Cus - Burning loss will not fall under clause (b) of Sec 65(2) of Customs Act - Burning loss does not exist physically, therefore, it is neither capable of being cleared from warehouse nor actually cleared - duty demands set aside: CESTAT
By TIOL News Service
MUMBAI, JAN 02, 2015: THE appellant is engaged in import of round Billets without payment of custom duty for the manufacture of Seamless tubes and pipes in the private bonded warehouse. During the course of manufacture, there is generation of steel waste and scrap which is recovered and also 2 to 3 percent burning loss. Recoverable waste and scrap is sold on payment of Custom duty as mandated under sub section (2) of section 65 of Customs Act, 1962. However, they are not paying any duty in respect of quantity of burning loss.
SCNs came to be issued demanding custom duty on the quantum of burning loss contending that in terms of section 65(2)(b), the quantity of waste and scrap also includes the short quantity said to be burning loss.
The demands were confirmed by the lower authorities and so the appellant is before the CESTAT.
The appellant submitted that what is spoken of in section 65(2)(b) of the Customs Act is physical waste and scrap that arises during the manufacturing and which is cleared from the warehouse for home consumption; as regards burning loss, no material exist and, therefore, since no clearance takes place of burning loss no custom duty is required to be paid. Reference is also made to the SION norms in respect of final product Seamless steel pipes and tubes wherein for 1 kg of seamless pipes and tubes, the raw material i.e. alloy, non-alloy, round, bar allowed to be imported is 1.20 kgs which evidences that in the FTP the norms are fixed taking in to account the waste and scrap and also burning loss in every process. Reliance is placed on the decisions in Western Metal Caps Ltd. - 2004-TIOL-396-CESTAT-MUM, Hindustan Copper Ltd. - 2013-TIOL-327-CESTAT-MUM, Ram Steel Rolling & Foregoing Mills - 2006-TIOL-1425-CESTAT-MUM, Paras Fab International - 2010-TIOL-963-CESTAT-DEL-LB.
The AR justified the demands and cited the decision in Cochin Shipyard Ltd. - 2011-TIOL-869-CESTAT-BANG.
The Bench noted that the Raw material for manufacturing of Seamless pipe was imported by the appellant under notification no. 20/99-Cus dated 28/2/99 (Sr. NO. 183).
After extracting the said entry of the notification, the CESTAT observed -
+ It can be seen from the notification and condition-35 appended thereto that the exemption in respect of raw material has been provided for manufacturing the goods in accordance with the provision of section 65 of the Customs Act, 1962. The burning loss is occurring during the course of manufacture of final product i.e. seamless pipes. The burning loss is nothing but quantity consumed in the manufacture and become invisible. Therefore, exemption notification is applicable even on the quantity of the burning loss.
+ On careful reading of Section 65(2)(b) of Customs Act, 1962, it applies only to such waste and scrap which resulted from manufacturing operations and are cleared from the warehouse for home consumption. In the present case the burning loss does not exist physically, therefore it is neither capable of being cleared from the warehouse nor factually cleared from the warehouse. Therefore, the burning loss occurred in the manufacturing process is nothing but the consumption in the manufacture, though physically not available, hence, the same does not get cleared from the warehouse. With this fact, the burning loss will not fall under the clause (b) of Section 65(2). Accordingly, no duty can be charged on non-existent quantity of burning loss.
++ It is very important to note that in any processing industry, apart from recoverable waste and scrap, smaller part of the burning loss is also generated. Keeping this aspect into mind the legislators consciously made explicit provision for levy of custom duty on the waste and scrap, which is physically available and cleared from the warehouse. However, as regard the burning loss, no such explicit provision was made. This might be for the reason that the quantity of imported material consumed in the final product includes burning loss also as it has same nature as the raw material which gets consumed in the manufacturing of final product.
Taking a cue from the LB decision in Paras Fab (supra) the SMB held that it is clear that the quantity of burning loss, since, neither cleared out of the custom bonded warehouse for home consumption nor otherwise disposed of, but factually it got consumed in the manufacturing, no custom duty is leviable on the same.
The decision of Cochin Shipyard Ltd. relied upon by the AR was distinguished by noting that the facts involved therein were relating to physical waste and scrap but not invisible burning loss.
Holding that the orders of the lower appellate authority are unsustainable, the same were set aside and the appeals were allowed with consequential relief.
(See 2015-TIOL-16-CESTAT-MUM)
