2001 (11) TMI 172 - AT - Central Excise

Summary

Issues:
- Demand of duty on waste/scrap/parings generated during the manufacturing process
- Classification of waste/scrap/parings under Chapter sub-heading 4702.90 of Central Excise Tariff Act
- Invocation of longer period for raising the demand
- Applicability of Modvat credit
- Whether waste/scrap/parings are dutiable goods
- Imposition of penalty and interest

Analysis:

1. Demand of duty on waste/scrap/parings:
The Commissioner confirmed a demand of duty amounting to Rs. 23,20,000 on the appellant for using waste/scrap/parings generated during the manufacturing process of printed paper board boxes. The appellant argued that the scrap generated before the manufacturing operation starts should not be subjected to duty as it does not result from the manufacturing process. They contended that the scrap does not undergo a transformation to become a new substance, which is essential for classification as manufactured goods.

2. Classification under Chapter sub-heading 4702.90:
The Department classified the waste/scrap/parings under Chapter Heading 4702.90 as 'recovered (waste and scrap) paper or paper board.' However, the Tribunal noted that the waste generated during the manufacturing of match boxes was essentially the same material as the input paper and paper board. As no new substance with distinct characteristics was created, the waste could not be considered as dutiable goods, especially since the input materials were already duty paid.

3. Invocation of longer period for raising the demand:
The appellant argued against the invocation of a longer period for raising the demand, stating that there was no suppression or misstatement. They believed in good faith that the waste generated was not dutiable. The Tribunal found merit in this argument and set aside the demand, penalty, and interest charges.

4. Applicability of Modvat credit:
The appellant also raised the issue of Modvat credit, stating that even if the Department's contention was upheld, they should be entitled to Modvat credit. They argued that the credit on paper and paper board would offset the duty payable on waste/scrap/parings, leaving a balance in the Modvat account.

5. Imposition of penalty and interest:
The Commissioner had imposed a penalty of Rs. 23,20,000 and ordered the payment of interest under Section 11AB of the Central Excises Act, 1944. However, the Tribunal, after considering the arguments and submissions made by both parties, set aside the penalty and interest charges, ruling in favor of the appellant based on the lack of value addition and the absence of a distinctly new substance in the manufacturing process.

In conclusion, the Tribunal allowed the appeal, holding that waste/scrap/parings generated from duty paid paper and paper board did not constitute dutiable goods as they did not result in a new and distinct product. Consequently, the demand of duty, penalty, and interest were set aside, emphasizing the absence of value addition and the repeated taxation of the same product.