Jammu & Kashmir and Ladakh High Court Holds M.S. Scrap Generated During Manufacture of TMT Bars Eligible for Budgetary Support Reimbursement

Background and Context
The petitioner, a manufacturing unit engaged in the production of TMT/CTD Bars and related steel products, sought reimbursement of State taxes under the Budgetary Support Scheme following the introduction of the GST regime. The petitioner had previously availed area-based excise duty exemptions under earlier Central notifications and, after substantial expansion, was recognized as an eligible unit for budgetary support under both Central and State schemes.

Issue and Submissions
The dispute arose when the State Tax Authorities rejected the petitioner’s claim for reimbursement on the sale of M.S. Scrap, contending that such scrap did not fall within the category of ‘specified goods’ as defined under State Notification No. 519 dated 21.12.2017. The petitioner argued that the scrap, consisting of non-standard lengths and edge cuttings generated during the manufacturing of TMT/CTD Bars, was a manufactured product and had always been treated as such under the pre-GST regime. The petitioner further contended that the Central authorities had allowed reimbursement on such sales and that the State’s refusal was unjustified.

The respondent State maintained that the petitioner was registered only for the manufacture of TMT/CTD Bars and not for scrap, and that the scheme limited reimbursement to goods for which the unit was specifically registered. The State argued that scrap was merely a residue and not a specified good under the notification.

Court’s Reasoning
The High Court examined the relevant clauses of SRO 519, which define ‘eligible manufacturing unit’ and ‘specified goods.’ The Court noted that ‘specified goods’ are those manufactured by the industrial unit as permitted by the relevant authorities, excluding only those listed in Annexure-A of the notification. The Court observed that the exclusionary list in Annexure-A did not include M.S. Scrap, and that the respondent had admitted the scrap was an inherent residue of the manufacturing process for TMT/CTD Bars.

The Court emphasized that the scrap in question, though non-standard in size, retained the essential character of the finished TMT/CTD Bars and had undergone the same manufacturing process. The Court found that the State’s refusal to grant reimbursement on the ground that the petitioner was not registered for scrap was not justified, especially since the Central authorities had recognized such sales for reimbursement.

Decision and Legal Principle
The High Court held that the order dated 01.07.2022, by which the State had declined reimbursement for the sale of M.S. Scrap, was unsustainable in law. The Court quashed the impugned order and directed the respondent to reconsider the petitioner’s claim in light of the Court’s observations and the applicable notifications, and to pass a reasoned order within one month.

The Court’s ruling clarifies that M.S. Scrap generated as a necessary residue during the manufacture of TMT/CTD Bars is to be treated as a ‘specified good’ for the purposes of budgetary support reimbursement, provided it is not expressly excluded by the relevant notifications. The same principle was applied to a connected petition involving identical issues.

This decision provides important guidance on the interpretation of eligibility for budgetary support schemes in the context of manufacturing residues and clarifies the scope of ‘specified goods’ under the relevant State and Central notifications.