Excise Duty Not Payable On Waste And Scrap Of Packing Material Of Inputs If Travels Beyond Show-Cause Notice: CESTAT

The Mumbai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that excise duty is not payable on waste and scrap packing material of inputs, and demand is not sustainable if it has travelled beyond the show-cause notice.

The bench of Suvendu Kumar Pati (Judicial Member) and Anil G. Shakkarwar (Technical Member) has observed that no demand is raised on the Appellant in the Show-cause notices on the ground that it was engaged in trading which was treated as an exempted service against which it cannot avail credits on inputs but the demand was solely based on the ground that out of two varieties of manufacturing waste, one is exempted from payment of Excise Duty for which demand is raised against non-reversal of the allegedly inadmissible credit availed on those exempted products and it is a settled principle of Law, which has been affirmed by the Hon'ble Supreme Court through various decisions including that of Maruti Suzuki India Ltd. Vs. Commissioner of Central Excise.

The respondent/assessee, Skoda Auto Volkswagen India Pvt. Ltd., is in the business of manufacturing excisable goods, mainly motor vehicles and parts. During the course of manufacturing, waste and scrap were generated, which were disposed of by the following two processes: For waste and scrap of packing materials, viz., corrugated boxes, cartoons, MS scrap, plastic, industrial refuse, etc., it was paying Central Excise duty, and for waste of wooden pallets and firewood falling under Chapter 4401 of the Central Excise Tariff Act, 1985, which attracts a nil rate of duty, it was not paying any duty at the time of clearance.

The appellant was of the view that the respondent was supposed to follow Rule 6(3) of the CENVAT Credit Rules, 2004 and maintain separate records in respect of input and input services used in the production of dutiable and exempted goods. It should have proportionately reversed the CENVAT credit involved in exempted waste in terms of Rule 6(3)(ii) of the CENVAT Credit Rules, 2004, but it failed to do so. A show-cause demand notice proposing service tax and reversal of CENVAT credit, through two show-cause notices covering periods from May 2008 to July 2012 and August 2012 to June 2013, along with interest and penalty, was raised against the appellant that had followed the adjudication process and ultimately got dropped, which is assailed by the department/appellant.

The department contended that appellant had manufactured dutiable goods and traded exempted goods, generated as waste, for which it is liable to pay the duty demanded in the review order. A Committee of Commissioners also took the view that trading is an exempted service against which proportional reversal was not done, for which the appellant is liable to pay the duty, interest, and penalty, and that the order passed by the Commissioner resulted in the dropping of the proceedings.

The assessee contended that a show-cause notice was issued on the ground that the appellant was a manufacturer who was also engaged in packing up or emptying inputs from packing material that were incidental or ancillary to the manufacturing process, and therefore, it was required to pay Central Excise Duty on clearance and sale of that waste and scrap of packing materials. But the appellant had raised a new ground before the Tribunal, seeking its indulgence in reversing the order passed by the Commissioner that the respondent was engaged in providing exempted services like trading of goods, which was not alleged in the show-cause notices.

The tribunal dismissed the department's appeal and affirmed the order passed by the Commissioner of Central Excise, Customs, and Service Tax, Aurangabad.

Counsel For Appellant: Vinod S. Chettiparambil

Counsel For Respondent: Anay Banhatti

Case Title: Commissioner of Central Excise, Aurangabad Versus M/s Skoda Auto Volkswagen India Pvt. Ltd.

Case No.: Excise Appeal No. 85170 of 2015

Click Here To Read The Order