respect of such steel melting scrap obtained by them. Similarly, full duty was being paid in respect of the products manufactured by the Alloy Steel Plant under Central Excise Tariff Item 26AA. It is urged, therefore, that there can be no allegation that the appellants sought to derive any undue benefit or evade duty in this process. If the scrap were to pay higher duty on clearance from the Bhilai Steel Plant, the entire duty paid would have been credited, on receipt of the goods in the Alloy Steel Plant, in their RG 23.
4. It is not denied by the appellants that the steel melting scrap, which they cleared from their plant, sometimes contained very small quantities of re-rollable scrap but it is stated that the percentage thereof was in significant. Also, it is urged that in collection of scrap from all the shop floors, it becomes an impossible task to ensure that no such re-rollable scrap, even in small or insignificant quantities, finds its way to the melting scrap. However, it is emphasised that this admixture of certain negligible quantities of re-rollable scrap does not make the product classifiable under Tariff Item 26AA.5. On behalf of the Respondents, it is urged that the appellants have not denied that the product in question was a mixure not only of steel melting scrap but also of cut ends of bars, rods, angles, flats, etc., which are obtained in the re-rolling section. As the Appellate Collector has concluded this type of scrap can be re-rolled into various products by re-rolling mills. These cut-ends of bars, flats, etc., it is urged before us, are therefore correctly classifiable under Item No. 26AA, It is added that since the appellants are unable to separate these products, assessable at the higher rate of duty, from the melting scrap, the entire product would be liable to higher rate of duty. It is not denied by the Department that the melting scrap, which has been cleared by the Bhilai Steel Plant, is being used as melting scrap by the Alloy Steel Plant. What is emphasised by them, however, is that such product is capable of being used by re-rolling mills and there are a number of such mills, which are dependent on supply of such products for their production.
6. We have carefully considered the submissions made by both sides orally before us and on record. We feel, quite clearly, it is not a case where it can be alleged that there was any intention to evade duty or to derive any undue benefit by paying duty at the lower rate. This is self-evident from the Tariff structure as well as Rule 56A facilities, available to receipts of scraps in the Alloy Steel Plant.
7. Nevertheless, the question remains as to what is the correct classification of the relevant product cleared from the Bhilai Steel Plant. We find that here, once again, there is no dispute from the Department side that it is essentially in the nature of steel melting scrap. The Department's case against the appellants rests on the allegation that the scrap contains an admixture of end-cuts, short length pieces and defectives, falling under Tariff Item No. 26AA. The question that arises for decision by us, therefore, is whether this admixture affects the essential character of the product. This naturally brings forth the question of quantum of such admixture. The appellants have all along maintained that this is too small to affect the essential character of the melting scrap cleared by them.
Evidently, the Department also accepted this contention for a long time and only subsequently decided to raise a demand for past clearances. On a query from the Bench, the Department has not denied that the quantity of such admixture is small. On the other hand, they have produced no evidence to show that it is so substantial as to affect the essential nature of the product. The appellants have produced an affidavit as regards the percentage of actual quantity of re-rollable scrap present in the total quantity of melting scrap. Appellants have filed the Affidavit by the Chief Superintendent of the Steel Authority of India Ltd., Bhilat Steel Plant, affirming that the scrap generated is fit only for re-melting purpose and not for re-rolling purpose. It is stated therein that the scrap so generated is used by the Steel Plant only in the Steel Melting Shop and the small quantity of such scrap is sent to sister plants only for re-melting. It has been affirmed that there is "rare chance" for re-rollable scrap also getting collected in this way and that the percentage of such scrap is very insignificant.
We see no reason not to accept these averments.
8. In view of the foregoing findings, we set aside the impugned order including the demand for duty and the penalty and allow the appeal.