Clearance of scrap at job worker's end - Practice of assessment- CBEC calls for report
IN the erstwhile Central Excise Rules, 1944, there existed a provision under Rule 57F whereby the liability to pay duty on the waste and scrap arising during the processing of goods at the job worker's end was on the principal manufacturer. However, while switching over from Modvat scheme to the CENVAT credit scheme, this specific provision has been removed. The new CENVAT Credit Rules, 2004 also does not have any such provision.
In the case of M/s. Rocket Engineers Corp. Ltd. [], the High Court has held that “No liability on principal manufacturer after 31.3.2000 in view of amended Rule 57AC of erstwhile Central Excise Rules, 1944.”Further, in the case of Preetam Enterprises, it has been held by CESTAT, that “Cenvat Credit Rules are silent on disposal of such wastage and scrap”
Collecting duty from job worker is also legally questionable in view of Rule 2(h) of CENVAT Credit Rules, 2004 which puts the onus to pay duty solely on the manufacturer. Further, monitoring payment of duty from numerous small job workers would be an uphill task for a Central Excise Officer.
The matter is under consideration of the Board and Board feels that logically duty should be paid on waste/scrap, whether it is generated at the manufacturer's end or at the job worker's end, as input on which credit has been taken has been consumed in production of this waste/scrap.
So, Board wants the Chief Commissioners to report the practice followed in their jurisdiction.
Whenever the Board faces a tricky issue, the practice followed is to ask for report from the Chief Commissioners about the practice followed in the field. When the Rules themselves are not clear, what is the Board going to do with the practice followed? Say if 90% of the CCs report that they are collecting the duty on scrap from the job workers, will they ratify the action, though the same does not have any legal basis? If no duty is collected from any of the two, (principal manufacturer as well as job workers ---- provided if any such report is honestly forwarded to the Board) will they issue Sec 11 C notification?
Board will come out with a solution soon.
For every complex problem, there is a solution that is simple, neat, and wrong
CBEC Letter F.No.267 /28/2008- CX 8 ( Pt.I ) - Dated: May 05, 2009