2006 (10) TMI 306 - AT - Central Excise

Summary

Issues:
1. Whether the machinery parts disposed of as scrap by the appellant were dutiable under Central Excise Act.
2. Whether penalty under Section 11AC can be imposed on the appellant.
3. Whether the machinery parts removed without payment of duty were correctly classified as "waste and scrap" falling under a specific heading.

Analysis:
1. The appellant, a sugar and molasses manufacturer, disposed of machinery parts as scrap. The department alleged the goods were "waste and scrap" and demanded duty. The appellant contended the goods were discarded due to wear and tear, not involving manufacturing activity. The Deputy Commissioner confirmed the duty demand and imposed penalties. The Commissioner (Appeals) partially upheld the demand and penalties. The Tribunal noted the lack of evidence proving the goods were "waste and scrap" as defined. The burden of proof was on the Revenue, which was not discharged. The demand of duty and penalties were set aside in favor of the appellant.

2. The proposal for imposing Section 11AC penalty was contested. The Deputy Commissioner dropped the penalty for a specific period, which was upheld by the appellate authority. The Tribunal dismissed the department's appeal against dropping the penalty. The appellant's appeal against the penalty was allowed, as no mens rea was involved in removing the goods.

3. The definition of "waste and scrap" under Section Note 8(a) was crucial. The department argued that some machinery parts were unusable due to wear and other reasons, falling under the definition. However, the Tribunal found the department failed to prove how much of the goods arose during manufacturing. The appellant was registered for sugar and molasses production, not for manufacturing machinery parts. The demand of duty was unsustainable as the goods were not proven to be "waste and scrap" under the specific heading. The Tribunal relied on a previous decision where the burden of proof was on the Revenue, not met in this case.

In conclusion, the appellant's appeal was allowed, setting aside the duty demand and penalties. The department's appeal against dropping the penalty was dismissed. The Tribunal emphasized the importance of proving goods as "waste and scrap" under the relevant classification for imposing duty.