The Ahmedabad bench of the Customs, Excise And Service Tax Appellate Tribunal (CESTAT) held that excise duty not imposable when excess clearance of waste and scrap made after payment of full duty. Deep Recycling Industries & Ors, the appellant imported mixed metal brass scrap and produced various items from the same. For wastage, SION norms by DGFT were taken and applied the same, for excess of wastage over permitted, the department worked out that 10.841 tones of excess imported scrap were used during the impugned period by M/s. Deep Recycling Industries and was therefore to be subjected to duty.

The wastage norm was applied by the department after the segregation of scrap in which plastics and other non-usable materials were included and were found still in excess in the instant case. The department was thus of the view that the benefit of Notification No. 52/2003-customs to input/raw material imported by EOU used, was deniable on the ground that the appellant had consumed inputs and generated wastage beyond the norms fixed by the norms committee. It was further noted that all the waste generated by the appellants in the manufacture of finished goods was cleared on payment of applicable Customs duty, with permission of the Development Commissioner.

The department viewed that the appellant not having regulated and conducted their operation by the norms and the condition of Notification No. 52/2003-Cus dated 31.03.2003, was to be visited with duty and other consequences.  The generation of the waste is not otherwise doubted by the revenue. Thus once the imported inputs are used in the manufacture of finished goods in EOU, the benefit of exemption under notification No. 52/2003-Cus would be available. Therefore, denial of the benefit of the Notification on the sole ground that such wastage is more than what is laid down in the norms, is not justified.  It was submitted that the imported inputs are consumed in EOU and utilized for manufacturing operations in a bonded warehouse. Thus customs duty demand is not sustainable on bonded goods that are used in customs bonded warehouses.

It was submitted that customs duty can be demanded only on the finished goods or goods which go out of the EOU not on the inputs which come into the EOU. A two-member bench of Mr Somesh Arora, Member (Judicial) and Mr Raju, Member (Technical) observed that for material consumed over and above the SION notification issued by the DGFT, the Department views that duty or at least penalty is liable to be charged in case excess wastage comes into play. The Tribunal found that Gujarat High Court in the matter of Commissioner of Customs (Preventive) Vs. Monarch Overseas, held that “once the material procured are used for the manufacture of finished goods or services then even if, waste and scrap arises in course of production and manufacture over the norm then same is also exempt from the duty of custom leviable or the additional duty.” The CESTAT allowed the appeal. Shri Manish Jain appeared for the Appellant and Shri Sanjay Kumar appeared for the Respondent