2008 (1) TMI 92 - AT - Central Excise

Demand raised under Note 8(a) to Section XV of CETA on scrap cleared of used machinery - department has no case that the impugned goods had arisen in a process of manufacture or mechanical working of metals & metal goods - department has also no case that these are capital goods on which credit had been availed and removed as such - so the impugned goods could not be subjected to duty as waste and scrap under Section XV

Summary

Issues:
1. Demand of duty on scrap of used machinery and spares
2. Imposition of penalty under Section 11AC
3. Sustainability of impugned order by Commissioner (Appeals)

Analysis:

Issue 1: Demand of duty on scrap of used machinery and spares
The case involved M/s. Sri Vignesh Yarns Private Ltd. clearing scrap of used machinery and spares during a specific period. The Deputy Commissioner demanded an amount under Section 11A (1) of the Central Excise Act, along with a penalty under Section 11AC and interest on the confirmed duty. The Commissioner (Appeals) upheld the original authority's decision. The consultant for the appellants argued that the goods were scrap of construction materials and machinery for which no capital goods credit was availed. The duty was not demanded on waste construction material or machinery without credit. The impugned goods were considered dutiable under Note 8(a) to Section XV of the Central Excise Tariff Act, as argued by the Ld.SDR. However, the Tribunal found that the impugned goods did not fall under the definition of 'waste and scrap' as per Section XV and that the department failed to prove that duty was payable on the cleared items. Therefore, the demand for duty on the scrap was deemed unsustainable.

Issue 2: Imposition of penalty under Section 11AC
The penalty under Section 11AC was imposed alongside the duty demand. The appellants contended that the impugned order was not sustainable in law and should be set aside. The department argued that the penalty was justified as the appellants had not demonstrated that the cleared goods were not dutiable items or scrap of machinery on which credit was availed. However, the Tribunal found that since the duty demand itself was unsustainable, the penalty imposed under Section 11AC also could not be upheld.

Issue 3: Sustainability of impugned order by Commissioner (Appeals)
The Commissioner (Appeals) had upheld the original authority's decision, which was subsequently challenged by the appellants. The Tribunal reviewed the case records and submissions from both parties. It was observed that the department failed to establish that the duty was payable on the cleared items. The lower authorities assumed that the appellants clandestinely removed the goods without proving that they attracted Central Excise duty. The onus was on the department to prove duty liability, which was not adequately demonstrated. As the impugned order was found to be unsustainable due to lack of evidence supporting duty liability, it was set aside, and the appeal was allowed.