2006 (11) TMI 389 - AT - Central Excise

Summary

Issues involved: Appeal against Order-in-Appeal confirming demand of excise duty on MS Scrap generated by manufacturers of Cotton Yarn, imposition of penalty under 11AC of Central Excise Act, 1944, challenge to applicability of Cenvat Credit Rules, 2002, and penalty leviability when duty is paid before Show Cause Notice.

Details of the judgment:

1. The appellants, manufacturers of Cotton Yarn, were demanded Rs. 35,520/- for clearing MS Scrap, with a penalty of Rs. 99,055/- imposed under 11AC of the Central Excise Act, 1944. The contention was that the MS Scrap arose from worn-out spares and machine parts, not subject to excise duty as they do not manufacture iron or steel. The Commissioner (Appeals) upheld the demand, citing generation of scrap from capital goods with availed Cenvat credit. The appellants challenged this order.

2. The Chartered Accountant for the appellants argued that waste and scrap are dutiable only if a manufactured product, citing relevant case laws. They emphasized the absence of provision in Cenvat Credit Rules, 2002 for duty on scrap from capital goods. Referring to sub-rule 5(A) of the Rules effective from 16-5-2005, they contended that duty on capital goods as waste and scrap is applicable only post this date, making the demand for the period from January 2001 to March 2003 invalid.

3. The Judge noted that the appellants do not manufacture iron or steel, nor undertake fabrication work, with scrap arising from worn-out machinery parts. They highlighted that the duty demand was unsustainable as the relevant rule came into effect after the disputed period. Chapter Note 8(a) of Section XV applies to metal waste and scrap from metal working, not applicable in this case. Consequently, the impugned order was set aside, and the appeal was allowed.

Separate Judgment:
No separate judgment was delivered by the judges in this case.