2024 (2) TMI 614 - AT - Central Excise

Classification of goods - scrap-veg-refuse - classifiable under Chapter Heading 23080000 as vegetable waste as claimed by the Appellant or potato starch classifiable under Chapter Heading 1108 as claimed by the Department? - HELD THAT - The HSN explanatory notes clearly provide that the potato starch falling under Chapter Heading 1108 shall be physically in white powdered form, however, in the present case, the scrap-veg-refuse is physically in the form of a wet paste. It is seen that the only reason for upholding demand against the Appellant No.1 is on the basis that the said scrap-veg-refuse has starch contents in it. Here, it is noted that just because the product has some starch contents does not qualify it as potato starch classifiable under Chapter Heading 1108. It has been held by the Tribunal in the cases cited supra that mere presence of certain elements of starch in the residue or scrap does not take it out of the purview of a waste or residue and the Department has to bring sufficient evidence to establish that the said product is not residue or waste. The impugned goods is not a manufactured product as per Section 3(1) of the Central Excise Act, 1944, which mandates that excisable goods must come into existence as a result of manufacturing process so as to attract the levy of excise duty; whereas in the present case, scrap-veg-refuse came into existence pursuant to process of recycling of waste water, undertaken only to reuse the reusable water content in the waste water - further, test report of Central Revenue Control Laboratory produced by the Revenue, is not conclusive as it only states that the sample tested positive for starch without going into the details of the composition of the sample and has not given any conclusive proof. The impugned orders are not sustainable in law and therefore, are set aside - Once, the demand itself is set aside, the question of interest and penalties on the Appellant No.1 and Appellant No.2 does not arise - appeal allowed.

Summary

Issues Involved:
1. Classification of the impugned goods 'scrap-veg-refuse'.
2. Whether the impugned goods are a manufactured product.
3. Validity of the test report by Central Revenue Control Laboratory.
4. Applicability of exemption notifications.
5. Invokation of extended period of limitation and imposition of penalties.

Summary of Judgment:

1. Classification of the Impugned Goods 'Scrap-Veg-Refuse':
The primary issue was whether 'scrap-veg-refuse' should be classified under Chapter Heading 23080000 as vegetable waste or under Chapter Heading 1108 as potato starch. The Tribunal found that the HSN explanatory notes for Chapter 1108 indicate potato starch should be in white powdered form, whereas the 'scrap-veg-refuse' was in the form of wet paste. The Tribunal held that the mere presence of starch content does not classify the product as potato starch under Chapter Heading 1108. The Department failed to provide sufficient evidence to prove that the product was not waste or residue.

2. Whether the Impugned Goods are a Manufactured Product:
The Tribunal concluded that 'scrap-veg-refuse' is not a manufactured product as per Section 3(1) of the Central Excise Act, 1944. The product came into existence from the process of recycling waste water to reuse the water content, not from a manufacturing process aimed at producing 'scrap-veg-refuse'.

3. Validity of the Test Report by Central Revenue Control Laboratory:
The test report provided by the Revenue was deemed inconclusive as it only stated that the sample tested positive for starch without detailing the composition of the sample. Therefore, the report could not be relied upon as conclusive proof.

4. Applicability of Exemption Notifications:
The Tribunal found that the impugned goods were exempt from excise duty under Notification No. 89/1995-CE dated 18.05.1995 and Notification No. 27/2011-CE dated 24.03.2011. The waste, pairing, and scrap arising during the manufacture of exempted goods were exempt from excise duty, and the appellant's case was covered by the relevant judicial decisions cited.

5. Invokation of Extended Period of Limitation and Imposition of Penalties:
Since the demand itself was set aside, the question of interest and penalties on the appellants did not arise. Consequently, all six appeals were allowed.

Conclusion:
The impugned orders were set aside, and all six appeals were allowed. The Tribunal ruled that the 'scrap-veg-refuse' was correctly classified under Chapter Heading 23080000, was not a manufactured product, and was exempt from excise duty under the relevant notifications. The test report was deemed inconclusive, and penalties were not applicable.